Are WORKER'S COMPENSATION BENEFITS Community Property? Yes and No!
Q. Are worker's compensation benefits received during marriage community
property and so subject to division in dissolution proceedings?
Dividing Worker's Comp Benefits in Divorce
Marriage of Ruiz (4/14/11) 194 Cal.App.4th 348
In the recently published Fourth Appellate case of
Marriage of Ruiz out of Riverside County, the parties' marriage lasted 32 years - married
in 1973 (not the summer of love), they separated in March, 2005. A major
bone of contention was how to characterize Wife's lump-sum worker's
comp settlement of $250,000 received several years before the breakup,
which netted $172,364 after attorney fees and costs. Wife believed it
was all hers in the absence of proof by Husband of what portion of the
money she received should be allocated between compensation for loss of
past income verses what portion was intended to compensate her for loss
of future earning capacity. Not surprisingly if Husband indeed had the
burden of proof on this issue, he was never going to meet it - worker's
compensation awards and financial settlements relating to personal injuries
are simply gross numbers that some insurance bean counter crunches and
then offers a gross settlement to resolve. No one in Wife's work compensation
team was thinking about a fixed amount that was intended to resolve temporary
compensation benefits as opposed to wife's lifetime loss of income
producing ability - these claims just don't get settled in that fashion.
Hence, if Husband had the burden of proving an imaginary apportionment
he would never be able to do so and Wife would take all.
This case illustrates what can happen where one party or another has the
"burden of proof" on a particular issue - often this is a short
hand way of saying "you lose."
Four years later their divorce proceedings resulted in a discretionary
trial court finding that $103,033 of the award was CP, with a balance
of $71,311 being Wife's separate property. This finding was upheld
on appeal as a reasonable exercise of discretion by Judge Irma Poole Asberry.
Wife argued that despite the statutory community presumption per
Family Code section 760 that property acquired during marriage belongs to the community, existing caselaw
(Raphael v. Bloomfield) (2003) 113 Cal.App.4th 617) required a conclusion that the award is community
property only to the extent that it is
intended to compensate for the injured spouse's reduced income during the marriage
and before separation, and for injury-related expenses that were paid
with community funds. She urged that the remainder of an injured spouse's
recovery is intended to compensate her for their diminished earning capacity
and/or medical expenses which continue after the DOS.
Therefore, the Wife here argued that
Raphael carved an exception to the rebuttable presumption that all property acquired
during marriage is community property, instead creating a presumption
that the award is the injured spouse's separate property. If true,
this would impose the burden of proof as to allocation upon the noninjured
spouse. Hence, she argued, if neither party could show evidence of how
the award was calculated the party with the burden of proof would lose.
The record on appeal was clear that neither party produced any evidence
one way or the other because - frankly - there was and could be none.
Judge Asberry correctly declined to find that the general overriding FC
§ 760 presumption could be trumped by this supposed exception. Since
Wife evidently concluded her best litigation strategy was not to offer
any compromise solution for determining the competing community verses
separate property interests, the court applied a formula suggested by
Husband for apportioning the award as between CP and SP. Wife took and
all or nothing position that was a high stakes gamble, and she lost. Interestingly,
the decision is clear that had she suggested some other valuation method
the trial court could have found that was more equitable than Husband's
proposal instead, and it would not have been reversed.
Play hard ball, get slammed.
The rule reiterated by the
Ruiz court is simple, fair, and obvious. It is already established that period
retirement payments which are received during marriage are community property, in
that they are intended to compensate the community for loss of income
that the injured spouse would otherwise have earned. Periodic disability
payments received after separation are the separate property of the injured
spouse alone for his or her diminished earning capacity. Citing the California
Supreme Court in
Marriage of Jones (1975) 13 Cal.3d 457, the Riverside justices stated "[s]o long as
the marriage subsists, the [injured spouse's] reduced earnings worked
a loss to the community. But such community loss does not continue after
dissolution; at that point the earnings or accumulations of each party
are the separate property" of each. "[O]nly such payments as
are received during marriage are community property."
But within the context of worker's compensation permanent disability
awards, as was presented here,
Raphael had concluded that the timing of the award (i.e., whether received before
or after separation) should not dictate the outcome - instead the inquiry
was what portion was intended to compensate the injured spouse for his/her
reduced earnings during the marriage, which would be CP. Again, a question
that is not likely to be answered by the non-injured spouse because they
have no access to such information assuming it even was part of the settlement
calculation; yet, this perhaps reasonably did suggest to Wife's attorney
he might successfully argue that the burden of proof was hence placed
upon the Husband.
Ruiz Court decided that neither party had a burden of proof that would create
a rebuttable presumption in the favor of one or the other because the
trial court properly concluded that the award was part community and part
separate property of Wife. The issue was then for the trial court to decide
in terms of equitable apportionment of the competing interests. "In
doing so, the court may use any method which fairly apportions the assets
or its value between community and separate property interests. Because
it is the court's
obligation to make an equitable apportionment, neither party has the burden of proof
in the sense that a failure of proof will result in an award of the asset
in its entirety to the other party."
Thus, in equitable apportionment cases involving disability awards, which
includes all hybrid mixes of community/separate attributes, a disadvantaged
party (here the Husband who could not marshal much less control the evidence
of what the worker's comp carrier intended when it settled Wife's
case) does not lose simply because of a failure of their access to proof.
Instead trial courts are free to fashion any result which works substantial
justice. This was fair because nothing indicated that Wife had received
any temporary disability benefits during the marriage that got banked
- this lump sum settlement was all that she apparently received for the
total loss occasioned to her, and to the community, for the injuries she suffered.
To the extent that the Wife argued the trial court's division of the
CP amounts vs. the SP amounts was arbitrary, she had no right to complain
because she never suggested any other measure that the trial court might
use in supporting a different allocation scheme.
So, the lesson is this: Play hardball, get slammed..... (mediate your
disputes instead, and don't disconnect from reasonableness - one never
knows how a court might rule!)
Thurman W. Arnold, III, C.F.L.S