Are Personal Injury Settlements Marital Property?

Key Takeaways

• Personal injury settlements can be marital property, separate property, or a mix of both, depending on state law, timing of the injury, and how the settlement funds are handled after receipt.

• Courts generally treat pain and suffering compensation as the injured spouse’s separate property, while portions covering medical bills paid during the marriage and lost wages are often considered marital property subject to division.

• Commingling depositing settlement funds into a joint bank account or using them for shared expenses like mortgage payments can convert what would otherwise remain separate property into marital property in many states. Commingling is often a critical factor in whether a settlement remains separate or becomes marital property.

• Community property states (California, Arizona, Texas) and equitable distribution states (New York, Illinois, Virginia) apply different rules, with community property jurisdictions often splitting the marital portion 50/50 and equitable distribution states dividing it “fairly” but not necessarily equally.

• Getting prompt legal advice and keeping settlement funds separate from joint accounts is critical if your goal is to preserve any personal injury compensation as non-marital property during divorce proceedings.

Introduction: How Divorce Can Affect a Personal Injury Settlement

Picture this: one spouse receives a $300,000 settlement from a car accident in 2023, and the couple files for divorce in 2024. Both parties assume the money belongs solely to the person who was injured. Then they learn that some or potentially all of that personal injury settlement may be divided between them. This scenario plays out more often than most people expect.

Whether a personal injury settlement is marital property depends on four main factors: state law, the type of damages awarded, the timing of the injury and payment, and what the spouses did with the settlement money after receiving it. These factors interact in complex ways that can surprise even experienced attorneys unfamiliar with the intersection of personal injury law and divorce law.

A personal injury settlement is money paid to resolve a claim for injuries caused by someone else’s negligence or wrongful conduct. This can include compensation from car accidents, motorcycle accidents, slip and falls, medical malpractice, workplace injuries, and similar incidents. The settlement typically covers various types of losses medical expenses, lost wages, pain and suffering, emotional distress, and future care needs.

So, are personal injury settlements marital property? The answer is almost never a simple yes or no. This article walks through how different states and courts actually answer this question in practice, breaking down the factors that influence whether settlement funds are considered marital property, separate property, or some combination of the two. Keep in mind that this is general information not case-specific legal advice and the rules in your state may differ from the examples discussed here.

What Is Marital Property vs. Separate Property?

Before diving into how courts treat personal injury settlements, you need to understand the basic framework that U.S. divorce courts use to divide property. Every state classifies assets as either “marital” (acquired during the marriage and usually shared between spouses) or “separate” (belonging to just one spouse).

Marital property typically includes:

• Wages and income earned by either spouse from the date of marriage to the date of separation

• Retirement account contributions made during the marriage

• Homes, vehicles, and investments purchased together or with marital funds

• Business interests acquired or grown during the marriage

• Essentially any property acquired between the wedding date and separation (for example, between 2015 and 2024 in a decade-long marriage)

Separate property generally includes:

• Assets owned by either spouse before the marriage. Personal injury settlements received before marriage are typically considered separate property.

• Inheritances received by one spouse, even during the marriage

• Gifts given specifically to one spouse

• Property explicitly excluded by a valid prenuptial or postnuptial agreement

• In many states, certain components of a personal injury award

The classification rules differ between community property states (like California, Arizona, Texas, and Washington) and equitable distribution states (like Colorado, Illinois, New York, and Virginia). However, the basic distinction between marital and separate property exists in both systems. Community property states generally split marital assets 50/50, while equitable distribution states divide them “fairly” which doesn’t always mean equally.

Here’s the critical point: even when something starts as separate property, it can become partially or wholly marital through contributions, improvements, or commingling. This transformation is particularly relevant for personal injury settlements, as we’ll see in the sections that follow.

Are Personal Injury Settlements Considered Marital Property?

Personal injury settlements are rarely classified as entirely marital or entirely separate. In divorce cases, courts must determine whether the settlement is separate or marital property, and settlements are not always split equally between spouses. Instead, courts typically divide them into components pain and suffering, medical bills, lost wages, loss of consortium, and other categories and determine whether each portion is marital or separate property.

