Equitable Distribution of Personal Injury Awards
Michael K. McFadden
Featured in The New Jersey Trial Attorney, Fall 1987
The issue of whether a cause of action for personal injury or a personal injury award is subject to equitable distribution is not settled in New Jersey. New Jersey Statute Annotated 2A:34-23 states in part that a Court may, "...effectuate an equitable distribution of the property, both real and personal, which was legally and beneficially acquired by them or either of them during the marriage."
DiTolvo v. DiTolvo, 131 NJ. Super. 71 (App. Div. 1974), was one of the first decisions in New Jersey to address the issue. In Di7blvo the injured spouse brought an action against a third-party tortfeasor. The non-injured spouse asserted a per quod claim for loss of consortium. These actions were instituted prior to the cause of action for divorce. The court held that a cause of action for personal injuries and consequential damages resulting from an accident during the marriage is subject to equitable distribution. More specifically, the DiTolvo personal injury action was settled for Seventy-Five Hundred ($7,500.00) Dollars, six and a half (61/2%) percent of the award was allocated to the per quod claim. The matrimonial trial court held that the non-injured spouse would receive twenty (20%) percent of the personal injury award through equitable distribution. This decision was upheld at the appellate level.
The DiTolvo Court reasoned that the language "acquired" in New Jersey Statute Annotated 2A:34-23 has consistently been interpreted expansively.' The court went on to state that property has been defined in New Jersey Statute Annotated 1:1-2 to include "choses in action.'= Therefore the court concluded that a cause of action is a property right and the property right was acquired during the marriage, the inevitable conclusion was that the personal injury award is subject to equitable distribution.
Although the New Jersey Supreme Court has not directly addressed whether a cause of action or personal injury recovery is subject to equitable distribution, in Kruger v. Kruger, 73 NJ. 464 (1977)', while addressing the distributivity of federal pensions and disability payments, stated that, "furthermore, it does not appear to be any reason to justify a difference between receipt of the payments (disability) from a lump sum award, including damages for permanent injury, arising out of a negligence action; DiTolvo v. DiTolvo, 131 NJ. Super. 72 (App. Div. 1974) which is properly classifiable as property subject to equitable distribution. The statute (NJ.S.A. 2A:34-23) contemplates that property which is acquired during the marriage shall be subject to equitable distribution, irrespective of the reason for the payment". Id. at 472.
Not long after the DiTolvo decision the Appellate Division in Harmon v. Harmon, 165 NJ. Super. 201 (App. Div. 1978) remanded a trial court decision that awarded the non-injured spouse thirty-five (35%) percent of the injured spouse's recovery for a personal injury award. The Appellate Court held that it need not pass upon the issue of whether a non-injured spouse is entitled to equitable distribution benefits from his own negligence, because the case was settled without a judicial determination of fault (although the non-injured spouse's carrier contributed fifty (50%) percent toward the award). The Harmon court acknowledged the principle set forth in Di7blvo and Kruger but remanded the case to the trial court because the trial judge had failed to make any findings of fact to support its, "seemingly generous percentage of settlement distributed to the husband".4
Botter took the opportunity to espouse his view, "...part of a settlement or award which represents compensation for pain and suffering and disability should be deemed the personal property of the injured spouse only, not subject to any distribution".' This concurring view set the stage for the present Appellate Division divergence as to whether a personal injury cause of action or a personal injury award is subject to equitable distribution.
In Amato v. Amato, 180 NJ. Super. 206 (App. Div. 1981), the trial court awarded the non-injured spouse twenty-five (25%) percent of the injured spouse's inchoate right to sue for medical malpractice. The Appellate Court vacated in part and remanded the case to the trial court. The Appellate Court held that a spouse's chose in action for pain and suffering is not property subject to equitable distribution.
The court reasoned that an inchoate personal injury claim is not "property real or personal" under New Jersey Statute Annotated 2A:34-23. The court acknowledged that New Jersey Statute Annotated 1:1-2 defines personal property as including "choses in action". However, the court stated that the term is not specifically defined, therefore, "furnished no basis for holding that the legislation intended thereby to overturn the common law concept...", that a right of action for tortious personal injury is not a property right. The Amato court strategically did not base its rationale exclusively on the premise that a chose in action is not a property right. The court held that even if the personal injury chose in action is a property right, the recovery is not distributable in a matrimonial forum. The court articulated the view that the pain and suffering from a personal injury award is personal. In addition, the non-injured spouse has his or her own right to pursue a cause of action for loss of consortium. The Amato court did concur with DiTolvo that the diminution of the marital estate by lost past wages or medical expenses should be subject to equitable distribution."
