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.
Workers Compensation Settlement
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.
Allocation of Workers Comp Settlements
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.
- Law Offices of Thurman W. Arnold; Are Worker's Compensation Benefits Community Property? Yes and No!; Thurman W. Arnold; April 2011
- California Divorce Blog; So What the Heck is Community Property; John Harding, J.D.
- California Courts. "Property and Debt in a Divorce or Legal Separation." Accessed Sept. 14, 2020.
- Texas Statutes. "Family Code, Title 1, Subtitle B, Chapter 3, Subchapter A: General Rules for Separate and Community Property." Accessed Sept. 14, 2020.
- Internal Revenue Service. "Part 25, Chapter 18, Section 1: Basic Principles of Community Property Law." Accessed Sept. 14, 2020.
- Alaska Court System. "Property & Debt for Married Couples." Accessed Sept. 14, 2020.
- Internal Revenue Service. "Publication 555 (03/2020), Community Property." Accessed Sept. 14, 2020.
Teo Spengler is an attorney, specializing in personal finance and business writing for the past 15 years. Her personal finance work has appeared in numerous online publications including Go Banking Rates, Legal Zoom, eHow Business, Livestrong, the Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. She holds a J.D. from U.C. Berkeley, as well as an M.A. in English and an M.F.A. in fiction.