The general pattern in equitable distribution states (like New York, Illinois, Virginia, and Colorado) looks like this:

• Pain and suffering, emotional distress, and permanent disability compensation are often treated as the injured spouse’s separate property because they compensate for personal, non-economic harm

• Past medical bills and lost wages incurred during the marriage are frequently treated as marital property because they replaced resources that would have supported the household

• Future medical expenses and loss of earning capacity may be classified differently depending on whether they relate to the marital period

Community property states often take a more aggressive approach to the marital share. Under California Family Code § 780, for example, any settlement for personal injuries arising during the marriage constitutes community property even if the proceeds arrive after separation so long as the cause of action originated while the couple was married.

Consider a hypothetical $400,000 settlement broken down as follows:

• $200,000 for pain and suffering: Likely treated as the injured spouse’s separate property in most states

• $100,000 for past medical expenses: Often considered marital property, especially if medical bills were paid from marital funds

• $100,000 for past lost wages: Typically marital property subject to division, as these wages would have supported the household

One complication arises when settlement funds are not itemized by type of damages in the judgment or release. When this happens, courts sometimes reconstruct or estimate the allocation based on the evidence presented leading to disputes between spouses during divorce proceedings about how much falls into each category.

Key Factors Courts Use to Decide if a Settlement Is Marital or Separate

Judges don’t have a simple formula for classifying personal injury settlements. Instead, they weigh several factors that influence whether settlement money is marital or separate property. No single factor is usually decisive; courts consider the full picture, including:

• Timing of the injury and settlement payment

• Nature of the compensation (economic vs. non-economic damages)

• Commingling and use of settlement funds after receipt

• State laws and jurisdiction-specific rules

The following subsections break down each of these critical factors in detail.

Timing of the Injury and Settlement

Courts distinguish between injuries that occurred before the marriage, during the marriage, after separation, and after divorce. The date of injury often matters more than the date of payment.

Example scenarios:

• Injury in 2012, marriage in 2015, settlement in 2018: Many courts treat most or all of this settlement as separate property because the injury predates the marriage unless marital funds were used to pursue the personal injury case

• Injury in 2020 (during marriage), settlement in 2023 while still married or just separated: Much more likely to involve a marital component that is subject to division

Some states explicitly address this in their statutes. Illinois, under 750 ILCS 5/503 and similar laws, classifies personal injury recoveries for injuries “during the marriage” as marital unless they fall under specific exceptions like pain and suffering compensation.

Structured settlements add another layer of complexity. If the settlement is paid as monthly checks that continue after separation or divorce, courts may treat payments differently based on when they are received and what they are replacing. Payments covering past lost wages during the marriage might be marital, while payments compensating for future disability might be separate.

Type and Purpose of the Compensation

Courts focus heavily on what each dollar is intended to replace. The purpose behind each damage category determines its classification more than the total settlement amount.

Typical treatment across many states:

Concrete example: In a 2022 personal injury lawsuit settlement where $150,000 is allocated to past lost wages while the couple was married, courts in many jurisdictions will treat that $150,000 as marital property and subject to division regardless of whether the check went to the injured spouse alone.

One additional wrinkle: if the settlement includes a spouse’s own claim (like loss of consortium or their independent emotional distress claim), that portion may belong to the non injured spouse, further complicating the classification of the overall personal injury award.

Commingling and Use of Settlement Funds

Commingling means mixing separate funds with marital funds in a way that makes it hard or impossible to distinguish one from the other. This happens when you deposit a separate settlement into a joint bank account and use it for mortgage payments, family vacations, or joint investments.

In many equitable distribution states, commingling can transmute separate property into marital property or at least give the non-injured spouse a marital interest that must be valued during asset division.

Example: The injured spouse receives $200,000 in 2021, deposits it into a joint account, and the couple uses it as a down payment on a family home. In subsequent divorce proceedings, courts may treat the home and thus much of the settlement as marital property because the settlement funds lost their separate character when they were commingled with joint funds.

To preserve the separate character of personal injury settlement funds (where permitted by state law):

• Keep personal injury settlement funds in a separate account titled only in your name

• Open the account shortly after receiving the settlement check

• Carefully track all deposits and withdrawals

• Avoid using settlement funds for recurring household or marital expenses

• Maintain detailed records that can trace the funds back to their original source

State Laws and Jurisdiction-Specific Rules

The two major systems governing property division in divorce create materially different outcomes:

Community property states (California, Arizona, Nevada, Texas, Washington) presume that most property acquired during marriage is community property owned equally by both spouses. In California, Family Code § 780 makes personal injury settlements received during marriage community property, though § 2603 limits the non-injured spouse’s share of non-economic damages to no more than 50%, with courts empowered to deviate when “interests of justice” demand it. In some states, personal injury settlements may also be treated as shared property, especially if the settlement funds are commingled with marital assets or if state law defines them as such, and prenuptial or postnuptial agreements can specify whether settlement money is considered marital or shared property.

