Personal Injury Awards in a Colorado Divorce

Personal Injury Law, Briefly

A personal injury, or PI case is when an injured person (normally called a “claimant” or “plaintiff”) can pursue damages against another person or business for harm suffered. This area of law can cover everything from car accidents and slip & fall injuries, to products liability issues and medical negligence. Lawsuits involving car accidents are the most common, and the ones advertised the most on TV!

Personal injury cases generally follow the same pattern regardless of the actual harm suffered. After treatment is complete, a claim for damages is filed with an insurance company for review. A claim can be filed before treatment is complete if the statute of limitations will run in the near future. Once a claim is processed, more often than not, the insurance company will make an offer to settle the case for a set amount of money. Many cases can settle or resolve after a claim is filed.

In some circumstances, the offer to settle the case is too low to accept, or no offer is made. In those cases, either the claim can be dropped with no damages received, or the injured person initiates litigation by filing a lawsuit. And once filed, a lawsuit can still reach a negotiated settlement at any point before a jury trial, though if negotiations break down, on occasion a case is tried in front of a jury. The overwhelming majority of PI cases settle before trial. Only 3% of federal personal injury cases are actually litigated at a contested hearing, and for state court, Colorado PI attorneys report that not only are a tiny fraction of cases ever filed, but of those filed, only 5% see a courtroom.

Will An Appeal Affect Timing Of The Payment?

For that tiny fraction of cases that do make it to trial, a jury verdict may not be the end of the case. The losing party can file a post-trial motion within 14 days or a notice of appeal within 49 days. According to the 2018 Colorado Judicial Branch Annual Statistical Report, the Court of Appeals, had less than 1000 civil appeals of all types filed (almost a 10% increase from 2017), meaning that the number of pure personal injury appeals is relatively low.

If a case is appealed, that can delay full resolution and getting a check for months, if not years. If no motions are filed and no appeal is pending, a check normally comes in fairly quick after a verdict as Colorado allows for post-judgment interest to accrue.

PI Settlements In A Colorado Divorce

A personal injury award will almost certainly affect the outcome of a Colorado divorce, regardless of whether it was the result of a negotiated settlement, or a jury verdict. For guidance on how a court treats property in a divorce, see generally our asset & debt articles in this Guide. But personal injury settlements are unique and have a lot of “moving parts.” They are both income and property, and while an injury may have occurred at one time, the payout may be structured over time, or the payout may be intended to cover an injury that lasts a lifetime.

The basic rule for a Colorado divorce is that the when the injury occurred determines whether the settlement is marital or separate property. But that is only the starting point - even when a personal injury happened before the marriage, there are still multiple ways it could affect the outcome of a divorce:

• When the claim was settled before the marriage, but the injured spouse is receiving periodic payments during the marriage.
• When the claim was settled during the marriage.
• When the injured spouse will continue to receive periodic payments after the dissolution of marriage

Similarly, when a personal injury happens during the marriage, the settlement may be received after dissolution. Or while the harm was caused during marriage, the payout is intended to cover both the initial harm and financial costs (lost wages, hospitalization, etc), as well as the lasting harm for years to come, even after divorce.

Personal Injury Awarded During Marriage Is Marital Property

There is no clear cut law determining whether a personal injury settlement is marital - it is a very fact-specific inquiry. Colorado is a “marital property” state, which means the presumption in a dissolution of marriage is that all property acquired during marriage is marital property, C.RS 14-10-113(2), unless it meets one of the narrow exceptions discussed in our Guide.

In 1983, the Colorado Court of Appeals issued the seminal decision addressing for the first time how domestic relations courts should treat personal injury settlements in a divorce. In re: Marriage of Fjeldheim. 676 P.2d 1234 (Colo.App. 1983). During the marriage, the wife was in a vehicle accident, and received a $7000 settlement. The trial court, while correctly finding that the settlement was property, found it was not marital property, as it was compensation for the wife’s pain & suffering. The husband appealed, and the Court of Appeals reversed:

“we hold that a personal injury settlement offer, even if only for pain and suffering, is marital property if it arises from an accident which occurred during the marriage.”

Fjeldheim at 1236.

Division of Structured Settlement During Marriage

Though Fjeldheim was groundbreaking, its facts were simple in that both the harm, and the payout, were entirely during the marriage. Many times settlements are not that straightforward - either because the payments continue for years beyond a divorce, or because the injuries will have a lasting impact beyond the divorce, or both.

In In re: Marriage of Simon, 856 P.2d 47 (Colo.App. 1993), a husband who was permanently disabled in a vehicle accident during marriage (in 1981) sought to recover for those injuries, while the wife sought to recover for loss of consortium (basically means loss of companionship (i.e. sex) due to the accident). The structured settlement they received included an annuity which provided annual payments until 1997, plus $6000/mo as long as either party lived.

