How Are Funds From A Wrongful Death Settlement Handled In Divorce?

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Litigating a wrongful death suit is challenging enough. Wrestling over the proceeds from the case in a divorce can be even more difficult. However, money from a personal injury lawsuit is treated the same as any other asset during a separation, and whether the court will order both parties to share the proceeds or allow one party to keep all the money will depend on a number of factors.

Who Was the Decedent?

Possibly the primary determinant of how the proceeds from a wrongful death suit will be handled is who the decedent was to the survivor(s). If the deceased person was the biological child of both parents, then the court will treat the award like marital property and split the money between both parties based on state laws and other factors such as any income disparity between the couple.

However, things become a little less definitive if one person is the stepparent of the deceased child or the decedent was a family member of only one of the parties. In general, the money would be considered to be the separate property of the spouse who received it.

For instance, a woman's child dies as the result of medical malpractice. However, the man she's married to is the child's stepfather. The stepfather would not be entitled to any of the court award in a divorce since he doesn't have a biological relationship to the child and divorce ends any legal rights the husband had to the kid.

The same rule applies if the decedent was the survivor's parent, grandparent, or sibling. In most states, the money the person receives would be treated like an inheritance, which is not typically considered marital property.

Exceptions to the Rule

Things aren't always so clear cut, though, and there are times when the proceeds from a wrongful death suit may be considered marital property even if the decedent had no relation to one of the divorce parties. One exception to the rule is if the spouse that receives the money used comingled funds or marital resources to pay for care for the decedent.

Returning to the example of the deceased child, the mother may be required to repay the stepfather if she paid for her son's medical care using joint funds in the couple's checking account or the child was listed on—and thereby used—the stepfather's medical insurance. She may also be required to use some of the wrongful death award to pay any debts the family incurred caring for the child.

Another exception is when the person does something to convert the award from separate property to marital property. The most common way this occurs is when the person comingles the money with other marital cash. For instance, the person deposits the money into a joint checking account and pays some of the household bills. It can also happen if the person uses marital money to improve the non-marital asset. For instance, the person puts the cash into his or her retirement plan. Retirement accounts can be and are often divided among separating spouses, so some of the award money placed in it may be given to the soon-to-be ex-spouse.

Lastly, the money may be divided between the spouses if they live in a community property state such as California, Idaho, or Nevada. In these states, any money acquired during the marriage—with the exception of gifts and inheritances—is considered marital property and is split accordingly, regardless of who attains it. To be fair, though, debts are also typically split the same way no matter who acquires it.

Determining who has the right to a wrongful death award can be challenging task involving a lot of complexity. It's best to consult with a divorce attorney for assistance with protecting your rights to the money.

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26 October 2015