Texas is a community property state. Property coming into the possession of one or both spouses is presumed to be marital property to be divided between them in the event of a divorce. Overcoming the presumption requires clear and convincing evidence to prove that property is the separate property of only one of the spouses. A personal injury award has been the subject of legislation and court decisions to decide if it is community property or separate property. See this video for an excellent overview on what constitutes separate property in Texas.
The Texas Family Code Section 3.001
Texas Family Code section 3.001 categorizes an award or settlement for personal injuries as separate property belonging to the person receiving it. The exception in the statute is lost earning capacity during the marriage which is treated as community property.
Courts have ruled on the wording of Texas Family Code section 3.001 by declaring the following elements of a personal injury payment to be community property:
- Loss of a person’s earning capacity during the marriage
- Reimbursement for medical expenses incurred during the marriage
- Damages to a person’s credit reputation
What if Award is Replacement for Earnings?
Other courts have declared disability insurance and workers’ compensation payments to be community property on the theory that such payments replace an injured person’s earnings, and a person’s earnings would normally be community property. Some courts have adopted a similar rationale in ruling that money received as compensation for damage to community property is to be considered as community property.
Court decisions have interpreted the Family Code to include the following elements of a personal injury claim as separate property:
- Conscious pain and suffering
- Mental anguish
- Scarring and disfigurement
- Compensation for the loss of the love and companionship of an injured spouse
Troublesome Lump Sum Payments
Problems may arise in cases involving a single payment for a personal injury claim with no allocation made as what it is paying. Courts treat such payments as community property unless it can be shown by clear and convincing evidence that the payment represents compensation only for the injuries sustained by the person. This can be an impossible hurtle to overcome.
A person who anticipates receiving money in payment of a personal injury award and has concerns about the stability of a marriage should ask the the personal injury attorney to structure the award so the nature of the payment is clearly identified as compensation for the injuries and not lost wages or other items that would make it community property. This will make it possible for your divorce attorney to maximize your overall property division, if that later becomes an issue.