Are Workers' Compensation Settlements Marital Property in California?

The question of what property is marital property -- belonging to the couple as opposed to one of the spouses -- looms large when the marriage terminates in divorce. In California, income earned by either spouse during the marriage belongs to both spouses equally. A worker's compensation settlement is marital property in California if awarded to compensate a spouse for lost income during the marriage.

States differ in how they attribute property earned by a married couple. Some jurisdictions award to each spouse that income earned by him during the marriage; others attribute marital income to the marital community. California is a community property state. California courts presume that property earned by either spouse during the course of a marriage belongs to both spouses equally. Upon divorce, each spouse gets half of the community property.

Property that is entirely attributed to one spouse is termed separate property. California Family Code section 770 describes separate property as including all property owned by a spouse before marriage or acquired after marriage by gift or inheritance. All profit made from separate property remains separate property. In addition, any income or property acquired after separation is separate property. One spouse is not entitled to share the other spouse's separate property in case of divorce.

Worker's compensation is a type of insurance employers carry to cover the on-the-job injuries of workers. An injured worker receives required medical attention for the injuries, paid for by the insurance. The worker can also receive a lump sum payment to compensate her for future problems stemming from the job injury, including lost wages and temporary or permanent disability. Often lump sum awards do not specify how the amount awarded breaks down between current and future income loss.

In California, worker's compensation payments received by a spouse to compensate her for lost income during the marriage are generally community property. Payments to compensate for loss of income before the marriage or after separation are separate property. Settlements that compensate the spouse for future medical treatment is separate property. When the worker's compensation settlement is not broken down by the parties when initially awarded, judges divide a settlement between past income (community property) and future income (separate property) on an equitable basis.