§ 8.02 Workers' Compensation Benefits
| Jurisdiction | United States |
| Publication year | 2021 |
§ 8.02 Workers' Compensation Benefits
The characterization of workers' compensation benefits as marital or separate property depends upon a number of factors. First, to some courts the time of injury and the time of receipt of the benefits are important. Another crucial factor is how the state perceives workers' compensation benefits. The workers' compensation remedy replaces an injured employee's personal injury action against his employer. Many states have concluded that workers' compensation benefits are meant to reimburse medical expenses and replace lost wages, and do not represent compensation for pain and suffering.201 In contrast, other states have decided that workers' compensation benefits are pain and suffering compensation, not payment for lost earnings.202 Still others have determined that such benefits are compensation for both lost wages and pain and suffering.203 One court held that workers' compensation benefits are like disability benefits.204 The Rhode Island Supreme Court concluded that workers' compensation awards could compensate an injured spouse for lost earnings, personal injuries, or both.205 The Maine Supreme Court has held that a workers' compensation recovery can include payments for permanent impairment, wage replacement, and medical costs.206 To the extent that a court applies the "analytic" approach to characterize these benefits, the purpose of the award is important.
[1]—General Overview
Different approaches have been used to characterize workers' compensation awards. Similar to how various states characterize personal injury awards, three different approaches have been suggested. A few courts apply a "unitary" approach. Pursuant to this view, workers' compensation benefits are the separate property of the injured spouse; the justification offered is that the benefits are "personal" to the injured spouse.207 In states that accept this view, the characterization of workers' compensation benefits is simple: they are the separate property of the injured spouse, regardless of when the spouse was injured or when the benefits were paid. Most states do not accept this analysis, however.
Another common characterization approach could be called the "implied exclusion" approach (sometimes called the "mechanistic" approach).208 This approach treats the statutory examples of separate property as an exhaustive list; everything else acquired during marriage is divisible marital property. For courts applying this approach, the only issue is whether the benefits were "acquired" during marriage. Benefits paid during marriage obviously are; there is less agreement about how to characterize a claim pending at divorce under the mechanistic approach.209
The third approach, now the most accepted approach, is the "analytic" view. Under this test, the important concern is what the benefits replace. The marital estate is perceived to have a legitimate claim for benefits to the extent that the benefits reimburse the injured spouse for lost wages during marriage and for medical expenses paid with marital funds. In contrast, the marital estate should have no claim to the portion of the benefits that compensates for post-divorce (or pre-marriage) lost wages or post-divorce medical expenses.210 If the benefit is intended to compensate for pain and suffering, under the analytic approach that portion of the award should be characterized based upon the respective state's rule regarding such recoveries.211 Under the analytic approach, the crucial inquiry is what the benefit compensates; it should be irrelevant whether the benefit is received during marriage or after divorce.
In a California case, the wife became permanently disabled during marriage due to a job-related injury. She received a lump-sum award for her lost wages for the rest of her career. The court held that, to the extent the benefit compensated for lost wages during marriage, the benefit was marital property.212
The author is in accord with the growing consensus that the analytic approach is the approach most congruent with the marital partnership philosophy upon which most current divorce statutes are based.
[2]—Benefits Received During Marriage Regarding an Injury During Marriage
In "kitchen sink" (sometimes called "hotchpot") states,213 workers' compensation awards received during marriage undoubtedly are divisible at divorce. In contrast, in "marital property" states,214 a more complicated analysis is required to determine whether such benefits are divisible.
To characterize workers' compensation benefits received during marriage regarding an injury during marriage, one needs to determine which of the characterization approaches discussed in the preceding section is accepted by the respective state. Pursuant to an implied exclusion characterization analysis,215 the benefits normally are characterized as marital property, since they are not expressly set forth as separate property in the state property division statute.216 Under this analysis, it does not matter whether the benefits compensate for post-divorce lost earnings.217
If workers' compensation benefits are perceived as compensation for lost wages, under an onerous title analysis (the "analytic" approach) the benefits received during marriage generally would be considered marital property, since the wages for which the benefits substitute would have been marital property.218 Workers' compensation awards can be paid in a lump-sum settlement. Under the analytic approach, a portion of the benefits received in a lump-sum payment during marriage can be separate property, to the extent that the benefits compensate for post-divorce (or pre-marriage) lost earnings.219 An Ohio court has stated that, to the extent the award compensates the recipient for a loss of a body part, that should also be nonmarital.220 To the extent the recovery compensates for lost wages during marriage or medical expenses paid with marital funds, this portion of the award would be marital.221
If the settlement does not delineate the respective amounts allocated to lost wages and pain and suffering, some courts accepting the analytic approach treat the settlement proceeds as all marital property,222 due to the commingling of separate and marital property.223
The Maine Supreme Court has ruled that a workers' compensation recovery could have three components: permanent impairment, wage replacement, and medical costs. In this case, the husband had recovered the award during marriage. The court ruled that the permanent impairment component was his separate property. However, because the husband did not establish the extent to which the damages for wage replacement and medical costs were nonmarital, it was proper to treat these elements as marital.224
An Indiana appeals court has ruled that if a spouse receives a lump-sum workers' compensation payment during marriage, to the extent the injured spouse can show it was to replace post-divorce lost wages, it should not be considered marital.225
A Delaware court has distinguished between damages for disfigurement, which are nonmarital, and damages for lost wages, which would be marital.226
An Ohio court held that a worker's compensation award was separate property because it was compensation for pain and suffering.227
A Kentucky court held that a lump-sum workers' compensation settlement received during marriage is marital property.228 The court did not explain its reasoning.
A New York court characterized a worker's compensation award as separate property, without additional explanation.229
Numerous cases have held that a lump-sum workers' compensation settlement can be partly separate and partly marital, where the award is intended to replace both lost wages during marriage and lost wages after divorce.230
Pursuant to the analytic approach, workers' compensation benefits received during marriage for an injury suffered during marriage also can be considered totally separate property if the state considers the benefits compensation for pain and suffering, and pain and suffering awards during marriage are considered separate property.231
The West Virginia Supreme Court has concluded that workers' compensation benefits are a wage replacement and not compensation for pain and suffering.232 In those states that apply a mechanistic approach, a crucial question can be whether the benefits were "earned" or the "right accrued" during marriage. In a Pennsylvania case, the court concluded that, when the employee was injured before separation but did not make an agreement for the workers' compensation settlement until after separation, the right to the benefit "accrued" after separation and was separate property.233
Those states accepting the "unitary" characterization approach would characterize workers' compensation benefits received during marriage as the injured spouse's separate property.234
The New Hampshire Supreme Court has concluded that, because all property owned by the parties at divorce is subject to division, the "mechanistic" approach to workers' compensation benefits is best suited to New Hampshire.235 Therefore, all of the lump-sum benefit received during marriage was divisible.
Some states that characterize workers' compensation as marital property have promulgated a presumptive rule that the injured spouse should receive all the benefits.236
In Arkansas, workers' compensation awards are defined as separate property to the extent they "are for any degree of permanent disability or future medical expenses."237
An Ohio court has held that a workers' compensation settlement is presumptively separate.238
In Texas, a worker's compensation recovery is marital to the extent that it replaces wages lost during marriage and separate to the extent that it replaces lost wages after divorce.239
[3]—Benefits Received After Divorce Regarding an Injury During Marriage
[a]—Pending Workers' Compensation Claim as "Property" Owned at Divorce
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