Equitable distribution states (New York, Illinois, Virginia, Colorado, Florida) divide marital property “fairly” based on several factors including each spouse’s contributions, economic circumstances, and the purpose of various assets. Fairness doesn’t necessarily mean equally a court might award 75% of a settlement’s marital portion to one spouse and 25% to the other after weighing all relevant factors.

Some states explicitly identify which portions of a personal injury settlement are marital (often medical bills and lost wages) and which are separate (pain and suffering, future disability). Virginia Code § 20-107.3, for instance, allows courts to classify different components of a settlement differently based on what they compensate.

Even neighboring states may have materially different rules. If you’re facing divorce with a pending or received personal injury settlement, consulting an attorney who knows your specific state’s statutes and case law is essential.

How Prenuptial and Postnuptial Agreements Can Define Settlement Rights

Prenuptial agreements (signed before marriage) and postnuptial agreements (signed during marriage) can predetermine whether any personal injury settlement will remain separate property regardless of what state law would otherwise provide.

Well-drafted agreements can:

• Ensure that a personal injury settlement remains the injured spouse’s separate property, including all personal injury recoveries such as wages and medical reimbursements

• Address what happens with structured settlements and future claims that haven’t yet arisen

• Specify whether compensation for injuries during the marriage follows community property or separate property rules

• Provide clarity on how settlement funds should be titled and maintained

Legal requirements for enforceability vary by state but typically include:

• Full financial disclosure by both parties

• Each spouse having the opportunity to consult independent legal counsel

• No evidence of duress, fraud, or undue pressure

• The agreement being signed voluntarily with adequate time for consideration

Many states, including New York and Virginia, require these elements for a prenuptial or postnuptial agreement to be upheld in court.

Couples where one spouse works in a high-risk occupation (construction, trucking, healthcare) or has chronic health conditions may benefit from addressing potential personal injury claims in their agreements ahead of time. A family law attorney familiar with local statutes should draft or review such agreements to ensure the language about personal injury settlements is clear and enforceable.

Practical Steps to Protect a Personal Injury Settlement in a Divorce

When a personal injury settlement is involved in a divorce, it is crucial to take proactive steps to protect your financial interests and ensure the fair treatment of your compensation.

If divorce is possible or already filed, the injured spouse can still take lawful, transparent steps to preserve the separate portion of their settlement and minimize disputes over classification.

Keep settlement funds separate:

• Open a new bank account titled only in your name

• Deposit the settlement check directly into this separate account

• Avoid transferring any funds to joint accounts

• Document every deposit and withdrawal with dates and purposes

Retain all settlement documentation:

• The settlement release or court judgment

• Any itemized breakdown from the insurer specifying amounts for pain and suffering, medical bills, lost wages, and other categories

• Medical records and bills showing what was paid and from which accounts

• Employment records documenting lost income

Avoid commingling where feasible:

• Use marital funds not separate settlement funds for ongoing household expenses

• If you must use settlement money for shared purposes, keep meticulous records

• Understand that courts can scrutinize any transfers made during divorce proceedings

Coordinate your legal team:

• Consult with both a personal injury lawyer and a family law attorney early in the process

• Ensure your litigation strategy, settlement structure (lump sum vs. structured), and titling of assets account for potential divorce consequences

• If a personal injury case is still pending during divorce, both attorneys need to communicate about timing and allocation of any eventual recovery

Example: How a Court Might Divide a Personal Injury Settlement

Let’s walk through a concrete hypothetical to see how these principles apply in practice.

The facts: A couple married in 2014. One spouse was injured in a 2021 truck accident. A $600,000 settlement is paid in 2023, with the insurer providing an itemized breakdown.

The settlement breakdown:

• $250,000 for pain and suffering

• $150,000 for past medical expenses (paid from marital funds during the marriage)

• $150,000 for past lost wages (earned during the marriage)

• $50,000 for future medical expenses

How a typical equitable distribution state might treat this:

The court would likely classify the $250,000 for pain and suffering as the injured spouse’s separate property this settlement compensates for personal harm that belongs to the injured party alone. Similarly, the $50,000 for future medical expenses would probably remain separate property, as it addresses needs arising after the marriage ends.

