Divorce can create any number of complicated money problems, but particularly thorny ones arise in cases involving one party receiving a settlement from an insurance company. An ex-spouse may feel entitled to all of it, whereas the receiving party may believe him entitled to none of it. Whether or not a former spouse has any claim to an insurance settlement depends upon several key factors.
What It Was For and When It Happened
If the occurrence giving rise to the legal claim that produced the settlement didn't arise until after separation, an ex-spouse may have no rights at all to the proceeds of the case. A settlement that arose during marriage may still remain unreachable by the other party depending upon what the proceeds represent. Amounts paid for lost wages during marriage will almost always qualify as marital property and therefore be subject to division, but amounts for pain and suffering or disfigurement will generally remain separate. Reimbursement for medical bills incurred as a result of the injury will be reachable by the other party only to the extent that the bills were incurred during the marriage.
Status of Child and Spousal Support Obligations
Allowing a support obligation to go into arrears will enable an ex-spouse to recover all or a part of the other party's insurance settlement. In many states, a child support enforcement agency can place a lien against the obligor's recovery, which means the settlement will be paid to the child support case before any proceeds are distributed to the obligor. An ex-spouse who has a claim for past-due alimony may succeed in satisfying the arrears out of the insurance settlement even if the totality of the proceeds would otherwise remain out of reach.
Status of Equitable Distribution or Community Property Case
Just as in the case of past due child or spousal support, an ex-spouse can attack the other party's insurance settlement as a potential source of satisfying unpaid obligations arising out of an equitable distribution or community property judgment. An open property division case can create even more complications with regard to the settlement; the ex-spouse remains free to question the classification and therefore the distribution of the proceeds.
Indirect Ways of Attacking Settlement Proceeds
Although an ex-spouse may not be able to attack the other side's insurance settlement and may not even be trying to, the liquid nature of money and certain aspects of family law can still send dollars flowing onto the side of the ex-spouse. In an alimony case, the receipt of an insurance settlement may change a party's status as a dependent spouse by influencing whether she needs support and how much she needs. In the same way, a settlement can, in the eyes of the court, increase a supporting spouse's ability to pay. Along these lines, the receipt of an insurance settlement by either party can form the basis of a modification of an existing alimony award. The settlement can affect a pending equitable distribution case as well; even if the settlement itself contains no marital component, a court may use it as a factor in deciding whether to award an unequal distribution of the marital estate.