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The role of the family in personal injury litigation

Clarke Willmott recently held a webinar discussing the role of the family in litigation when a loved one sustains a life changing injury, and what the options are for injured people in being protected financially in the event of a relationship breakdown or when contemplating a new relationship.

Experts from our personal injury and family law teams came together to provide invaluable advice to those who support injured people and their families through rehabilitation and beyond, whether therapeutically or financially, in helping their clients make decisions about the right advice to seek.

Personal injury and relationship breakdown can sadly often go hand in hand. They are both challenging and often devastating events that can have a profound impact on an individual’s life.

For many practitioners working in the field of personal injury, it can often be easy to focus on the immediate issues following the securing of a personal injury award, rather than what might happen to that award in the event of a future relationship breakdown, particularly where a client’s relationship is not in trouble or, perhaps, they are not yet in a relationship.

Either way, relationships ought to be in the mind of everyone who supports individuals who have experienced personal injury.

There could, for example, be a significant change in family dynamics. The injured partner may no longer have the same earning capacity which could put an immediate financial strain on the relationship, even in circumstances where it might be obvious that that individual will ultimately receive an award. This might result in the other party having to take on employment or additional employment.

The injured partner may not be able to undertake the household tasks or childcare responsibilities they were previously responsible for, putting increased pressure on the other partner which, if they have had to, for example, increase their hours at work, may compound an already difficult situation.

Other changes which may result include changes in personality, for example in cases of brain injury; a negative impact on the sexual relationship and issues around mental health.

Where a client is not yet in a relationship, consideration must be given to how things might change for them. They may have lost a significant amount of confidence which makes meeting people in ways they may have previously met people more difficult.

Equally, as a result of their injury they may be more likely to meet someone who has experienced a similar injury to them, perhaps through a support group, which can bring its own complications. What would happen if they wanted to move in with one another or if they wanted to get married? What if one of them received a personal injury award but the other did not?

The existence of the award itself may also create a layer of distrust for someone who has entered into a relationship after experiencing an injury. They, or perhaps their wider family or support system, may be wary of the motives of a new partner given the injured partner’s financial circumstances as a result of the award.

The law on relationship breakdown

While it may seem logical that personal injury damages awarded for someone’s on-going medical needs following a serious injury might be ring-fenced on a divorce, unfortunately this is not necessarily the case.

The leading authority on this point is Wagstaff v Wagstaff [1992] 1 WLR 320 in which, when referencing an attempt to ring-fence damages on divorce, it was stated that “the capital is not sacrosanct nor any part of it secured against the application of the other spouse”.

The family court has jurisdiction in respect of all of the assets of the parties’ regardless of whose names they are in, including property, pensions and in respect of income.

Starting with the computation stage, the court needs to determine whether particular assets are matrimonial in nature or non-matrimonial. Matrimonial property is broadly all property acquired by the parties after the marriage.

It might seem obvious that certain assets are matrimonial in nature. For example, a jointly owned home purchased together after the marriage by way of equal contributions would clearly be matrimonial.

Equally, a personal injury award received prior to the relationship commencing and kept entirely separate could perhaps more easily be identifiable as non-matrimonial in nature.

However, things are rarely as black and white as that. What about the case where a property has been purchased say, prior to the marriage by the injured party with their award, perhaps specially adapted and kept in their sole name but it has become the matrimonial home by virtue of the other party moving into it on marriage? The theme from much of the case law is that the matrimonial home is almost always considered matrimonial in nature regardless of the source of the asset.

The matrimonial home may have already been owned by both parties who were already married at the time the award was received and perhaps sums from the award are going to be invested into it to make improvements or alterations. This is investing non-matrimonial property into matrimonial property.

Non-matrimonial assets may become mingled in with matrimonial assets, changing their nature and causing them to be considered matrimonial. The example just given is a more obvious example of this kind of mingling but elements of the award could be invested to produce income for both parties, or put into joint names. This all potentially transforms what might otherwise have been considered as non-matrimonial into an asset that could be considered matrimonial.

