Along with alimony and child custody, property division and any associated disability benefits is a major issue in a divorce. Depending on certain conditions, disability benefits may be a separate property or marital property in which both spouses have an interest.
Understanding basic concepts on dividing disability benefits will enable you to better work through your divorce case.
What is a Disability Benefit?
First: state law controls most property division issues, and they may include disability benefits .
Second: Disability benefits are payments that are given to a worker as a result of an illness or an injury that leaves them unable to work. A private insurance policy or a government program is usually the source of the benefit.
Third: (This is the one that’s important in a divorce) State laws usually determine whether benefits (including disability benefits) are separate property or marital property. The state determines whether one or both spouses have rights in the benefits. There are two ways that this is determined:
- Timing – when the benefits are paid, or when the insurance coverage was obtained
- The purpose the benefits serve
Timing and Property Rights
In certain states the courts follow a time-based analysis. All the property that was acquired during marriage is classified as marital property. Disability payments received during a marriage is marital property – and is shared. This rule applies to future benefits as well. The other determinant is the date that the injured or ill person was entitled to disability pay.
Other states may consider another approach — “What is the source behind the coverage?” In plain English, “When did the person get ill or was injured?” If the “insurance” coverage is tied to work during marriage, than the disability pay is considered marital property (and can be shared). If coverage was based on work and a disability that occurred before the marriage, then benefits are considered separate property – and will not be shared.
And still other states use a third option, which is called is called the “Replacement Approach”. In this case, disability payment is considered marital property only if it compensates for an income loss during the marriage. And pay special attention here — disability payments for post-divorce earnings will be considered the injured spouse’s separate property, even if the injury or illness dates back to an time or incident that occurred during the marriage.
Purpose Analysis
There are many state courts that look at the purpose of disability benefits in deciding if it is a separate property or marital property type. In this case, even if marital funds were used to page for one spouse’s disability insurance plan, it doesn’t mean that the benefits payments will always be marital property.
Private insurance disability benefits may have both marital and separate property components. If the intent of the disability benefits is to compensate an employee for lost earnings and personal suffering caused by the disability, then those benefits are considered separate property.
Alternatively, if the disability benefits are part of retirement benefits based on work that occurred during a marriage, they are considered marital property (to be shared).
Veterans Disability Benefits
And here’s another exception. A federal law, the Uniformed Services Former Spouses’ Protection Act, exempts Veterans Administraion disability payments from being divided in a divorce or treated as marital or community property. However, a veteran’s disability payment can, and in many cases probably will be considered when a family court decides on an alimony award to the veteran’s spouse. This may occur even when the disabled veteran must use the money he receives from VA disability payment to pay the alimony.
Equitable Distribution
Currently, 41 states have equitable distribution laws which divide marital property based on principals of equitable distribution. Several factors are considered by the courts in these states to determine how to divide both the marital property and debts in a divorce.
Judges Have Wide Discretion
In all cases, probate and family court judges have wide discretion in awarded marital assets/child support and alimony to another party.
There Are No Simple Answers
As is obvious, there is no simple one-size-fits-all answer for determining if a disability benefit is separate or marital property. The best recommendation is to speak with your divorce attorney about the law, and develop a property settlement that is fair to both spouses.
Questions to Ask Your Divorce Attorney
- According to the law, am I entitled to receive a share of my spouse’s disability benefits?
- How will the disability benefits be valued in my divorce proceeding?
- In my state, are private insurance disability benefits separate property or marital property?
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