Opinion ID: 1933994
Heading Depth: 1
Heading Rank: 6

Heading: backgroundpersonal injury award as marital property

Text: We granted further review in this cause to clarify what has unnecessarily become a muddled area of the lawi.e., which portions of an injured party's personal injury or workers' compensation award should be included in the marital estate for purposes of property division. This court last dealt with the issue of one spouse's personal injury settlement being considered marital property in Maricle v. Maricle, 221 Neb. 552, 378 N.W.2d 855 (1985). The divorce in Maricle v. Maricle occurred a few years after the husband had been injured in a truck collision that left him permanently and totally disabled. In actions for damages arising out of the accident, the husband and wife received a $300,000 settlement. After attorney fees, this sum was divided so that the wife received 20-some thousand dollars for loss of consortium and the husband received the balance. When the couple divorced, the question presented to this court was whether the husband's personal injury settlement should be included in the marital estate for purposes of dividing the parties' property. Without discussing whether and what portions of such an award should be considered to be the separate property of the injured spouse, this court, sitting on a division panel, determined that the husband's entire settlement should be included in the marital estate. The court stated: In the present case equity requires that the proceeds from the settlement of the damage actions be included in the marital estate. The proceeds were not acquired by gift or inheritance, Van Newkirk v. Van Newkirk, 212 Neb. 730, 325 N.W.2d 832 (1982), nor were they assets held in a trust established by a third person, thereby rendering them not a part of the marital estate, Essex v. Essex, 195 Neb. 385, 238 N.W.2d 235 (1976). Furthermore, the proceeds from the settlement constitute the main asset and the primary source of income of the parties. Maricle v. Maricle, 221 Neb. at 554, 378 N.W.2d at 857. Since deciding Maricle v. Maricle in 1985, we have not revisited the issue of how to divide one spouse's personal injury settlement or award upon dissolution of marriage. In 1995, however, the Court of Appeals found itself confronted with a similar issue in Gibson-Voss v. Voss, 4 Neb.App. 236, 541 N.W.2d 74 (1995). That case involved the question whether one spouse's workers' compensation award should be included in the marital estate upon divorce. Noting that Nebraska is an equitable distribution jurisdiction and citing cases from other equitable distribution jurisdictions, the Court of Appeals articulated four factors to be considered in determining which portions of an award are marital property and which are separate property. [A] court must consider (1) the purpose of the award, e.g., whether it was made for lost earnings, loss of future earning capacity, or some other purpose; (2) the time period of any diminished earning potential or disability; (3) the nature and date of the underlying injury; and (4) the terms of the award. Id. at 242, 541 N.W.2d at 78. The Court of Appeals concluded that an injured spouse's workers' compensation award should not be included in the marital estate to the extent that it compensates the injured party for loss of premarriage or postdivorce earnings. Id. In doing so, the Court of Appeals did not mention or discuss our holding in Maricle v. Maricle, 221 Neb. 552, 378 N.W.2d 855 (1985). Then, in 1999, the Court of Appeals decided Mathew v. Palmer, 8 Neb.App. 128, 589 N.W.2d 343 (1999). At the time of the parties' divorce in Mathew v. Palmer , the wife was a plaintiff in a pending medical malpractice suit alleging personal injuries from defective breast implants. The wife had also obtained a $100,243 settlement from a breach-of-privacy suit wherein a physician provided a newspaper with an × ray of the wife's breasts, and the newspaper published that × ray and identified the wife by name. In deciding that the proceeds from neither of the wife's actions should be included in the marital estate, the Court of Appeals in Mathew v. Palmer, supra , considered two approaches employed in other jurisdictions: the mechanical approach and the analytical approach. Under the mechanical approach, all the moneys realized from a personal injury action are placed in a marital estate. Meanwhile, under the analytical approach, only those portions of a personal injury award that represent compensation for past wages, medical expenses, and other items which diminish the marital estate are included within the marital estate. Id. In Mathew v. Palmer, supra , the Court of Appeals correctly acknowledged that the existing jurisprudence in Nebraska would place our state among the mechanical approach