Equitable Distribution for personal injury awards, employment discrimination awards, or workers’ compensation – the impact on new jersey divorces
You or your spouse recently 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?
PERSONAL INJURY TORTS AND NEW JERSEY DIVORCE
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). 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 – IMPACT ON NEW JERSEY DIVORCES
The “dual-classification” holding evidenced by Landwehr helps to form 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, 583-84 (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 (see Amato v. Amato, 180 N.J. Super. 210 (1981). In Amato the Appellate court also addressed the issue of 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” or putative 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 (i.e. is not binding law) 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: EQUITABLE DISTRIBUTION IN NEW JERSYE DIVORCE
There is no New Jersey case directly on point addressing distribution of 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.
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, your attorney may wish to speak with your 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, however, 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 claims are 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 and you should help as a client to facilitate such dialogue. A greater dialogue between both sets of practitioners, along with perhaps 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.
Like most of family law, distribution of funds from worker’s compensation, personal injury, and the like is extremely fact-sensitive. Accordingly, it may be important to meet with an attorney to determine how your specific facts may be applied, particularly in a post-alimony reform world in New Jersey.
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