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THE IMPACT OF VARIOUS PERSONAL INJURY AWARDS ON
FAMILY LAW AGREEMENTS
By Carl A. Taylor III
Your client or their spouse has received or will receive monetary payouts for
personal injury, for workers’ compensation, or for employment discrimination; what
impact will receipt of such monies have on a subsequent divorce action or the drafting
of a prenuptial agreement?
With the potential for a myriad of nuances in this area of the law, New Jersey
family law attorneys should be cognizant of the proper distribution of such funds.
Likewise, attorneys whose practices emphasize plaintiff-side personal injury, civil
litigation, wills and estates, or workers’ compensation should be mindful of the
potential impact financial awards could have on clients’ family law matters. This article
will address the current state of New Jersey law regarding various types of tort or injury
awards and how we as practitioners can best protect our clients’ interests regarding the
interplay of family law and personal injury law.
PERSONAL INJURY TORTS
Personal injury matters stemming from “slip and falls” and car accidents are
among the most commonly encountered torts. With awards potentially ranging into six
figures and beyond, it’s imperative to understand how to address such awards in a
family law setting. The basic legal principal for the treatment of personal injury awards
in equitable distribution was enumerated in the New Jersey Supreme Court case
Landwehr v. Landwehr, 111 N.J. 491,495 (1988) (overruling DiTolvo v. DiTolvo 131 N.J.
Super. 72, App. Div. 1974). The Landwehr decision held that the portion of a settlement
intended to compensate for personal pain, suffering, and mental and physical
disabilities was personal and therefore is not subject to distribution. Likewise, any
award for loss of consortium to the non-injured spouse was not distributable to the
injured spouse and would therefore remain the non-injured spouse’s separate property.
Finally, any portion of a settlement compensating for lost earnings, medical expenses, or
the like, are subject to equitable distribution. The philosophy behind this determination
was that wages are generally marital in nature, and any reimbursement for lost wages
must therefore be distributed. Likewise, medical expenditures deplete the marital
estate. One interesting point not addressed directly by the case law is how such
distribution impacts alimony, or when such awards may lead to an inappropriate
“double dip.”
The Landwehr decision also informs that the injured spouse has the burden of
demonstrating what portion of his or her award represents separate property. As such,
to the extent a party seeking to avoid equitable distribution fails to prove a portion of an
award is separate; same must be classified as a marital asset subject to equitable
distribution
In the chancery division case Ryan v. Ryan, 283 N.J. Super. 21 (Ch. Div. 1993),
the court held that funds received for pain and suffering could be transmuted into joint
funds subject to equitable distribution when commingled between spouses, unless it is
demonstrated that there was no intent to so commingle and encumber the funds.
WORKER’S COMPENSATION AWARDS, DISABIILTY PENSION, MALPRACTICE,
EMPLOYMENT DISCRIMINATION
The “dual-classification” holding evidenced by Landwehr and its progeny forms
the cornerstone of the intersection between family law and personal injury awards. For
example, with respect to workers’ compensation awards, the portion of a workers’
compensation award attributable to loss of wages or reimbursement of medical
expenses is subject to equitable distribution. The portion of an award meant to
compensate a worker for permanent disability reducing future earning capacity,
however, is ordinarily not subject to equitable distribution. See Lentini v. Lentini, 236
N.J. Super. 233,565 (App. Div. 1989). Similarly, the portion of a disability pension
representing the retirement portion is subject to equitable distribution, whereas any
income compensation or reimbursement for personal loss from the disability would not
be subject to equitable distribution. See Avallone v. Avallone, 275 N.J. Super. 575, 58384 (App. Div. 1994), which also demonstrates how difficult a burden of proof it may
indeed be for a party seeking exemptions as to a disability share. The court in Weir v.
Market Transition Facility of New Jersey, 318 N.J. Super. 436 rendered the interesting
holding that an employer or carrier that provided workers’ compensation benefits to an
injured employee is generally barred from asserting a workers’ compensation lien
against that employee’s spouse’s per quod share of recovery obtained in any third party
action.