At the parties’ dissolution of marriage in 1991, the annuity was worth about $1.2m, and the trial court awarded 90% of it to the husband and 10% to the wife. Both parties appealed. The Colorado Court of Appeals found that the trial court had, effectively, continued the joint ownership of the assets by its division. And with respect to the 90/10 award of the annuity, the Court of Appeals reversed, finding that the trial court relied exclusively upon a finding that the husband’s injury “earned” about 90% of the award, and failed to consider all circumstances:

“The assets resulting from the personal injury settlement are marital property subject to equitable division under the statute. In dividing those assets, the trial court should consider the actual effect that the personal injury had on the marital estate. Among the factors that could affect the marital estate are items such as lost income, medical expenses, and inability to meet marital obligations such as maintenance and child support. This list is not meant to be all-inclusive of the factors to be considered as other items might be relevant in different circumstances.”

Simon at 50.

However, the Simon court noted that an equal division of the PI settlement was not required, and as part of a broader inquiry it was still appropriate to consider which spouse had suffered the most:

“However, a division taking into account husband's physical condition and related expenses is certainly appropriate in this case, so that, while an award more favorable to wife than that made here would be permissible, a disproportionate award would also be within the court's broad discretion.”

Simon, at 50.

Compensation For Loss Of Post-Divorce Earnings

In Simon, the trial court considered the husband’s disability income to be his separate property. Often, that is appropriate: “Generally, a spouse's post-dissolution earnings are not marital property, so that benefits compensating for loss of those earnings are not subject to division.” Simon, at 50.

However, to the extent that the benefits were from an insurance policy paid with marital funds, they constitute a marital asset subject to division:

“Here, however, husband also receives proceeds from a private disability insurance policy acquired with marital funds during the marriage. Therefore, we conclude that such private insurance is not excluded from the statutory definition of marital property and, thus, is subject to division.”

Simon, at 50.

Division Of Potential Personal Injury Award

Is a claim arising from during the marriage, which has not yet resulted in an award, a divisible asset? Yes, assuming the claim has already been filed.

An “unliquidated” claim is one where the value is not yet certain as no settlement has been paid. However, in some circumstances, it may be divisible. In In re: Marriage of Fields, 779 P.2d 1371 (Colo.App. 1989). the husband was injured during the marriage, and though he had a pending tort claim, his case had not yet been set for trial, and no offer of settlement had been made.

The trial court determined that the claim was marital property, and the husband appealed, arguing “the tort claim had no cash value, no loan value, no redemption value, no lump sum value, no value realizable after death, and no known settlement value. Fields, at 1373.

The Colorado Court of Appeals rejected that argument, finding that just because the claim was contingent and value not known, it was still divisible: “We do not view the uncertainty encountered in valuing the claim as requiring its classification as separate property.” Fields, at 1373. Moreover, because the trial court may have difficulty trying to put a value on an unliquidated claim, the court could award percentage values instead.

Even if the personal injury claim is not resolved before the divorce case is resolved, the court can retain jurisdiction and still require the division of the settlement afterwards, much like the court can require the proceeds from the sale of the marital home to be divided even after the divorce is finalized.

However, where no claim had been filed by the time of dissolution, the opposite result was reached. In In re: Marriage of Balanson, 996 P.2d 213, (Colo.App. 1999), reversed on other grounds, 25 P.3d 328, the wife and daughter were injured during the marriage, and had a potential Personal Injury Protection (PIP) benefits claim. However, the wife had not filed any claim, neither spouse listed the potential claim as an asset on their financial statements, and there was no evidence presented about the value of the claim. Instead, the husband argued in closing (which is not evidence) that by simply submitting a claim, the wife would receive over $16,000 - which was the maximum amount allowable by law. The trial court valued the claim as part of the marital estate, but the Colorado Court of Appeals reversed, finding the claim too speculative, and remanded it to the trial court for more detailed findings.

The logical conclusion of this body of law is that a personal injury claim arising during marriage is only divisible if it has been filed prior to dissolution. Presumably there is some room for flexibility to prevent one spouse with a certain claim and severe injury from shielding the entire award from the other spouse simply by waiting until after the divorce before filing a claim.

How Much Money Is Available For The Court To Divide?

With personal injury cases involving attorneys, there are guidelines as to who gets paid and when they get paid under Colorado Law. Why does this matter in a divorce case? Who gets paid and when they get paid will determine how much money goes to the PI client at the end of the case, and necessarily how much money is actually available to allocate as property.

Personal injury settlements are subject to not only the release or settlement documentation but also Colorado and Federal law regarding debts. Jury awards will be subject to Colorado and Federal law regarding debts. The release is a contract between the injured party and the insurance company resolving issues and laying out the terms of the agreement to settle a case. That means all debts related to the personal injury case (liens, outstanding medical costs, attorney’s fees and costs, etc.) will come out of the award before any money goes to the injured party.

