Workers’ compensation is a state-mandated insurance program which provides compensation to employees who suffer job-related injuries and illnesses. Usually, there are three major components to workers’ compensation: medical expense, disability pay and vocational rehabilitation. In a divorce proceeding, the question as to who gets to keep the workers’ compensation benefits as part of the property division is dependent on the state laws of the spouses.
Whether an award of such workers’ compensation benefits is a community property or not is to be determined by the court by employing the analytical approach. If the award is to compensate the spouse for lost wages during marriage or for medical expenses paid with marital funds, the award becomes community property; whereas if the purpose of the award is to compensate the injured spouse for lost pre-marital wages or for medical expenses paid out of non-marital funds, the award is the separate property of the injured spouse.
Some states characterize an entire workers’ compensation award as marital property even though it will in part or in whole replace post-divorce wages. This approach is based on the view that workers’ compensation is an acquired or earned right and that classification is based on when the right was acquired or earned. Some states characterize workers’ compensation as personal injury awards and break down personal injury awards into their component parts.
In Arizona, the award for lost wages or medical expenses is considered to be community property. However, the proceeds for injury to well-being are considered as sole and separate property. In re Marriage of Gersten v. Gersten, 219 P.3d 309 (Ariz. Ct. App. 2009), the court ruled that the purpose of husband’s FECA (Federal Employee’s Compensation Act) benefits were to compensate husband for his lost wages, loss of earning capacity, and medical expenses. Since any wages earned during a marriage are community property and any debts paid during the marriage for medical expenses are paid by the community, any benefits paid to compensate for these losses are considered community assets. It is the burden of the spouse claiming that any portion of the award is separate property to prove that to the family court in a divorce action.