Equitable Distribution of Marital Assets
Most states divide marital assets and liabilities according to the principles of “equitable distribution,” while other states use the “community property” system of asset division. Iowa is among the equitable distribution states, whereas states such as California, Texas, Washington, use the community property system.
All marital property is subject to equitable distribution between the parties in a divorce. “Equitable” does not necessarily imply an “equal” division of assets. Courts generally consider several factors when determining how to divide marital assets, including the parties’ economic needs, the duration of their marriage, and the parties’ financial obligations, among other factors. Some state courts presume that an equal division of marital assets is “equitable,” requiring the parties to prove why deviating from an equal split is more equitable.
So what constitutes marital property subject to equitable distribution upon divorce? All property that the couple acquired while married constitutes “marital property” subject to division upon divorce. As a corollary, all property a party acquired before marriage and after divorce qualifies as their sole and separate property, which is not divisible upon divorce.
For example, paychecks you received before getting married are considered your separate property and are not divided during divorce proceedings. Conversely, paychecks you received after getting married but before getting divorced are regarded as marital property and are subject to equitable distribution.
Damages in Personal Injury Cases
When one sues for compensation in a personal injury case, the initial pleadings typically divide damages into different categories. First, damages may be distinguished between “economic damages” and “non-economic damages.”
Examples of economic damages include:
- Medical bills
- Lost wages
- Attorney’s fees
Examples of noneconomic damages include:
- Pain & suffering
- Mental anguish
- Loss of enjoyment of activities
Damages can be further categorized into “special damages” and “general damages.” For example, financial losses that are a direct result of the injuries the defendant caused are considered special damages and require specific proof as to the amounts of costs. Medical bills and lost wages are typically considered to be “special damages” because they can be easily quantified by submitting bank statements and other financial documents as evidence.
In contrast, “general damages” are losses that “naturally flow” from one’s injuries but are not readily quantifiable in dollar amounts. For instance, pain and suffering naturally result from an injury. However, the degree of pain and suffering cannot be ascertained and converted to a specific dollar amount.
However, the money one wins from a successful personal injury case represents “property” and is therefore inherently divisible if it can be characterized as marital property and not a separate asset.
The “Mechanical Approach”
To determine the marital or separate character of property, courts generally look at the date of acquisition. For example, to determine whether a car is marital or separate property, courts are concerned with whether it was purchased during marriage or not. Thus, determining the date of acquisition is vital for issues involving the equitable distribution of assets upon divorce.
Importantly, personal injury damages aren’t “acquired” in the same sense as one would purchase personal or real property. One could simply characterize personal injury damages based on when the plaintiff actually received payment from the defendant. However, some courts recognized that this would not be fair in cases involving delayed payments after years of litigation.
As a result, some courts take a “mechanical approach” to characterizing personal injury damages, holding that the date that the plaintiff’s right to sue arose can be treated as the date of acquisition for purposes of dividing marital assets. For example, if a couple was injured in a car accident one year before filing for divorce, but the defendant or their insurance company didn’t pay up until one year after the divorce, courts consider the damages award to be marital property. This is because the accident that injured the couple occurred during the marriage.
The “Analytic Approach”
Other jurisdictions look to the purpose and function of the damages award to determine how it should be treated upon divorce. Many courts have held that the portion of a damages award representing financial losses that the parties covered with their own income constitutes marital property. However, the part of a damages award that compensates the injured spouse for losses they personally suffered is not marital property, but rather the injured spouse’s separate property.
As a result, the part of a personal injury damages award reimbursing the plaintiff for medical bills resulting from the defendant’s tortious conduct constitutes marital property because marital earnings were presumably used initially to cover the injured spouse’s medical costs.
Furthermore, wages are generally considered marital property—therefore, the part of a damages award meant to compensate the plaintiff for lost wages may also qualify as marital property. Conversely, general non-economic damages like “pain and suffering” are intended to compensate the injured plaintiff for the pain they personally experienced, not for the non-injured spouse’s pain.
Other equitable distribution jurisdictions take a modified approach to characterizing personal injury damages. This approach first uses the “mechanical approach” to characterize the damages as marital or nonmarital property. After determining the character of the asset, the modified approach relies on the “analytic approach” to figure out exactly how to split the damages award.
For Legal Advice, Consult Hope Law Firm
The equitable distribution of marital assets and liabilities can be extremely complicated. You stand to benefit from the sophisticated legal representation of an experienced attorney from Hope Law Firm. We have years of experience successfully handling different family law matters in Des Moines, including the division of special assets like personal injury damages.
Contact Hope Law Firm online or call us at (515) 305-2772 to schedule a case evaluation with a member of our dedicated legal team today.