The most recent Appellate Court to address the issue is Landwehr v. Land-wehr, 200 N.J. Super. 56 (App. Div. 1985). In this case the trial court followed Amato, excluding the equitable distribution settlement monies received by the injured spouse for his personal injury claim. The Appellate Court reversed, quoting the dictum in Kruger as, "sufficiently expressing the Court's intent that such money be included in the distributable marital estate upon divorce".
An examination of sister states does not provide much guidance to the issue of whether or not a personal injury award or action should be subject to equitable distribution. New York, a community property state, has passed legislation that in part states, "the term separate property shall mean...com-pensation for personal injury".' In addition, the concurring opinion in Harmon correctly points out that a majority of community property states now consider personal injury recovery for pain and suffering exempt from community property.' However, in determining whether an asset is distributable, as noted in Harmon, community property states focus on the means of acquisition. In contrast, equitable distribution states focus on the time of acquisition in determining whether an asset is subject to equitable distribution. Several equitable distribution states have held that personal injury awards are subject to equitable distribution.' In Pennsylvania, the courts have held that the equitable distribution statute providing a presumption that assets are marital property is applicable to personal injury actions and awards.'
The DiTolvo, Amato, and Landwehr Courts have followed the literal interpretation of New Jersey Statute Annotated 2A:34-23 and the guidelines of the New Jersey Supreme Court in finding that personal injury actions and awards are subject to equitable distribution. It is important to note that trial courts have the discretion to examine all the facts and circumstances of the personal injury award in conjunction with the entire equitable distribution scheme in determining the equitable division of the personal injury action or award.
As in DiTolvo, the court awarded the non-injured spouse twenty (20%) percent of the personal injury claim The court considered that the personal injury award was the only asset of the marriage, the amount of support and alimony, and that the non-injured spouse had lived through the injured spouse's accident.' Likewise, the Harmon court remanded the trial court's thirty-five (35%) percent award to the non-injured spouse to consider among other facts that the non-injured spouse deserted the injured spouse during rehabilitation and that the injuries to the spouse were serious and most likely permanent.
Thus, until the New Jersey Supreme Court or the State Legislature addresses the issue, the position that personal injury actions or awards are subject to equitable distribution conforms with the majority of precedent in New Jersey and the literal translation of New Jersey Statute Annotated 2A:34-23.
Lastly, an attorney representing a party who is separated or anticipating a divorce should advise the client that a part of his recovery may be subject to equitable distribution. In addition, the attorney should attempt to document a specific personal injury award. The personal injury award should be broken down with respect to loss of past wages, out of pocket medical expenses, pain and suffering, loss of future earning capacity, and future pain and suffering. The reason for this documentation is that the matrimonial court, although not bound, will have demonstrative evidence on what percentage of the personal injury award should be subject to equitable distribution. Likewise, the matrimonial attorney, since the client may not volunteer that his estranged spouse has been injured during or subsequent to their separation, should question clients about recent personal injuries.
FOOTNOTES
'Painter v. Painter, 65 NJ. 196, 320 A.2d 484 (1974); Mahoney v. Mahoney, 91 NJ. 488, 553 A.2d 527 (1982).
'Personal property is defined in §1;1-2 as "personal property" includes goods and chattels, rights and credits, monies and effects, evidences of debt choses in action and all written instruments by which any right to, interest in, or lien or encumbrance upon, property or any debt or financial obligations created, acknowledged, evidence, transferred, discharged or defeated, in whole or in part, and everything except real property as herein defined which may be the subject of ownership.
'See also Mahoney v. Mahoney, 91 N.J. 488 (1982). 'Harmon v. Harmon, 161 NJ. Super. at 210. 'Harmon v. Harmon, 161 NJ. Super. at 213. 'New York Domestic Relations Law, §236B(1)(d)(2). 'Harmon v. Harmon, 161 N.J. Super. at 216.
"See Michigan, Nebraska, and Pennsylvania. Bywater v. Bywater, 128 Mich. app. 396 (1983); Maricle v. Maricle, 221 Neb. 522 (1985); Platek v. Platek, 454 A.2d 1059 (1982).
"Platek v. Platek, 454 A.2d 1059 (1982).
'"New Jersey Family Law Practice, 5th ed., §6.7; Gary Skoloff, Esquire and Lawrence J. Cutler, Esquire.