Civil Lawsuits During Divorce: Marital vs. Separate Property
A primary component of a divorce is the division of debts and assets between the parties. Many divorce cases involve the simple dividing bank accounts, properties, and vehicles. However, “marital property” can also consist of more complex assets, such as business interests, assets with vesting schedules, and awards. Less frequently but importantly, some divorces involve the division of personal injury or employment-related monetary awards (i.e., workers’ compensation, harassment, wrongful termination, contingent fees). This analysis case-specific and can be complicated. Colorado treats workers’ compensation claims and personal injury claims differently in dissolution cases.
Marital vs. Separate Property
In determining whether and how to divide a financial interest, the Court must first determine whether such interest is “property.” If an interest is determined to be property, then the Court must determine whether the property is marital or separate for purposes of dividing the marital property.
Under §14-10-113, C.R.S., all property acquired during the marriage is presumed to be marital property, subject only to four specifically enumerated exceptions:
- Property acquired by gift or bequest;
- Property acquired in exchange for property acquired prior to the marriage;
- Property acquired after a decree of legal separation; and
- Property excluded by valid agreement. §14-10-113(2)(a)-(d), C.R.S.
Once the Court determines that a property interest is marital, the Court must then determine an equitable (not necessarily equal) division based on all relevant factors, including those enumerated by §14-10-113(1)(a)-(d), C.R.S.Among these are the value of the estate to be divided; the financial condition of the parties; the ability of each spouse to earn money; how the property was acquired; the age and status of the parties, and all pertinent facts and circumstances bearing on the question.
A majority of equitable distribution states (i.e., Colorado) use the “analytic” approach, turning to the elements of the damages that the award is intended to compensate. See In re Marriage of Smith, 817 P.2d 641 (Colo. App. 1991). In Smith, the Court reversed the trial court’s ruling that a claim for workers’ compensation benefits, which was pending and unliquidated at the time of the dissolution, was marital property subject to division because the claim accrued during the marriage.
The Court adopted the “analytical” approach pursuant to which classification of marital v. separate property turns on the loss that the particular workers’ compensation award is intended to remedy. Under this approach, a workers’ compensation award is marital property only to the extent it compensates the recipient for lost marital wages. To the extent it compensates for post-dissolution loss of earning capacity, it is not marital property even if the compensable injury occurred during the marriage.
In In Re Marriage of Vogt, 773 P.2d 631 (Colo. App. 1989) the Court held that Husband’s interest in the proceeds of two unliquidated, outstanding contingency fees were marital property.
Similarly, Rieger v. Christensen, 529 P.2d 1362, 1366 (Colo. App. 1974) held that a bonus earned during the marriage is marital property even if paid post-decree. The fact that a claim or benefit accruing during the marriage is not realized until after the Decree does not change the property’s character.
Personal Injury Claims
A personal injury award will almost certainly affect the outcome of the division of the marital estate in a Colorado divorce, regardless of whether it was the result of a negotiated settlement, or a jury verdict. They are both income and property, and while an injury may have occurred at one time, the payout may be structured over time, or the payout may be intended to cover an injury that lasts a lifetime. The basic rule in Colorado is that, the timing of the injury determines whether the personal injury award or settlement is marital or separate property.
There is no definitive caselaw determining whether a personal injury award or settlement is marital, as it is a fact-specific analysis. In 1983, the Colorado Court of Appeals issued the seminal decision addressing for the first time how domestic relations courts should treat personal injury settlements in a divorce. In re: Marriage of Fjeldheim. 676 P.2d 1234 (Colo. App. 1983). During the marriage, the wife was in a vehicle accident, and received a $7000 settlement. The trial court, while correctly finding that the settlement was property, found it was not marital property, as it was compensation for the wife’s pain & suffering. The husband appealed, and the Court of Appeals reversed the trial court’s decision.
The Court did note, however, that the trial court has broad discretion in determining the equitable distribution of property, and that their holding should not be interpreted to mean that husband should get a particular amount or proportion of the award. Instead, the court determined that such personal injury awards should be considered marital and should not be excluded from the equitable division of assets.
Then, in In re Marriage of Fields, 779 P.2d 1371 (Colo. 1989) the Court held that an unliquidated personal injury claim arising during the marriage was marital property subject to division. An “unliquidated” claim is one where the value is not yet certain as no settlement or jury award has been paid.
However, where no claim had been filed by the time of dissolution, the opposite result was reached. In In re Marriage of Balanson, 996 P.2d 213 (Colo. App. 1999), reversed on other grounds, 25 P.3d 328, the wife and daughter were injured during the marriage, and had a potential Personal Injury Protection (PIP) benefits claim. However, the wife had not filed any claim, neither spouse listed the potential claim as an asset on their financial statements, and there was no evidence presented about the value of the claim. The trial court valued the claim as part of the marital estate, but the Colorado Court of Appeals reversed, finding the claim too speculative, and remanded it to the trial court for more detailed findings.
It is important to remember that every employment or personal injury claim present a unique set of circumstances, which can alter the Court’s analysis. If you or your spouse have been injured during the marriage or are subject to a potential employment related claim, contact the experienced attorneys at GEM Family Law to discuss how this situation may impact your divorce or separation and how to best approach this complicated issue in your case.
Authored by: Tyler Lambert, Associate Attorney