Protecting personal injury settlements from a separation or divorce

Achieving a personal injury settlement is often the result of a long and challenging journey. Once achieved, it is only natural to use the settlement to make life easier for you and your loved ones. However, it is important to consider legally protecting your hard-won funds in the event of a separation or divorce, to ensure that they will remain available for your future needs and use. 

There are several ways to legally protect your settlement, depending on the nature of your relationship with your partner.

Protections if you live with or plan to live with your partner

If you are unmarried and live with or are planning to live with your partner in a property purchased or adapted using the settlement funds, it is crucial to take steps to safeguard your financial interest in the property.

In some cases, a person living in a property owned by their partner can gain a financial interest in that property without explicit agreement. This can happen through contributions to mortgage payments, renovations, or based on informal promises about ownership – the law does not automatically ringfence properties purchased using personal injury settlement funds. Upon separating, an ex-partner can seek to establish their financial interest in the property and payment equivalent to the value of their interest – they can even force a sale of the property to secure a payment equivalent to their interest.

Taking legal advice before committing to purchase a property with a partner is a vital step for any recipient of a personal injury settlement. The way in which you purchase the property can have a significant impact on how the property is treated in the event of a separation. It could prove to be a very expensive and life changing outcome if you do not take the right steps to safeguard your interest. 

You can enter a declaration of trust and/or cohabitation agreement with your partner to protect your interest your property. These documents can help to reduce uncertainty and conflict by outlining how the property was purchased, any financial contributions to the property, and your intentions as to how the property should be held and dealt with if you were to separate from your partner. If a dispute arises in future, a declaration of trust and cohabitation agreement can be compelling evidence for the Court.

Protections if you plan to marry you partner/are already married

The Family Court deals with the division of assets between couples differently when they are married. It has a wide discretion in financial proceedings connected to divorce, and personal injury settlements are not automatically excluded from division between spouses. In Wagstaff v Wagstaff [1992] 1 All ER 275, the Court ruled that the nature and circumstances personal injury settlements are ‘highly relevant’, but not determinative. This means that within financial proceedings connected to divorce, you could be ordered by the Court to share some of your personal injury settlement with your ex-spouse. 

Before marrying, engaged couples can enter into a pre-nuptial agreement to protect the assets they bring into the marriage from being shared upon separation, such as personal injury settlements. A pre-nuptial agreement should state how the couple would like their finances to be dealt with in the event of divorce, and can identify certain assets that the couple would or would not like to be shared. Whilst not strictly legally binding in the Courts of England and Wales, pre-nuptial agreements are very persuasive to the Court when they are entered into freely, without duress, and the parties have received independent legal advice. You can include a provision stating that your personal injury settlement and any assets purchased using those funds should not be shared with your spouse upon separation, or that the portion they receive should be limited.

If you are already married when you receive your settlement, you can enter a post-nuptial agreement. Similar to a pre-nuptial agreement, a post-nuptial agreement is not legally binding but can be persuasive to the Court.

How we can help

Whilst it can seem unromantic, it is important to take steps to protect your personal injury settlement in the event that you separate from your partner. Our specialist Family team has substantial experience working with personal injury and Court of Protection clients can provide you with specialist legal advice.