Navigating family law after a personal injury settlement: Key considerations
In the Personal Injury field, obtaining a favourable settlement and accessing quality rehabilitation is often the ultimate goal. However, the conclusion of a personal injury case does not always mark the end of legal considerations. A study conducted by Headway Brain Injury Association found that 44% of brain injury survivors reported breakdowns in their family relationships after injury.
Georgie Wilson, a solicitor in our Serious Injury Team sits down with Clodie Allott, a solicitor in our Family team to discuss the key considerations from a Family Law perspective for those who receive personal injury settlements.
How does the Family Court view personal injury settlements in financial proceedings on divorce?
In most cases, the starting point will be that ‘matrimonial assets’ should be divided between the parties on divorce, whilst non-matrimonial assets are only divided when required to meet the parties ‘needs’. Personal injury damages are not automatically non-matrimonial and even when they are, they are frequently ‘invaded’ by the Family Court to meet a party’s or child’s ‘needs’.
The legislation that governs how finances are divided on divorce provides that, amongst other factors, the Court should have regard to the financial resources each of the parties to the marriage has or is likely to have in the foreseeable future.
Many clients will believe personal injury settlement is excluded or ‘ringfenced’ when considering the division of assets on divorce. This is understandable as throughout their personal injury claim, particularly in the more complex cases, there will have been in depth scrutiny about how each element of the settlement will compensate them for past losses and how it will meet their future needs. Even after the settlement, they will have been considering how best to invest a settlement to ensure its longevity.
Unfortunately for them, personal injury settlements are not ‘ringfenced’ within the Family Court. The case law is clear that personal injury settlements can, and are, considered financial resources capable of division between the parties.
The Court may approach different parts of the award differently, for example there is a public policy argument that the award for Pain, Suffering and Loss of Amenity (PSLA) should be retained by the claimant (especially as the sum is often a small proportion of the overall award). Indeed, we’ve had experience where PSLA awarded 15 years ago has been ringfenced by the Court and the remainder of the settlement has been divided, but this is specific to the circumstances of that case.
Similarly, if the claimant has ongoing care needs this is going to be a relevant factor when the Court considers how any damages are dealt with on divorce.
The Court’s approach to the division of personal injury settlements on divorce varies significantly in each case depending on a number of factors. These factors include, but are not limited to:
- The specific purpose of the settlement by referring to the heads of loss claimed – some heads of loss are more “vulnerable” to division than others;
- The size of the settlement in comparison to the other assets available for division, including reference to how much of the settlement has been used (and for what purpose) during the marriage;
- Whether the personal injury settlement was received before or during the marriage;
- How the settlement was treated by both parties during the marriage (for example, was it used solely for the claimant? Did the claimant take steps to try and protect it by putting the money into a trust and preparing a nuptial agreement? Or was it used to meet the needs of the family); and
- The parties’ needs on divorce.
Each case will be decided own facts. A decision in a case where the main asset is the personal injury settlement will be decided very differently to one where it is a small proportion of the assets available. It is crucial that advice is taken from a Family solicitor at the earliest opportunity if there is an ongoing or settled personal injury claim alongside marital breakdown.
As a case settles, what advice would you give to Claimants about how they can protect their damages in the event of a future relationship breakdown?
Claimants should take asset protection advice from a Private Client solicitor and a Family Law solicitor before the damages are received into their account. Many claimants decide to put their settlement into a Personal Injury Trust (PIT) to protect the settlement for welfare benefits purposes. This may also benefit them in the event of relationship breakdown, although the Family Court has a wide range of powers on divorce.
Whilst the Family Court can still take into consideration (and in some cases make orders against assets that are held in trust) having a PIT (or alternative trust) may very well show an intention on the behalf of the claimant to keep the personal injury settlement separate from the matrimonial assets. This can help to strengthen the argument that these assets should be protected in so far as possible upon divorce.
In addition, the claimant should be encouraged to give serious consideration to entering into a nuptial agreement which sets out what the financial division of assets on divorce might look like (please see below).
Claimants, their advisors and trustees (if the settlement is placed into trust) also need to ensure that the settlement is not ‘mingled’ with other family assets and use it, as far as they can, for its intended purpose – to compensate the claimant for their injury and provide for their future needs. It would be difficult for them to argue, in financial proceedings that they should retain the entirety of the settlement if they have used it to fund a lavish lifestyle for the family or mixed it with joint funds.
To summarise, to protect the settlement as far as possible, consider a trust alongside a nuptial agreement and in any event use funds to meet the claimant’s own needs, keeping them separate from other assets.
These steps may not be foolproof, but they will usually mitigate risk.
It is worth remembering that marriage creates rights and responsibilities and gives the Family Court wide powers on divorce. Unmarried couples are not subject to the same laws, albeit there are other considerations to bear in mind for cohabiting parties. Specialist advice is always the key.
Before a case settles, lawyers can consider building provisions into damages awards to safeguard Claimants in the event of divorce proceedings. Can you discuss what evidence can be gathered and how the family law team can support with this?
We are often asked, as Family solicitors, to provide witness statements as supporting evidence within personal injury claims, to outline the estimated or incurred costs of family law issues and/or disputes that have arisen or could arise as a result of the personal injury itself. A few examples of what we have been asked to comment on in the past include:
- Divorce and associated financial remedy proceedings;
- Surrogacy and assisted reproduction, often in the event where a claimant, as a result of the personal injury, has lost the ability to conceive or carry a child;
- Pre-nuptial and post-nuptial agreements, in the event that a claimant is due to marry or is already married when the personal injury claim is ongoing.
