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Property division is one of the major issues in most divorce cases, along with child custody and support issues. Property covers a wide array of asset types, and can include disability benefits received by a spouse. Benefits may be separate property, or marital property in which both spouses have an interest.
State law controls most property division issues, and can include disability benefits. The facts in your case matter, too. Knowing some basic concepts on dividing disability benefits can help you understand and work through your case.
Defining and Classifying Disability Benefits
Disability benefits are payments made to a worker due to illness or injury that leaves him or her unable to work. The source of benefits is usually a private insurance policy or a government program.
Next, it’s important to determine whether benefits are separate property or marital property. This affects whether one or both spouses have rights in the benefits. State laws generally control this issue. There are two key methods to classify benefits. The first looks at timing. When were benefits paid, or when was coverage obtained? The second method looks at the purpose the benefits serve.
Timing Determines Property Rights
In some states, courts follow a time-based analysis. All property acquired during marriage is marital property. So, disability pay received during marriage is marital property. This rule also applies to future benefits based on work during your marriage. The main question then turns to the date someone became entitled to disability pay.
Another timing-based approach looks at the source behind coverage. The question here asks when the insured work happened. If coverage is tied to work during marriage, disability pay is marital property. If coverage is based on work and a disability before marriage, then benefits keep separate property status.
A third option is called the replacement approach. Disability pay is marital property only to the extent that it compensates for income loss during the marriage. Disability pay for post-divorce earnings will be considered the injured spouse’s separate property, even if the injury dates back to the marriage.
Many state courts look to the purpose of disability benefits in deciding property type. Use of marital funds to pay for a disability plan doesn’t mean benefits are always marital property.
Private disability benefits may also have both marital and separate property components. If the purpose of the disability benefits is to compensate the employee-spouse for lost earnings and personal suffering caused by the disability, then to that extent, benefits are separate property.
However, if disability benefits are in place retirement benefits based on work during marriage, they are marital property. Some benefits may be separate property if based on work before marriage or after separation and the amount is more than retirement benefits would have been without disability.
As you can see, there isn’t a single answer. Review the issue carefully with your divorce lawyer and work towards a property settlement that is fair to both of you.
Questions for Your Attorney
- Am I entitled to any part of my spouse’s disability benefits?
- How will disability benefits be valued in my divorce?
- Are private disability benefits separate property or marital property?