Personal injury proceeds arising out of an incident that occurred prior to the date of separation are characterized as community property but are often treated similarly to the separate property of the injured spouse with some exceptions.
Personal injury awards are characterized as community property in California Divorces, if the injury occurs before the date of separation. When the proceeds are actually received is not relevant to the characterization. In a divorce, the proceeds are generally assigned to the injured party as if they were separate property. However, the divorce court does have the discretion to award up to 50% of the proceeds to the non-injured party. This discretion may be exercised taking the following issues into consideration: the economic condition and needs of each party, time elapsed since the recovery of the damages, the date of the injury and any other relevant factors.
An allocation of proceeds to the community may occur if the community or the other spouse paid unreimbursed medical bills related to the injury. There may also be reimbursement for lost wages related to the injury.
If the personal injury proceeds are commingled with community funds, the injured party may still be awarded all or more than 50% of the proceeds, if the proceeds can be traced. Family law case law suggests that the strict rules of tracing may be relaxed somewhat relative to the tracing of personal injury proceeds in a divorce case.