In California, whether a personal injury settlement is marital property depends on when the injury occurred, how the settlement funds were allocated, and whether they were commingled with joint assets.
At Ernst Law Group, our California personal injury lawyers understand that dividing assets in a divorce can be complex, especially when personal injury compensation is involved. This guide explains how California law treats personal injury settlements and when they may be considered community property.
California’s community property law and personal injury settlements
California is a community property state, meaning that most assets acquired during a marriage are considered joint property and must be equally divided in a divorce. However, personal injury settlements are treated differently depending on when the injury occurred and how the funds are classified.
When is a personal Injury settlement considered separate property?
Under California Family Code Section 781, if a personal injury settlement is awarded for an injury that occurred before the marriage or after separation, it is generally considered separate property and belongs solely to the injured spouse.
Example:
- If you were injured in a car accident before getting married, any settlement funds received during the marriage would remain your separate property.
- If you suffered an injury after filing for divorce, any compensation awarded would not be subject to division in the divorce.
When is a personal injury settlement considered community property?
If the injury occurred during the marriage, California law generally considers some or all of the settlement community property, meaning it may be subject to division in a divorce.
However, the specific allocation of damages in the settlement matters. Personal injury compensation is typically divided into different categories.
| Separate property | Community property |
| Settlements made before marriage or after separation | Reimbursement for medical expenses |
| Compensation for pain and suffering | Reimbursement for lost wages |
| Property damage (if personally owned vehicle) | Property damage (if jointly-owned vehicle) |
What happens if a personal injury settlement is commingled?
Even if a personal injury settlement starts as separate property, it can become community property if it is commingled with joint marital assets.
Examples of commingling:
- Depositing settlement funds into a joint bank account and using them for shared expenses.
- Using settlement money to purchase a home or other shared assets.
- Paying off joint debts or covering family expenses with settlement funds.
If the settlement funds are mixed with community assets, a court may presume the funds became community property, making them subject to division in a divorce.
Can a spouse claim a portion of a settlement in a divorce?
If a personal injury settlement is classified as community property, a spouse may be entitled to a portion of it during a divorce. However, under California Family Code Section 2603(a), courts typically award the majority of the settlement to the injured spouse, unless doing so would cause an unfair economic hardship to the non-injured spouse.
In cases where a portion of the settlement is considered community property, courts may offset the amount by awarding other marital assets to the non-injured spouse instead of splitting the settlement directly.
Protecting your personal injury settlement in a divorce
To ensure your personal injury settlement remains separate property in a divorce, follow these key steps:
- Keep funds in a separate account – Avoid depositing settlement money into joint marital accounts to prevent it from being classified as community property.
- Document the purpose of the settlement – Maintain detailed records of how the funds were used, particularly for medical expenses and recovery costs.
- Use a prenuptial or postnuptial agreement – A legally binding agreement can specify that personal injury compensation remains separate property.
- Avoid using settlement funds for joint expenses – Paying for household bills, shared debts, or major purchases can lead to commingling, making the funds subject to division.
- Consult an experienced attorney – A California personal injury and family law attorney can help protect your settlement and ensure your financial interests are safeguarded.
Contact Ernst Law Group for a free consultation
Ernst Law Group can provide experienced legal guidance to protect your rights and financial interests if you are facing a divorce involving a personal injury settlement. Whether your settlement should be classified as separate or community property, our team will fight to ensure you receive the fair compensation you deserve.
Call us today at (805) 541-0300 for a free consultation.
