Can a Third-Party Lawsuit or Injury Settlement Affect My Family Law Claim?
By Zachary Berinstein, Family Lawyer, Vancouver
When a common law relationship or marriage ends, dividing property can become a major focus. In British Columbia, the rules about property division are set out in the Family Law Act (the “FLA”). One of the most important distinctions under the FLA is between family property and excluded property as it can significantly impact what each person takes with them after separation.
In this blog, we’ll break down what counts as family property versus excluded property and explain how these rules apply when one spouse receives a third-party settlement – such as compensation from a car accident or an occupier’s negligence claim.
What is Family Property?
The FLA defines family property in section 84. In simple terms, family property includes most assets and debts acquired by either spouse during the relationship.
For example:
- The family home, regardless of who paid for it.
- Pensions, RRSPs, or investments accumulated during the relationship.
- Joint bank accounts or shared debts.
Generally, family property is divided equally when spouses separate, unless there is a different agreement or a court orders otherwise as detailed further below.
What Property Is NOT Shared in a Divorce?
Some property doesn’t get shared when a couple separates. The FLA refers to this as “excluded property", which is defined in section 85.
Examples include:
- Property one spouse owned before the relationship.
- Inheritances or gifts received by one spouse during the relationship.
- Settlements or awards from lawsuits or insurance claims.
While excluded property generally remains with the person who owns it, any increase in its value during the relationship is usually considered family property and subject to division.
For example, if one spouse owned a mortgage-free home worth $1,000,000 before the relationship, and that same property is worth $1,400,000 at the time of separation, then the $400,000 increase in value would likely be treated as family property and divided equally between the parties. The original $1,000,000 would remain excluded property and would not be shared.
A caveat to the above example is that only the actual equity in the asset is excluded. For example, if the $1,000,000 home still had a $900,000 mortgage owing on the property, only $100,000 of that home would be considered excluded from the family asset division.
Is Money from a Lawsuit Considered Family Property?
One common source of conflict during separation is whether money from a third-party settlement counts as family property and thus subject to division between the parties.
Let’s break it down:
1. Personal Injury or Pain and Suffering Awards
If a spouse receives compensation from a settlement, like a car accident claim, the money for pain and suffering or similar personal losses is generally considered excluded property. This applies whether the money was received before or after separation.
While events like accidents will undoubtedly affect both spouses, claims for pain and suffering are exclusively limited to the individual experiencing it. Neither spouse can claim a portion of the other's pain and suffering.
Example: If one spouse is in a car accident and receives $50,000 for their pain and suffering, that money is not shared in a separation. It is considered excluded property.
2. Compensation for Income Loss
When a lawsuit or a settlement includes money for lost income, the timing of that loss matters:
- Income loss during the relationship - Compensation for income lost during the relationship may be treated as family property. The reasoning is that income earned during the relationship often benefits both spouses. This kind of award can also significantly affect what one spouse might receive in spousal support after separation, since their ability to earn an income was impaired during the marriage.
- Income loss after separation - Compensation for income lost after separation is generally considered excluded property because the income loss no longer impacts the other spouse. However, it may still affect how spousal support or child support is calculated.
3. Other Types of Lawsuits That Contain Income Loss Claims
There are many types of lawsuits that can include claims for income loss. Below is a non-exhaustive list of examples that may be relevant in the context of a family law claim:
- Workers compensation claims (WCB) – when a person is injured at work.
- Business law claims – when a business is impacted by someone else’s negligence.
- Product liability – when negligent design or maintenance of a product causes injury.
- Medical negligence – when a doctor’s error during treatment results in lost income.
- Occupiers’ liability claims – when someone is injured due to the negligent maintenance of someone’s property.
- Employment law claims – such as severance claims following termination from work.
To better understand how income loss from a settlement is handled in family law, let’s walk through another example—this time looking at how the timing of the loss can affect both property division and support:
If a spouse’s car accident settlement includes $200,000 for lost income while the couple was married, that portion may be divided as family property. But if $100,000 of the settlement is for income lost after separation, that amount would likely be excluded.
Even if a settlement is received after separation, it may still be considered when determining support obligations – particularly if the settlement compensates for lost income. In these cases, a spouse may apply to the court or voluntarily agree to have income imputed at a higher amount for support purposes.
This is not an exact mathematical calculation, but rather a calculation based on fairness, especially when one party's ability to earn income is reduced for a prolonged period.
Importantly, if a relationship ends and one spouse is injured during the relationship, that spouse may be entitled to indefinite spousal support.
How to Keep Excluded Property Separate
Even though excluded property isn’t shared, there are situations where it can become family property. This can happen if:
- The money is mixed into joint accounts or used to buy shared assets, like a family home.
- Or, if there is no clear record of where the money came from.
To avoid this, it’s important to:
- Keep settlement funds in separate accounts.
- Document the source of the money clearly.
The division of property after separation can be complex, especially when third-party settlements are involved. Understanding the difference between family property and excluded property is key to protecting your rights and assets.
Family lawyers can use legal tools such as document disclosure, sworn financial settlements, and examinations for discovery to determine what portion of a settlement relates to income loss. In some cases, it may be appropriate to apply to the court to have your ex-spouse’s income imputed at a higher amount to account for their income loss claim.
The court will also consider the importance of avoiding "double dipping" – where the same income loss settlement is treated as both family property and factored into ongoing spousal support obligations. Generally, this would be viewed as unfair.
When family property is involved — especially in cases that include third-party settlements — it’s always advisable to seek independent legal advice. An experienced family lawyer can help you review your assets and liabilities, assess how the law applies to your specific situation, and guide you through the property division process with a focus on setting you up for financial stability in your next chapter. Reach out to us today to book a free 20-minute consultation. We’re here to answer your questions and help you take the next step with confidence.