- If a personal injury claim relates to a child that shares their time between separated parents, the consideration that should be had to the child’s needs when spending time with each parent (for example, in a complex case involving serious life-long injury, they will likely require a suitably adapted house with both parents).
The costs of the above may be capable of being incorporated into the personal injury claim (although there are differing thoughts amongst PI practitioners) and can also provide justification for interim payments within the claim.
Family law matters and personal injury settlements pose a unique challenge in balancing confidentiality obligations and disclosure requirements. Personal injury settlements often involve protected parties, and often include confidential terms. This is aimed at protecting the privacy and interests of the parties involved. How is this dealt with in the Family Court where a high degree of transparency is required and what safeguards are available?
In the Family Court each party has a duty of ongoing full and frank financial disclosure to the Court, and to their spouse. This includes all material facts, documents and other information relevant to the issues in the case.
Often, parties will seek disclosure of documents from a personal injury claim, such as details from the Schedule of Loss prepared in the claim. This is often necessary to establish how a personal injury claim was calculated, to consider how the settlement has been used throughout the marriage (if applicable) and to ascertain the claimant’s needs at the time of the personal injury settlement, compare to their needs now. Medico legal reports may also be relevant and disclosable with divorce proceedings. Although the passage of time may render expert opinion less persuasive, its also important to remember that the Family Court is playing a very different role than the original PI tribunal. The Family Court is seeking to divided finite assets between a divorcing couple in manner that is fair and meets each parties’ needs and the needs of any children. Expert opinion which was determinative in the PI case may have much less weight in a Family law setting.
Advice should be taken from a Family solicitor about what documents should be produced to support a divorce case and what further disclosure may be sought by the other side.
Consideration will need to be given as to whether any request is appropriate and proportionate to the issues in dispute between the parties. This depends on the circumstances of the case. For example Schedules of Loss are likely to be proportionate in a case where a personal injury settlement is the main asset but less so where it is a minor part of the overall asset base.
A final point worth considering is whether PI practitioners should carve out exceptions to non-disclosure provisions sought within their civil case to avoid having to go back to the civil court if and when parties do subsequently divorce.
How may a pre or post-nuptial agreement assist protect damages? Are they applicable to personal injury settlements and is it ever too early or too late to begin discussions around these areas?
A nuptial agreement is a useful tool when considering how best to protect a personal injury settlement. Whilst the Family Court are not strictly bound by nuptial agreements, it is becoming increasingly common for the Court to give effect to them if they meet certain criteria.
A pre-nuptial agreement is used in circumstances when a couple are not yet married, but are contemplating marriage, whereas a post-nuptial agreement is used when a couple is already married. As above, the rules for cohabitees are different, but a cohabitation agreement is sensible in these circumstances, especially where there is jointly owned property.
Discussions regarding nuptial agreements can be particularly tricky; very few couples want to consider what might happen in the event of divorce and factor this into their wedding plans. However, this is why these discussions are all the more important. It’s never too early to start talking about them, and we cannot stress this enough, well in advance of the wedding.
Nuptial agreements can and should be discussed even before a PI settlement has been reached or the value of the claim is known. In these circumstances it may be sensible for the agreement to be reinforced post settlement with an addendum or post nuptial settlement.
It is important that legal advice is taken from a Family solicitor regarding the Law Commission recommendations and on the terms of any draft nuptial agreement.
Is there any impact on this approach if the couple are not married?
The law treats unmarried couples differently to married couples. There is a common misconception that unmarried couples have the same financial claims against one another as married couples on separation – this is known as the “Common Law Marriage Myth”. However, unmarried couples’ claims are very different and relate mainly to property and financial provision for children.
It is possible, in some circumstances, for one person to acquire an interest in a property even if they are not a legal owner. Claimants who are cohabiting need to take prompt advice from a Family solicitor before purchasing a property which will be inhabited by their partner, using their personal injury settlement (even if this is being bought in their sole name). Claimants should consider entering a cohabitation agreement in these circumstances. A cohabitation agreement is used to clearly set out who owns what, and what will happen in the event of a separation.
In circumstances where an unmarried couple have children and later separate, the parent who has primary care for the child may be able to make financial claims against the other party on behalf of the child. This claim can include child maintenance, lump sums to meet the needs of the child, and housing provision for the child.
The law in relation to unmarried couples is complex and where disputes arise, they can be disproportionately expensive to resolve. It is imperative to take advice from a Family solicitor at an early stage. The way a personal injury settlement is dealt with in these circumstances could make a real difference in the unfortunate event of a separation.
These areas of law are ever-changing. It is always advisable to take legal advice when faced with any of the issues discussed above. The Irwin Mitchell Family and Personal Injury Teams have a team of specialist lawyers with a wealth of experience who can help.
Contact details:
Clodie Allott, solicitor, Family – Clodie.Allott@IrwinMitchell.com (Mobile: 07917 232317
DDI: 0114 294 7949)
Georgie Wilson, solicitor, Serious Injury – Georgie.Wilson@IrwinMitchell.com (DDI: 0114 294 7938 / Mobile: 07775 929596)
