Property Division in Divorce: Treatment of Workers' Compensation Benefits
Persons suffering a work-related injury may be entitled to workers' compensation. It can be paid in installments or as a lump sum covering the costs incurred by the victim of on-the-job accident. For purposes of division in divorce, some states classify workers' compensation as earnings. Other states treat part of such awards as earnings and part as compensation for pain and suffering resulting from the underlying injury. Under the so-called "wage replacement analysis," some states characterize workers' compensation as disability pay. Once classified, workers' compensation is divided according to the respective states' divorce property distribution schemes.
In common law equitable distribution states, the general presumption is that workers' compensation is treated as marital property if acquired during the marriage. In pure community property jurisdictions, it is treated as community property if acquired during marriage and as separate property if it is acquired before marriage or after marriage dissolution.
Some states deal with workers' compensation specifically. For example, Missouri sets aside a specified amount of workers' compensation as the injured spouse's separate property. The goal is to compensate the injured spouse for the future loss of post-divorce earnings.
In pure community property states, workers' compensation benefits paid in a lump sum after divorce may be divided between community property and separate property. In that scenario, the portion that relates to wages lost during the marriage would go to the community estate. The rest would go to the injured spouse's separate estate.
The individual states' varying and evolving treatment of workers' compensation benefits in divorces creates a patchwork system across the country. That makes it important for persons contemplating divorce in which workers' compensation benefits are involved to consult the law in the state where the divorce will occur.
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