Property Division in Divorce: Are lawsuit payouts considered marital property?

Part of Property Division in a divorce is the consideration of future payments that will come due as the result of action taken during the marriage. This may take the form of bonuses or salary earned but not yet paid, insurance payments coming to cover incidents that occurred during the marriage, or the anticipated future outcome of lawsuits pending.

In my practice, I teach divorcing couples that property division is not confined to physical assets like cars, houses and cash or retirement accounts. Pennsylvania law also allows consideration of future benefits earned during the marriage, such as time earned on a pension that won’t be paid out until the spouse is at retirement age.

Another area that can be confusing for divorcing spouses involves lawsuits pending but not completed at the time of divorce. A classic case would be a slip and fall lawsuit brought by one spouse against their employer for a workplace accident that occurred before the marriage ended.

Pennsylvania law is a bit circumspect in this instance, as the right to include pending lawsuit settlements incurred during marriage as part of marital assets is inferred, not articulated specifically. For instance, Section §3501(a)(8) of the Pennsylvania Divorce Code spells out the following EXCLUSION from marital property: “Any payment received as a result of an award or settlement for any cause of action or claim which accrued prior to the marriage or after the date of final separation regardless of when the payment was received.” Obviously, the implication is that such payments ARE considered part of marital property if they occurred after the marriage but prior to the date of final separation.

Slip and fall cases or automobile accidents are fairly clear cut: a specific, physical incident occurred on a specific date resulting in a liability lawsuit filed by one of the spouses. Whether or not they filed that lawsuit before or after the date of separation seems to be less of an issue than when the actual accident occurred.

Pending lawsuits regarding, say, trademark infringement cases filed by a family business owned by both spouses, can present greater problems. If the parties cannot come to an agreement as to how to split any possible future proceeds from the suit themselves, the court would have to decide when the infringement occurred in relationship to the dates of marriage, if it is ongoing or has stopped, and what portion of any potential awarded damages would be considered marital property.

Of course, the reverse legal concept would also apply for spouses who are themselves being sued by outside parties. In these instances, the court would decide what portion of potential negative judgments would be considered marital debt, and thus the responsibility of both spouses, married or not.

Consideration of any potential future benefit or debt accrued during the marriage is just a small part of the overall process of Asset Division. If you’d like to discuss this or any other aspect of Equitable Distribution law in Pennsylvania, I offer a free first consult to new clients. Call my office at 215-345-5259 to set up a time that works for you.

– Elissa C. Goldberg, Esquire