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Is a Personal Injury Settlement Community Property?

A personal injury settlement can help a victim of negligence obtain valuable compensation for medical bills, lost income, intangible losses, and more. A divorce that occurs following a personal injury settlement can complicate matters, as couples divorcing in the state must follow community property laws regarding the allocation of assets. Do personal injury settlements count toward the division of assets upon the dissolution of marriage?

What is Community Property?

Texas is one of just nine community property states in the United States. Community property are the assets, property, and debts that a couple holds together. Generally, each spouse has a 50% share of all community property acquired throughout a marriage. Property that a spouse receives before a marriage is still separate. Community property can include many different types of assets.

  • Income that wither spouse receives throughout the course of a marriage
  • Property that a couple accrues throughout a marriage, including vehicles and homes
  • Debts that a couple accrues during a marriage

At the same time, not all assets are community property when a couple seeks to divorce. For example, a gift that one spouse receives is the sole property of that spouse. Money and inheritance can be spate assets, as long as they go into a separate account.

When separate martial assets go into a joint account, a process called transmutation occurs. As soon as separate assets become joint through transmutation, they may be community property and subject to 50/50 division.

Is a Personal Injury Settlement Community Property?

Unique rules exist for the division of property when a personal injury settlement is involved. When a personal injury settlement involves compensation for losses such as physical pain and suffering, that compensation is the sole property of the plaintiff. He or she was the sole person who experienced those harms following an accident.

However, many personal injury settlements involve compensation for lost income, loss in earning capacity, and damage to property. These damages, also called economic damages, are community property.  Similarly, if a couple uses personal injury money to buy property, the purchase can become community property, as well. For example, if a couple uses personal injury settlement money to buy a new home, that purchase is community property and subject to 50/50 division.

Finally, non-economic damages from a personal injury settlement may be community property when the assets co-mingle or undergo transmutation. A person who receives a personal injury settlement should put it in a separate account under his or her name to avoid community property division in the event of a divorce.

Community Property Laws in Texas

Texas law presumes that all property that either spouse acquires throughout the course of a marriage is community property, with the exception of separate property noted above. When a couple in Texas divorces, the law requires that their property undergo a division that is just and right considering the circumstances. In other words, the division must be equitable under the circumstances that surround the case. Texas does consider fault in the division of marital assets, and will also consider other factors such as disparity in earnings, the overall health of each spouse, the custodial arrangement regarding the children, and each couples future earning and employability prospects.

Texas is just one of a handful of states that follow a community property approach to the division of assets. The approach can affect how the courts divide a personal injury settlement, especially if it undergoes transmutation or comingling. Generally, the noneconomic damages from a personal injury case are the sole assets of the victim, but putting those assets into a joint account can make them subject to community property division.