Is Your Personal Injury Settlement Protected in the Event of a Family Law Claim?

 In Family Law, Personal Injury, Wills and Estates Law

In the event of a separation, there will be an equalization of the property that was accumulated during the marriage.  What does this mean for individuals who are separating and who received a personal injury settlement during the marriage?

The answer is – it depends.  How the settlement is treated will be determined by the structure and nature of the settlement.

For example, in the Ontario Court of Appeal’s decision in the case Hunks v. Hunks, it was determined that a structured settlement is not to be considered property subject to division.  When a personal injury matter settles, a claim can be paid out in a lump sum or it can be placed in a structure.  A structured settlement is created when some or all of a personal injury settlement is placed with a life insurance company in exchange for guaranteed tax-free payments for a specific number of years, or for the recipient’s lifetime.

The structure can be planned in many different ways. Although most commonly a structure provides payments to the recipient on a monthly basis, the structure can also include periodic lump sum payments, which are also received tax-free. Periodic lump sum payments may be included to account for an increase in spending in a planned year – such as payment of debts, the acquisition of a new vehicle, a child’s entry into university, etc.

The annuity payments received from a structured settlement, however, will be included in income used to calculate support obligations.

If you receive a non-structured settlement, the Family Law Act excludes damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, from equalization.  Any portion of the settlement related to these heads of damages will not be subject to division.  Conversely, a settlement for past loss of income is generally property to be divided.

What should you do if you are married and you are going to be receiving a personal injury settlement?  You should obtain advice from a family lawyer in order to determine the best way to ensure your settlement is protected in the event of a separation.  This blog only scratches the surface of personal injury settlements and family law and it would be prudent to obtain family law advice to ensure that you understand what will happen to your settlement in the event of a breakdown of your marriage.  In addition, it would also be an appropriate time to consider reviewing your estate planning documents given the potential significance and impact of a personal injury settlement.

This blog post was written by Kate Wright and Ines Jelic .   Kate is a member of the Family Law, Wills and Estates and Litigation teams.  She can be reached at 613-369-0383 or at kate.wright@mannlawyers.com.  Ines is a member of the Personal Injury team and can be contacted at 613-566-2055, or by email at ines.jelic@mannlawyers.com.

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