How Do The Courts Regard Personal Injury Compensation When Distributing Assets of the Marriage?

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How are assets divided on divorce? 

The Court will consider a list of factors under section 25 of the Matrimonial Causes Act 1973 when deciding how assets, including any compensation/ damages received, will be decided on divorce.

The welfare of any children of the family will be a paramount consideration for the Court.

The starting point is that matrimonial assets will be shared equally, save in certain circumstances. 

The Court has a statutory duty to consider whether the parties can live independently from each other as soon as possible post-divorce.

This may be easier to achieve in some cases and impossible in others.

Each case will be determined according to its own facts. It is, therefore, dangerous to assume that all cases are dealt with similarly.

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How are assets divided on divorce

What are the "Section 25 Factors" under the Matrimonial Causes Act 1975? 

  • The income, earning capacity, property, and other financial resources each of the parties in the marriage have or are likely to have in the foreseeable future;
  • The financial needs, obligations, and responsibilities which each of the parties to the marriage has or are likely to have in the foreseeable future;
  • The standard of living enjoyed by the family before the breakdown of the marriage;
  • The age of each party to the marriage and the duration of the marriage;
  • Any physical or mental disability of either of the parties to the marriage;
  • The contributions which each of the parties has made or is likely to make in the foreseeable future, including any contribution by looking after the home or caring for the family;
  • The conduct of each of the parties;
  • If the parties to the divorce have children, the Court will pay particular regard to;
  • The financial needs of the child;
  • The income, earning capacity (if any), property and other financial resources of the child;
  • Any physical or mental disability of the child;
  • How the child was expected to be educated or trained.

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What are the Section 25 Factors under the Matrimonial Causes Act 1975

What are matrimonial assets? 

These are assets built up by either party during the course of the marriage.

Cohabitation prior to marriage can extend the duration of "the marriage". 

Assets acquired prior to marriage or assets acquired post-separation can be regarded as non-matrimonial assets, but it depends on the facts of the case.

If there are insufficient resources to rehouse both parties and the children of the family, there is a potential risk that non-matrimonial assets could be invaded to meet a financial award.

What are non-matrimonial assets? 

  • Assets acquired by one of the parties before the marriage or after separation derived from a resource or earning capacity which is entirely independent of the marriage and which have not been mingled with the matrimonial property.
  • Assets derived by way of gift or inheritance by one of the parties of the marriage.

The general principle is that all assets the parties have built up during their marriage (whether jointly or individually) will form part of the marital pot that is available for distribution between the parties.

This also includes compensation payments. 

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What are matrimonial assets

How will the Court assess "needs"? 

How the Court will assess needs depends on the facts of each case.

What a "rich" spouse "needs" is very different from what a comparatively "poor" spouse "needs".

Needs is, therefore, an elastic concept tailored to the assets of the marriage. 

If the marriage's assets are sufficient to meet needs, it is more likely that personal injury compensation would not be invaded.

However, the Court is likely to interpret "needs" generously if the parties have enjoyed a good standard of living during the marriage or where there are greater resources. 

Where resources are modest, the children's need for a home with their primary carer may predominate, but if possible, the Court will stretch resources to provide a home for children with each of their parents.

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How will the Court assess needs

I have received personal injury compensation – Can this be excluded from the share of assets to be divided on divorce? 

There is no automatic assumption that damages are non-matrimonial in nature, and they will be assessed according to the section 25 factors outlined above, along with any other asset in the marriage.

For example, if one party has additional needs arising from personal injury or illness (from which the compensation arises), this will be considered by the Court.

On the other hand, if one party has a housing need for themselves and the young children, the Court will also consider this.

The Court will need to conduct a balancing exercise of competing needs. 

I have received personal injury compensation – Can this be excluded from the share of assets to be divided on divorce

Case law in which the Court was concerned with personal injury claim damages includes:

Wagstaff v Wagstaff [1992] 1 WLR 320

The Husband was involved in a Road Traffic Accident that left him paraplegic.

The Wife made an application for financial remedy on divorce, and the question for the Court of Appeal was how the Husband's personal injury damages should be treated in the financial remedy application.

The marriage was eight years long, and the Wife had two children from a previous marriage, whom the Husband treated as his own. 

The Court of Appeal awarded the Wife part of the Husband's damages, and Butler-Sloss LJ emphasised that each case must be determined on their own facts, adding "…the capital sum awarded is not sacrosanct nor any part of it secured against the application of the other spouse. There may be instances where the sum awarded was small and was specifically for pain and suffering in which it would be unsuitable to order any part of it to be paid to the other spouse". 

Mansfield v Mansfield [2011] EWCA Civ 1056

The Husband received £500,000 for a personal injury claim before the marriage, which he invested into purchasing a bungalow and an investment property.

The bungalow was adapted for his care and was partly funded by the sale of the wife's pre-marital property. The Parties also had young children. 

The Court of Appeal upheld the amount awarded of £285,000 (over 50% of the assets in the marriage) on the basis that this was the minimum required to meet the needs of the Wife and the children.

The Court of Appeal, however, converted the order to a Mesher Order whereby one-third of the capital awarded to the Wife would revert to the Husband upon the children reaching their majority.

Thorpe LJ said, in making this decision, that it should be noted that in this case, the Husband's personal injury damages had been mingled.

C v C (Financial Provision: Personal Damages) [1995] 2 FLR 171 

Waggott was followed in C v C, in which it was confirmed that there is no principle which excludes a spouse from seeking to recover the other spouse's damages on divorce. 

The parties had one child and lived in council accommodation. The Husband suffered permanent brain damage in a road traffic accident, which restricted his movement and ability to communicate.

Following the breakdown of the marriage, he moved to Cyprus to be cared for by his parents, and a specially adapted house was built for him, leaving him with no spare capital.

The balance of the structured settlement was used to purchase four annuities, but the annuity income produced broadly equalled his outgoings, including his care costs.

On appeal, Singer J held that bearing in mind the Husband's circumstances and his "very considerable" needs, there was, in reality, not readily available or realisable capital and ordered a clean break. He took into account that the wife was securely housed.

C v C (Financial Provision Personal Damages) [1995] 2 FLR 171

The overarching theme amongst the above cases is that "needs" trumps other factors, and it is not safe to assume that damages are protected on divorce and that if a spouse's needs cannot be met without the compensation being dipped into, the Court will transfer part of the funds as is required to meet those needs. 

Although it is not possible to exclude compensation from the asset pot to be divided upon divorce, there are protective measures that can be taken.

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How can I protect my personal injury compensation?

You can protect your personal injury compensations via a pre-nuptial or a post-nuptial agreement.

The decision of the Supreme Court in Radmacher v Granatino has led to a fundamental change in the approach to the enforceability of marital agreements, giving them much greater weight.

In the context of section 25 of the MCA 1973, the existence of an agreement will be considered under conduct and will be considered by the Court in any financial remedy application. 

If you have received compensation, you can consider entering into a pre-nuptial agreement to protect your compensation.

You can consider entering into a post-nuptial agreement if you are already married. 

A nuptial agreement should be upheld if the agreement is freely entered into by both parties, with a clear and full understanding of what it means after receiving legal advice. 

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How can I protect my personal injury compensation

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