In the realm of medical malpractice, the same “dual-classification” principals
hold (Amato v. Amato, 180 N.J. Super. 210 (1981). In Amato the Appellate court also
addressed the issue of inchoate rights to sue for medical malpractice or other personal
injury. For instance, if a divorce is finalized at a time when such claims remain pending,
how should such inchoate rights be addressed? The Amato court made reference to the
utilization of special jury interrogatories utilizing R. 4:39-1, 2 to address the proper
disposition of such interests by way of future percentage (%) of any recovery. Although
this portion of the Amato decision rests strictly within the realm of dicta and therefore
lacks statutory or case-law weight, this demonstrates a likely outcome for a case
involving these issues should the parties fail to agree upon a reasonable allocation of
such inchoate rights. The Amato court also stated that if either party thereafter believed
the final determination of such rights was unfair, they could make application before a
family court judge to determine pro rata responsibility.
Regarding employment discrimination or similar such claims, although there are
no published cases directly on point, it is evident by analogy that any pain and suffering
attributed to an employment discrimination lawsuit would likely not be subject to
equitable distribution, whereas any lost wages or lost opportunities likely would be.
PUNITIVE DAMAGES
There is no New Jersey case directly on point addressing punitive damages.
Looking to other jurisdictions employing similar “dual classification” principals, case law
is similarly scarce. In Lundquist v. Lundquist, 923 P 2d 42 (Alaska, 1996), the Supreme
Court of Alaska held that punitive damage award distribution in a divorce should mirror
the percentage (%) of the claim awarded to each party underlying the punitive damages.
It is likely New Jersey courts would follow this or a similar approach should this issue
arise. As a practical matter, it would be rare in actual practice to come across a divorce
case where distribution or division of punitive damages would be in issue. If so,
Lundquist provides a roadmap for arguments to be made. If you are representing the
spouse seeking a share of punitive damages greater than that afforded by Lundquist,
you can look to non-“dual classification” jurisdictions to find case law supporting such a
position. In such instances, however, you should be aware that such arguments may be
strained in New Jersey courtrooms.
ADVISING CLIENTS REGARDING THE INTERPLAY BETWEEN PERSONAL INJURY ACTIONS
AND FAMILY LAW MATTERS
The first thing family law practitioners must do is ascertain whether or not
personal injury or related claims, whether actual or inchoate, may impact a case. This
issue should be discussed as early as the initial consultation. Both equitable distribution
and support obligations should be viewed through this lens to ensure an appropriate
outcome. If a matter is pending, you may wish to speak with your client’s personal injury
attorney, for example, to determine how the settlement may be structured. Care should
be given to not interfere with the personal injury attorney or to not inappropriately
meddle with the structure of such an award. Evidence should be maintained
throughout the process should a hearing be ordered involving inchoate personal injury
rights. To that end, discovery should be tailored—and perhaps depositions ordered—
addressing such issues to ensure that these issues are aggressively pursued and
resolved. Because pain and suffering is generally not taxable but lost wages generally
are subject to taxation, there is already an inherent incentive in personal injury actions
for the injured individual(s) to seek lump sum pain and suffering payouts. This course of
action, however, could potentially cloud a fair distribution of marital assets in a
subsequent divorce action as to the non-injured spouse. Cases such as Amato could, by
extension of legal argument, potentially provide the non-injured spouse an avenue of
collateral attack to seek a portion of such funds. Should the parties have children, even
more complex issues of trusts or allotment to children may become an issue in either
the personal injury action and/or the divorce proceeding. Care should also be given to
the date the injury accrued, as same may either trigger or bar equitable distribution to
the non-injured spouse.
Although family law attorneys and personal injury attorneys often attempt to
avoid any overlap between proceedings, such ensnarement may potentially occur. A
greater dialogue between both sets of practitioners, along with estate attorney
practitioners, will provide a more holistic approach to these types of issues. Such
dialogue along with a more nuanced understanding of the relevant case law can only
assist clients and those attorneys confronting such issues on a regular basis.
Carl A. Taylor III is a partner in Somerville, New Jersey based Cooper, Cottell, & Taylor,
LLC. Carl’s practice emphasizes family law, government law, and litigation. Carl can be
reached at 908-685-0900 and has a business address of 25 West High Street, Somerville,
New Jersey.