jurisdictions. It accurately conveyed the facts and holding in Maricle v. Maricle, supra , wherein this court held that the husband's entire personal injury award should be placed in the marital estate. Nevertheless, the Court of Appeals concluded that Nebraska now uses the analytical approach in determining what should be considered as separate property of the injured spouse and analyzed the division of the parties' property accordingly. In Parde v. Parde, 8 Neb.App. 242, 591 N.W.2d 783 (1999), the Court of Appeals then cited Mathew v. Palmer, supra , for the same proposition. Because obvious confusion exists regarding the extent to which an injured party's personal injury or workers' compensation award should be included in a marital estate, we now revisit the issue to resolve the apparent conflict in the law. In determining what assets constitute the marital estate and how the property should be divided, we note that Nebraska, by statute, is an equitable property distribution jurisdiction. Neb.Rev.Stat. § 42-365 (Reissue 1998). In equity, there is rarely one tidy answer that fits every size and type of problem that courts are called upon to resolve. It is precisely for this reason that a principled approach to this issue should be consistent with the basic policy rule that the marital estate should include only property created by the marital partnership. See Davidson v. Davidson, 254 Neb. 656, 578 N.W.2d 848 (1998). The Court of Appeals, in Mathew v. Palmer, supra , correctly observed that there are two general approaches to this issue. In the analytical approach, courts analyze the nature and underlying reasons for the compensation. The core of the analytic approach is its recognition that the classification of the award depends upon the nature of the underlying loss. Brett R. Turner, Equitable Distribution of Property § 6.18 at 390 (2d ed.1994). One court explains the analytical approach's rationale: Nothing is more personal than the entirely subjective sensations of agonizing pain, mental anguish, embarrassment because of scarring or disfigurement, and outrage attending severe bodily injury. Mental injury, as well, has many of these characteristics. Equally personal are the effects of even mild or moderately severe injury. None of these, including the frustrations of diminution or loss of normal body functions or movements, can be sensed, or need they be borne, by anyone but the injured spouse. Why, then, should the law, seeking to be equitable, coin these factors into money to even partially benefit the uninjured and estranged spouse?... The only damages truly shared are those discussed earlier, the diminution of the marital estate by loss of past wages or expenditure of money for medical expenses. Any other apportionment is unfair distribution. Turner, supra at 389-90 (quoting Amato v. Amato, 180 N.J.Super. 210, 434 A.2d 639 (1981)). By contrast, a minority of courts apply the mechanical approach. These courts note that personal injury awards are not neatly categorized under the traditional definitions of separate property and therefore hold that personal injury awards are entirely marital property. Turner, supra. With little analysis, that is exactly the approach this court adopted in Maricle v. Maricle, 221 Neb. 552, 378 N.W.2d 855 (1985). Upon further consideration, however, we think the analytical approach is much more consistent with the basic rule that the marital estate should include only property created by the marital partnership, and we now adopt that approach. Compensation for purely personal losses is not in any sense a product of marital efforts. We, therefore, hold that compensation for an injury that a spouse has or will receive for pain, suffering, disfigurement, disability, or loss of postdivorce earning capacity should not equitably be included in the marital estate. On the other hand, compensation for past wages, medical expenses, and other items that compensate for the diminution of the marital estate should equitably be included in the marital estate as they properly replace losses of property created by the marital partnership. By so holding, we overrule Maricle v. Maricle, supra , insofar as it adopted the mechanical approach to the division of a personal injury award in a subsequent divorce. We add, however, that the burden of proof to show that property is nonmarital remains with the person making the claim. See Shockley v. Shockley, 251 Neb. 896, 560 N.W.2d 777 (1997). Thus, in those cases where the party making the claim of nonmarital property fails to prove that all or portions of an injury compensation are for purely personal losses or loss of future earning capacity, the presumption remains that the proceeds from the personal injury or workers' compensation settlement or award are marital property. See § 42-365.