The Matrimonial Property Act and the newly implemented Family Property Act both provide that damages paid to one spouse as a result of a “tort” are exempted from distribution in the division of matrimonial property, so long as those damages were not compensation for a loss to both spouses. A tort, very simply, is a wrongful act or injury that leads to damage to a person. This includes unintentional wrongful acts, such as in the case of motor vehicle accidents or medical mistakes, or intentional wrongful acts, such as assaults. Where a person has been injured by a wrongful act, whether it is physically, financially or emotionally, they may be entitled to damages from the wrongdoer (or, more commonly, their insurer) to compensate them for the following:
- Loss of income (past and future);
- Loss of earning capacity;
- Loss of housekeeping capacity (past and future);
- Pain and suffering (General Damages);
- Out-of-pocket costs (Special Damages); and
- Cost of future care.
How damages are delineated ultimately becomes very important for matrimonial property division purposes, as the categorization of the particular damages will determine whether it is compensation for a loss to both spouses (i.e., subject to division) or not (i.e., exempt). Generally, damages for pain and suffering, future care, future housekeeping capacity and future loss of income and lost earning capacity are exempt, whereas compensation for past loss of income, past loss of housekeeping capacity and out-of-pocket costs for the period during the marriage and are non-exempt because this was compensation for a loss to both spouses.
The exercise for determining what is exempt and non-exempt can become complicated as very often a personal injury settlement will comprise of one global or ‘all-in’ number. In such a case there is no perfect was to resolve the issue, however, very often assumptions can be made based on the individual’s circumstances, such as the impact the tort had on their employment and earnings, or the type of care that was required. However, where no resolution can be had, there may be a need for evidence such as from the lawyer who represented the individual in their personal injury action.