However, the $150,000 for past medical expenses and $150,000 for past lost wages would likely be considered marital property subject to division. These amounts replaced resources that would have supported the household during the marriage. Under equitable distribution laws, the court would divide this $300,000 marital portion fairly which might mean 50/50, or might mean a different split based on factors like each spouse’s contributions and financial future.

What if the injured spouse commingled the funds?

If the injured spouse had deposited all $600,000 into a joint account and used the funds to pay off the mortgage and purchase a jointly titled rental property, the outcome changes dramatically. The court might treat the entire settlement or at least the portions that funded joint assets as marital property. The injured spouse would bear the burden of tracing any remaining separate funds through forensic accounting, which can be expensive and uncertain.

Different states, different outcomes: These same facts in Arizona (a community property state) versus Virginia (an equitable distribution state) could lead to different results based on local statutes and case law.

Frequently Asked Questions

Does my spouse get part of a personal injury settlement if the case is still pending when we file for divorce?

In most states, a pending personal injury claim is still considered a property interest that the divorce court can address. The court can divide or reserve jurisdiction over any eventual settlement or verdict stemming from injuries that occurred during the marriage.

Some courts will explicitly order that when the case resolves whether in 2025, 2026, or later the parties must apply the same marital vs. separate property rules that would have applied if the money had been paid before the divorce was final. This ensures the non injured spouse receives their share of any marital portion.

If you’re in this situation, tell both your divorce lawyer and your personal injury lawyer about the concurrent cases. Discovery requests and settlement negotiations in both matters should reflect the possibility of a marital interest in the eventual personal injury recovery.

Can my ex-spouse come after my personal injury settlement years after the divorce is final?

If the divorce decree or settlement agreement clearly addressed the personal injury claim and any future proceeds, your ex-spouse’s rights are usually limited to what the order says. They generally cannot reopen the matter without specific legal grounds like fraud or newly discovered evidence.

However, if the injury occurred during the marriage and the divorce paperwork was silent about the claim, some states allow limited post-judgment actions to address undisclosed or overlooked assets. The outcome depends on the exact language of your property division agreement and local law.

To prevent future disputes, anyone injured during a pending or recent divorce should explicitly address the claim and any potential future settlement in their final divorce paperwork.

Will my personal injury settlement affect child support or spousal support?

While the settlement itself may be classified as separate property, portions that replace income like lost wages or generate investment income can be considered when calculating your ability to pay child support or spousal support.

For example, if a parent receives a $500,000 settlement in 2024 and invests it, the resulting interest or dividends may be counted as income for support purposes, even if the principal remains separate property. Courts look at your actual financial resources when determining support obligations.

Each state’s support guidelines specify how courts should treat non-wage sources of income, and judges may have discretion to deviate from the guidelines in exceptional cases involving very large awards. Consult with a family law attorney to understand how your state treats settlement funds in support calculations.

Is a wrongful death or loss of consortium settlement treated the same way as a personal injury settlement?

Wrongful death claims usually belong to the surviving family members (spouse, children, or estate), and courts may classify those funds differently than a standard personal injury settlement belonging only to the injured person. The spouse entitled to wrongful death proceeds may receive them as separate property depending on state law.

A loss of consortium claim is often the non-injured spouse’s own separate claim. This means those damages can belong to the spouse who didn’t suffer physical injuries, which changes how much of the overall recovery is marital versus separate.

When a settlement includes multiple linked claims (injury, wrongful death, loss of consortium), the parties should insist on a written allocation specifying which portion belongs to which person. This documentation can be crucial if a later divorce court needs to divide the funds.

Are there tax consequences if part of my settlement is treated as marital property in the divorce?

Under current federal law, most damages for physical personal injury or physical sickness are not taxable income, whether classified as marital or separate property. However, punitive damages and some interest components can be taxable.

Transfers of property between spouses “incident to divorce” are generally non-taxable events under federal tax rules. But the long-term tax impact including capital gains on invested settlement funds, lost deductions, and state tax treatment can still be significant depending on how the division is structured.

Anyone negotiating division of a substantial personal injury settlement should speak with a tax professional or financial planner in addition to their attorneys. Understanding how different division options affect your after-tax position over time can save thousands of dollars and prevent surprises at tax time.