How are personal injury awards treated on divorce?
It would be logical to assume that a personal injury award which has been calculated to meet an injured spouse’s needs would be ringfenced on a divorce. This is not however the case, personal injury awards may be shared if the parties’ needs or those of their children cannot be met without recourse to it.
The Matrimonial Cause Act 1973
Section 25(1) requires the court to have regard to all the circumstances of the case and first consideration must be given to the welfare of any minor children of the family.
Section 25(2) requires the court to apply a checklist of factors which include the income, earning capacity and financial resources of the parties, their financial needs, obligations and responsibilities, the standard of living enjoyed during the marriage, the age of the parties and duration of the marriage, any physical or mental disability and the contributions that each of the parties has made or is likely to make in the future to the welfare of the family.
Whilst Section 25 prescribes the matters to which the court must have regard case law provides guidance on how the court achieves a fair result and how to apply the principles of need and sharing. The sharing principle will apply to all property unless there is good reason to depart from an equal division. A good reason can be the existence of non-matrimonial property (assets acquired prior to the marriage or post separation or received through inheritance, lifetime gifts or a personal injury award) as opposed to matrimonial property (these being assets acquired through the joint efforts of the parties during the marriage).
How has the personal injury award been used?
Much will turn on how the award has been used. An award that has been treated as a joint resource or intermingled with other matrimonial assets or used to purchase or improve the family home may be difficult to categorise as non-matrimonial property. There may also be difficulties in tracing the use of the award making it more susceptible to the sharing principle.
On the other hand, if an injury or disability is ongoing and the award has been kept separate and apart from the other resources of the couple the court is likely to exclude it from the matrimonial pot, provided the needs of the uninjured spouse and children can be met from an equal division of the matrimonial assets.
The needs of the parties and their children will always trump any other factors. If the uninjured spouse has no income or property of their own and they have during the marriage shared the benefit of the income or capital from the personal injury award, the court is likely to apply the award so far as is necessary to meet both parties’ needs.
The court’s first consideration must be the welfare of the children. If there’s not enough money to meet everyone’s needs, the children will take priority. In this situation the court may structure the settlement to provide for any property acquired for the benefit of the children to revert to the injured spouse when the children reaching the age of majority or are no longer financially dependent.
Conclusion on how personal injury awards are treated on divorce
Given the wide discretion of the divorce court and no guarantee that a personal injury award will be ringfenced and excluded from the sharing principle on divorce, anyone about to marry or already married and in receipt of a personal injury award should consider entering into a nuptial agreement.
A nuptial agreement can provide certainty of outcome in the event of a marriage breakdown and ringfence a personal injury award so that it remains intact for the benefit of the injured spouse.
The team at Watson Morris Family Law can help you navigate the law around personal injury awards on divorce. For an initial free no obligation discussion to see how we can help please contact us.
Written by Caroline Watson
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