In Cunningham v Cunningham, released on July 13, 2010 by the Michigan Court of Appeals, [For Publication, Docket No 285541], the COA held that certain proceeds from a worker’s compensation award were marital and not separate property despite the fact that the injury occurred prior to the marriage.
The Cunninghams were married for 25 years. Prior to the marriage, Mr. Cunningham was injured. The litigation under the Workers Compensation Disability Act took about five years. During the marriage, he received a large sum during the marriage as a result of this work-related injury, which ultimately left him disabled and unable to work.
Mr. Cunningham used a large portion of this money to make a down payment on a house. All of the money was placed in a joint account with his wife. Ultimately, it was the commingling that resulted in a ruling by the COA that the down payment would not be considered his separate property.
Workers Comp benefits are awarded to compensate for lost wages, and worker's comp is the sole remedy for people injured on the job. Wages lost during the marriage are marital assets, while those pertaining to losses before or after marriage are separate assets.
In this case, the defendant was injured at work in 1976. Proceedings to obtain worker’s compensation benefits continued for many years, during which the parties married in 1982. The worker’s compensation claim was settled in 1987, and the settlement included a permanent award of monthly benefits and a lump sum payment of $150,000 to retroactively compensate for the period between the injury and the settlement.
The parties used $90,000 of the lump sum payment as part of the payment made to purchase a home. In 2007, the plaintiff commenced divorce proceedings, and at trial the defendant sought to be awarded the $90,000 he had paid toward the purchase of the home as his separate property. The trial court designated the $90,000 as the defendant’s asset, and the plaintiff appealed, arguing that the entire amount was a marital asset subject to division. However, the award had included amounts attributable to lost wages for five years of the parties’ marriage, and thus that portion of the worker’s compensation award should have been included in the marital estate.
The court of appeals held worker's compensation benefits for an injury occurring before the marriage but received during the marriage are considered marital property only to the extent they compensate for wages lost during the marriage.
Mr. Cunningham's treatment of the lump-sum award, however, was his downfall. While the pre-marriage portion of this retroactive award was initially his separate property, the COA held that trial court erred by excluding from the downpayment on a marital dwelling the $90,000 of the award he contributed to the down payment on the marital home. [They purchased the marital home in 1987, using $90,000 of the retroactive award, $25,000 in proceeds from the sale of their first home (purchased together when they married), and about $20,000 from plaintiff's pre-marital 401k.] This result was reached because Mr. Cunningham deposited all of the $150,000 into the parties' joint savings account. As a result of the parties' actions (the commingling) and course of conduct, said the COA, those funds lost any separate character they had.
There are some important takeaways:
1) People should not commingle their settlements from personal injury cases. In workers comp cases, all of the settlement will be for lost wages. Here, the COA held that a worker's compensation award received during the marriage is not necessarily marital property. Rather, "a benefit received during marriage is marital property only if it compensates for wages lost between the beginning and end of marriage." Any compensation benefits awarded for "periods before the marriage or after its dissolution are akin to a party's individual earnings and are to be considered separate property, as those earnings fall outside the beginning and end of the marriage." Thus, the portion of the retroactive award compensating defendant for wages lost before the marriage could potentially have been considered his separate property. However, he took no steps to maintain that portion of the award as his individual property where he deposited the funds in a joint account in which both parties deposited funds from their own earnings and commingled the $90,000 from the award with plaintiff's funds and proceeds from the sale of their first home.
2) In cases involving settlements for personal injuries that are not work related, the settlements should clearly spell out what part is for lost wages and what part is for pain and suffering, because the latter will be separate property belonging to the injured person. This is true for any kind of personal injury litigation except workers comp claims.
You may read Cunningham v Cunningham here.