Personal Injury, Equitable Garnishment and Divorce

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It is not uncommon for a spouse to suffer an injury during the marriage – it could be an auto accident, for example, or a work-related injury.  When this happens, the injured spouse suddenly loses the ability to earn, incurs medical expenses, and has pain and suffering. Depending upon the severity of these injuries, the injured spouse could have a permanent reduction in earning capacity and substantial future medical expenses.

In our legal system, work-related injuries are handled through workers compensation claims.  So long as the injury was in fact work-related, the employer has to pay for the injury – both medical expense reimbursement as well as a “disability rating” payment.  All other injuries end up handled through the tort process, where the injured party files a lawsuit against the tortfeasor and either settles the claim or takes the case to a jury.  Payment for personal injury cases can be in lump sum amounts or annuities if a lifetime disabling injury.

What happens when, after an injury but before receiving compensation for the injury claim, the injured spouse files for divorce?

In Missouri, injury claims are not all considered marital property.  Rather, courts tend to look at the components of the settlement and determine if they have a marital portion.  For example, if a spouse is injured an incurs debts for medical expenses, those expenses are clearly marital as long as they were incurred during the marriage.  And any loss of income during the marriage that the settlement aims to replace also would qualify as marital property. But the pain and suffering component of the award would be solely for the injured spouse, though often these claims have “consortium” components built into them – awards for the loss of the intimacy of a relationship that often is earmarked for the non-injured spouse.  Also, the part of the award intended to compensate for future lost wages or future medical expenses would be post-marital and therefore the separate property of the injured spouse.

As you might expect, gaining a recovery from an injury takes time, and in the case of most litigation, is not guaranteed.  When this happens during a divorce, the parties must either reach an agreement to a percentage to award the non-injured spouse of any recovery or agree to a buy-out of the recovery.  When negotiating a percentage, the parties do not need to worry about the marital/non-marital portion; however, if the court must decide, it does have to divide only the marital portion.

Recently, the Western District had to wrestle with an interesting case of delayed recovery.  In Baker v. Baker, the husband was involved in a motor vehicle accident during the marriage.  He filed a lawsuit against the driver of the other vehicle and, while that case was pending, he also filed for divorce.  Prior to the end of the divorce case, he secured a judgment of $1,318,918.25 against the driver of the other vehicle. In the divorce case, husband and wife reached a settlement agreement whereby wife would receive 20% of the net recovery arising out of the personal injury lawsuit.  Subsequently, the driver that caused the accident had insurance with State Farm, and it paid $112,300 as partial satisfaction of the judgment. After receiving that sum, wife received 20% of the net of that settlement. After the divorce became final, husband filed a declaratory judgment action for equitable garnishment, claiming that the insurance policy had a greater limit than the initial payout and that it should pay the full judgment the jury awarded.  Eventually, husband and State Farm settled for $1,000,000. Husband would not share this award with wife, claiming it did not arise out of the personal injury lawsuit but was instead a separate lawsuit. The Western District did not agree. It held that the declaratory judgment as a means to enforce the payment on the judgment in the personal injury lawsuit, and as such, the parties by their agreement intended that sum be considered part of the settlement. As a result, wife received 20% of the $1,000,000 net of attorney fees.

The Baker case teaches an important lesson – courts will not easily let a spouse injured during the marriage try and game the system to keep the other spouse from claiming a part of the settlement due under the divorce decree.  However, the parties could have agreed that if Husband had to take steps to file an enforcement action, the wife could have signed away her rights to that sum or accepted less (though that would not be a wise choice).

If you have questions about personal injury claims and divorce, contact us – we can help.