Opinion ID: 1300971
Heading Depth: 2
Heading Rank: 1

Heading: Long Term Disability Benefits

Text: This Court is presented with the question of whether long term disability benefits based upon the disability of one spouse are separate or marital property. The lower court ruled that such benefits should be treated as separate property belonging to the disabled spouse. As Mrs. Conrad emphasizes in the case sub judice, however, the premiums to purchase such policy, in the amount of $40.00 monthly for almost thirty years, were paid from marital funds. Mrs. Conrad therefore contends that the benefits derived from such purchase should be shared equally by the divorcing spouses. West Virginia Code § 48-1-233 (2001) (Repl.Vol.2004) defines marital property, in pertinent part, as follows: (1) All property and earnings acquired by either spouse during a marriage, including every valuable right and interest, corporeal or incorporeal, tangible or intangible, real or personal, regardless of the form of ownership, whether legal or beneficial, whether individually held, held in trust by a third party, or whether held by the parties to the marriage in some form of co-ownership such as joint tenancy or tenancy in common, joint tenancy with the right of survivorship, or any other form of shared ownership recognized in other jurisdictions without this state, except that marital property does not include separate property as defined in section 1-238 [§ 48-1-238]; and (2) The amount of any increase in value in the separate property of either of the parties to a marriage, which increase results from: (A) an expenditure of funds which are marital property, including an expenditure of such funds which reduces indebtedness against separate property, extinguishes liens, or otherwise increases the net value of separate property; or (B) work performed by either or both of the parties during the marriage. West Virginia Code § 48-7-101 (2001) (Repl.Vol.2004) provides for equal division of marital property, as follows: Except as otherwise provided in this section, upon every judgment of annulment, divorce or separation, the court shall divide the marital property of the parties equally between the parties. In syllabus point three of Whiting v. Whiting, 183 W.Va. 451, 396 S.E.2d 413 (1990), this Court stated as follows: W.Va.Code, 48-2-1(e)(1) (1986), [2] defining all property acquired during the marriage as marital property except for certain limited categories of property which are considered separate or nonmarital, expresses a marked preference for characterizing the property of the parties to a divorce action as marital property. In accord, Syl. Pt. 1, Koontz v. Koontz, 183 W.Va. 477, 396 S.E.2d 439 (1990). In Huber v. Huber, 200 W.Va. 446, 490 S.E.2d 48 (1997), this Court again recognized the legislative preference for classification as marital property and noted limited exceptions as follows: In spite of the legislative preference for classifying property as marital, this Court has found some exceptions to the preference. One such exception is personal injury awards. This Court articulated in syllabus point 1 of Hardy v. Hardy, 186 W.Va. 496, 413 S.E.2d 151 (1991) that, [t]o the extent that its purpose is to compensate an individual for pain, suffering, disability, disfigurement, or other debilitation of the mind or body, a personal injury award constitutes the separate nonmarital property of an injured spouse. However, we also held that economic losses, such as past wages and medical expenses, which diminish the marital estate are distributable as marital property when recovered in a personal injury award or settlement. Id., 186 W.Va. at 501, 413 S.E.2d at 156. Additionally we stated in syllabus point 4 of Hardy that [a] loss of consortium claim is the separate nonmarital property of the uninjured spouse. 200 W.Va. at 451, 490 S.E.2d at 53. While this Court has not addressed distribution of proceeds from a long term disability policy which began paying benefits prior to the parties' separation, the issue of distribution of the proceeds from a long term disability policy has been extensively analyzed by courts of other jurisdictions. Many states have held that disability benefits are to be considered marital property unless a statutory provision specifically excludes such benefits from the marital estate. See Mason v. Mason, 319 Ark. 722, 895 S.W.2d 513 (1995) (holding that husband's employment disability benefits were marital property because they did not fall within the statutory exemption for personal injury benefits); In re Marriage of Simon, 856 P.2d 47 (Colo.App.1993) (holding that disability benefits from private disability insurance policy purchased with marital funds were marital property because such private insurance is not excluded from the statutory definition of marital property). Other states have found that disability benefits are marital property because the policy premiums were paid with marital funds. See Dunn v. Dunn, 35 Ark.App. 89, 811 S.W.2d 336 (1991) (holding that husband's disability benefits were marital property because the benefits constituted compensation in return for past services rendered); VanderLeest v. VanderLeest, 352 N.W.2d 54 (Minn.App.1984) (holding that disability annuity was marital property since husband's right to receive benefits resulted from employment during the marriage). The majority of courts contemplating the proper classification of disability benefits have adopted an approach which focuses on the underlying purpose of the specific disability benefits at issue. Thus, benefits which actually compensate for disability are classified as separate property because they are personal to the spouse who receives them. However, where justified by the particular facts of the case, courts adopting this approach have separated the benefits into a retirement component and a true disability component, classifying the retirement component as marital property and the disability component as separate property. See Villasenor v. Villasenor, 134 Ariz. 476, 657 P.2d 889 (App.1982) (holding that husband's disability compensation had both disability component, deemed separate property, and retirement component, deemed community property); Gay v. Gay, 573 So.2d 180 (Fla.Dist.App.1991) (holding that disability benefits are separate property because they replace future income); Hoffner v. Hoffner, 577 So.2d 703 (Fla.Dist.App.1991) (holding that disability pension replaces future lost income and is separate asset); Allard v. Allard, 708 A.2d 554 (R.I.1998) (holding that disability pension is separate property of disabled spouse to extent it compensates for lost earning capacity but marital property to extent it represents the disabled spouse's retirement pay earned during the marriage). In Gragg v. Gragg, 12 S.W.3d 412 (Tenn.2000), the Tennessee court discussed the various approaches utilized by courts which have addressed this subject. The Gragg court concluded that disability benefits from a private disability insurance policy acquired with marital funds during the marriage are not marital property subject to distribution upon divorce because the only purpose served by these benefits is income replacement. 12 S.W.3d at 419. However, while the Gragg court held that Mr. Gragg was entitled to treat the approximately $8,000.00 monthly disability income as separate property, the court affirmed an award to Ms. Gragg of $2,500.00 per month alimony. In Metz v. Metz, 61 P.3d 383 (Wyo.2003), the Wyoming court explained that we decline to adopt a hard and fast rule that all disability benefits are, or are not, marital property subject to distribution. 61 P.3d at 388. Rather, the courts must make a determination on a case-by-case basis according to the particular facts giving careful consideration to the entire marital property and keeping an eye toward a just and equitable distribution. Id. This Court is persuaded that the Metz approach is the better reasoned authority. While we refrain from stating a definite rule to be applied in all disability policy questions in divorce cases, we find that the circumstances of the present case indicate that treatment of the disability benefits as marital property most accurately reflects the intent of the parties at the time the disability policy was purchased. The evidence indicated that the parties discussed the issue of disability benefits and decided that marital funds of $40.00 per month for almost thirty years should be invested to secure their future. Furthermore, the disability benefits payable in this case are the major source of funds available to the parties. Under the circumstances of the present case, we find that the long term disability benefits should be characterized as marital property. The present value of such disability benefits should have been determined as of the date of the parties' separation, and that value should have been divided equally between the parties. Thus, Mrs. Conrad is entitled to one-half of the proceeds from the long term disability policy received by Mr. Conrad since the separation. On remand, the lower court should reallocate funds from Mr. Conrad to Mrs. Conrad as necessary to achieve that result.