If someone has insurance coverage that includes treatment for personal injury cases, that insurance company may have the right to “subrogation” on any personal injury claim. What that means is the insurance company has the right to be reimbursed for money spent that otherwise would have been paid by the party at fault under C.R.S. 10-1-135. Depending on the insurance contract, an injured party may have a contractual obligation to repay his or her own insurance carrier for money spent on treatment that was caused by another party’s action.

Personal injury awards usually involve medical bills - another debt to repay. In the personal injury context, a medical lien is a demand for repayment out of a personal injury settlement or award. Treating on a medical lien is very common in Colorado personal injury cases, whether or not someone has insurance.

Most personal injury attorneys use what is called a contingency fee agreement, or CFA. This agreement means that the attorney takes a set percentage of the settlement or jury award. Most CFA’s will require that the attorney be paid before the client can receive any money from a settlement or award. Percentages can range from 20% to 40% depending on the firm and whether or not the case goes to trial. Many firms charge more when a case goes to trial. For some cases in federal court, 28 U.S. Code § 2678 mandates a cap of 20% or 25% depending on the type of case. The Workers’ Compensation Act limits attorney fees to 20%.

Whenever a personal injury case is resolved, the attorney’s fees are typically calculated based upon the total award, before any liens or subrogation claims. Then, after the liens and subrogation claims are paid from the award, the attorney’s fees are deducted. Whatever remains goes to the actual person who was injured. And this is also the amount a court can consider for division in a divorce.

Let’s use a $25,000 settlement as an example of how this all fits together. If the attorney charges a 40% CFA, and the injured party had $5,000 in liens and subrogation claims, the injured party may only see $10,000.

$25,000    Settlement
-5000        Liens & Subrogation
-10,000     Attorney’s Fees (40% of original $25,000)
---------------------------------------------------------------------
$10,000    Remainder paid to client

So the amount a domestic relations court may divide is not the original $25,000 award, but the $10K which remains after deducting liens and expenses.

Settlements for Minors

When a minor child is injured by a third party, parents can pursue a claim on behalf of that child just as they can pursue a claim for themselves should they be injured because children cannot sue until they are 18 under C.R.S. 13-22-101.

If parents are separated, only the parent with legal decision making abilities can be the parent to retain an attorney or approve a settlement agreement on behalf of that child. In Colorado, in addition to a parent approving a proposed settlement agreement, the court must also review and approve the settlement agreement under C.R.S 15-12-1102 before a child’s settlement can be finalized. This process is governed by the Colorado Rules of Probate Procedure and is used to ensure that the best interests of the minor are protected.

Depending on the size of the proposed settlement, the court has many options to protect the minor’s interest and one common solution is to appoint a conservator. If the amount of the proposed settlement exceeds $10,000, a conservator must be appointed by the court. Often, one parent is appointed as the conservator to manage the settlement proceeds on behalf of the settlement.

A conservator is an individual appointed by the court to protect the financial welfare and estate of a protected person under C.R.S. 15-14-401.The conservator has certain responsibilities to the protected person, including filing yearly reports with the court. C.R.S. 15-14-420.

If the probate court appoints one parent as a conservator, the court in a divorce case should respect that appointment and will likely not make any changes to the appointment. If the parties in a divorce want to change an appointment from the probate court, they will have to go back to the probate court directly to do so.

Note that being appointed a conservator does NOT mean the parent can pocket the money - the funds belong to the child, and the role of the parent is to manage the money & report to the court as a fiduciary. Most judges will require advanced approval from the court before any money can be spent out of the settlement.

PI Award Is Income For Purposes Of Child Support & Alimony

When calculating one spouse’s financial resources for child support, C.R.S. 14-10-115 is clear that gross income for calculating support will include “income from any source” outside of those expressly excluded. C.R.S. 14-10-114 requires that the court look at all the financial resources the parties have available for alimony calculations. Courts have construed that statutory language broadly.

In re: the Marriage of Fain, 794 P.2d 1086 (Colo.App.1990), Colorado's seminal case on the intersection between personal injury and support, lays out the prevailing view that structured settlements should be considered when setting support. In that case, the husband received structured payments as a result of a personal injury and he argued that those payments were merely property and not income for the purposes of calculation.

The court disagreed with that view, and made it clear that C.R.S. 14-10-115 does not explicitly exclude personal injury settlements, therefore the court can and will consider personal injury settlements as income for child support stating that:

"While the General Assembly expressly excluded certain benefits from the definition of ‘gross income,’ the statute does not provide an exclusion for personal injury benefits. Therefore, we agree with the trial court that husband's personal injury settlement payments are a financial resource that constitutes "gross income" under the child support guidelines."

Fain, at 1087 (Cleaned up).

Something to note is that the court will always maintain jurisdiction over child support and spousal maintenance (unless the spouses agreed the maintenance would be non-modifiable), so if a personal injury case is resolved well after the divorce is finalized, the court can still take it into consideration for post-decree modifications as income.