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Dividing personal injury or insurance proceeds in your divorce

On Behalf of | Jul 5, 2022 | Divorce

Property division is one of the most complex aspects of a divorce, and often results in stress for divorcing Arizona couples. The first step in the property division process is identifying each piece of property as community property or separate property.

Community and separate property

Community property is property that you and your spouse both have an equal claim to. Therefore, it must be divided.

Separate property is property that only you or your spouse have a claim to. Generally, all property acquired, or money earned, during the marriage is community property, except a gift or inheritance given to only one spouse.

Any property acquired by you, or your spouse, after your divorce petition is filed, is also considered separate property. However, what if one of you is waiting on potential personal injury or insurance proceeds on the date your divorce petition is filed?

If you receive the proceeds before your divorce is finalized, a careful analysis must be done to determine if the proceeds are community or separate property.

Disability or unemployment proceeds

Disability or unemployment insurance proceeds are typically considered community property if the insurance coverage was purchased during the marriage and the incident occurred during the marriage. For example, if you sustained an injury and filed a claim for it before you filed your divorce petition, the proceeds are considered community property.

Proceeds from insurance that covers property such as a home or car can be community or separate property, depending on how covered property is classified. For example, if the proceeds are from a car accident in your own separate car, the proceeds are likely separate property.

Personal injury settlement proceeds

A personal injury settlement can be commercial or separate property, depending on what the settlement covers. A portion of the settlement that covers your medical expenses or lost wages could be community property.

However, compensation for your personal pain and suffering, or emotional distress, may be separate property. You must distinguish what portion of the proceeds represent your own personal loss, versus a loss to the community.

There are various arguments that can be made to classify proceeds as community or separate property. Attorneys experienced with divorce and property division can provide advice on your specific situation.