Opinion ID: 1136017
Heading Depth: 3
Heading Rank: 2

Heading: Michael's Wrongful Termination Lawsuit[11]

Text: In Bandow v. Bandow, 794 P.2d 1346 (Alaska 1990), this court adopted the analytic approach for classifying tort damages for purposes of dividing a marital estate: Under this approach, the purpose for which the recovery is received controls its classification; a recovery, or portion thereof, being classified as that which it is intended to replace. To the extent the recovery compensates for losses to the marital estate, it is marital property. To the extent the recovery compensates for losses to a spouse's separate estate, it is his or her separate property. Id. at 1348 (citations omitted). Thus, insofar as Michael's settlement reflects mental anguish, an element of non-economic damage, the proceeds are his separate property. Michael settled his wrongful termination claim against Union Oil for $30,000 which was designated in the settlement agreement as damages for mental distress. Notwithstanding the settlement agreement, the superior court found that [Michael's] claims in the suit, emphasized by their continued reference in the Amended Complaint, were based more on economic loss rather than emotional distress. The Court finds that the settlement proceeds in that suit were marital property, constituting recovery for loss of earning capacity.[ [12] ] Michael argues that under Bandow the superior court is required to accept the classification of damages as contained in the underlying settlement agreement. To hold otherwise, he claims, is bad policy in that it causes unpredictable results and promotes mini-trials. Michael's argument is unpersuasive. The goal of the analytic approach of classifying damages is to assure that any division of tort proceeds reflects the underlying components of damage. Bandow, 794 P.2d at 1348. To hold that the superior court is precluded from reclassifying damages would be self-defeating; that is, if the formal structuring of settlement proceeds subsequently controlled their classification as either marital or separate property, then the analytic approach would be meaningless. Since at times parties designate damages in tort settlements in manners wholly unrelated to the underlying harm, a particular classification of damages may have little basis in reality. Consequently, though the labeling of Michael's damages as mental anguish may carry evidentiary weight, it is not dispositive of their true character. To hold otherwise elevates form over substance and creates perverse incentives in structuring settlements where one of the parties is involved in a divorce proceeding, or anticipates such an eventuality. Thus, we conclude under Bandow that the designation or structuring of damages in a settlement agreement does not control whether the proceeds are separate or marital property.
As noted previously, the superior court concluded that the proceeds from Michael's wrongful termination suit settlement were based more on economic loss rather than emotional distress. As a consequence, the superior court concluded that the settlement proceeds in that suit were marital property, constituting recovery for loss of earning capacity. We think the superior court's predicate finding for its holding that the Union Oil settlement proceeds were marital property is inherently ambiguous. Given that the superior court did not find that settlement claims were based wholly on economic loss, this issue must be remanded to the superior court for additional proceedings to determine whether or not these proceeds should be allocated as between marital and nonmarital property. [13] On remand, the superior court is authorized to take additional evidence on this issue. More specifically, the superior court should admit into evidence Michael's deposition which was taken in the Union Oil litigation as well as any additional relevant evidence the parties may offer on this issue. The superior court should then enter further findings of fact and conclusions of law regarding the nature of this property and its proper distribution.