This distinction matters because the starting point is that matrimonial assets should be divided between the parties equally. This is the ‘sharing principle’. As indicated, matrimonial homes are generally considered to be matrimonial property and are treated as a joint asset of the parties for sharing purposes, regardless of how these are owned. If the damages have been “mingled” in with matrimonial assets, this could change their nature such that the sharing principle may apply more forcefully.

The question then becomes whether the personal injury award, or elements of it, can be categorised as matrimonial or non-matrimonial. This will depend on the particular circumstances of the case.

Once the extent of the matrimonial assets that are subject to the sharing principle have been determined, the court must also consider the principle of need. The first consideration of the court is the needs of any minor child. Where there are not enough assets to provide for everyone’s needs, children get prioritised.

If one party can demonstrate that their financial needs are greater than their sharing entitlement, they may receive a greater share of the matrimonial property. Often, the primary carer of the child is the one whose needs are of the greatest importance as their needs, for example for secure housing, are inextricably linked to those of the child. If one party’s needs are greater than their share of the matrimonial property, this can justify the court invading the non-matrimonial property to meet those needs.

This is where, in cases which feature personal injury awards, competing interests can arise which the court has to manage. One party’s financial needs may be generated by the fact of their injury and there may be sufficient assets to meet those needs but the other party also has their own financial needs and, if they are the primary carer for a minor child, the statute tells us the child’s needs are the first consideration.

Further, the family court has jurisdiction to make orders in respect of income. An award structured around loss of future earnings rather than on-going medical needs, for example, may be far more likely to be open to attack.

Tactics to minimise the risk of personal injury damages from being exposed

There are strategies which can be employed by practitioners to minimise the risk of personal injury damages from being put at risk.

Consideration can be given to the structure of awards, particularly if a settlement is being agreed and there is perhaps more flexibility. While of course you would generally want to maximise the award being received, taking account of the wider circumstances, including any relationships or future relationships, could help structure the award in such a way that it is less matrimonial in nature and therefore less open to sharing.

Consider how the award will be used, for example the purchase of a new property post-separation might be more easy to ringfence than a property which was historically the matrimonial home.

A party should avoid mingling any assets they wish to remain non-matrimonial with assets that might be considered matrimonial if they wish to protect these in the event of a future separation. Other assets they might invest in could be purchased in that party’s sole name and any income produced by that asset ought to be treated carefully.

Personal injury trusts and other wealth planning tools that private client lawyers can assist in setting up are also useful.

Trusts add a level of complexity and, arguably, a clearer distinction that those assets have been considered by the couple as the non-matrimonial property of one of the parties. This can help to discourage the court and the other party in the event of a separation from pursuing a case on the basis that the court should interfere with this.

Arguably, the best form of protection on divorce, particularly when coupled with the use of the other strategies noted, is the use of nuptial or marital agreements. These can be entered into either prior to or post marriage.

Clearly, the requirement that a party should have a full appreciation of its implications is relevant to the issue of capacity which would need to be carefully considered. The threshold for capacity to enter into a marriage is very different for the threshold for making financial decisions and that to enter into a nuptial agreement, it is much lower. It is, therefore, often the case that clients can make the decision to get married but not have the capacity to enter into a nuptial agreement to protect themselves financially as to the legal consequences of that marriage.

Unmarried parties ought to consider declarations of trust in respect of any jointly owned property, clearly recording the terms on which property is held, particularly if one party is going to make substantial investment in the property and wishes to see that contribution reflected in their entitlement to equity.

For jointly or solely owned property, a cohabitation agreement should be considered to record the parties’ intentions. This can go beyond a simple declaration of trust and deal with a variety of issues in much the same way as a nuptial agreement, protecting solely owned property from claim, recording the interests in jointly owned property, dealing with other assets and the regulating what should happen to occupation of a property in the event a relationship breaks down.

Working collaboratively with family, private client and court of protection specialists will be the best way of ensuring that a vital personal injury award is protected from the risk of a future divorce or separation

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Adam Maguire

Partner

Birmingham
Adam specialises in divorce and family law. He advises clients regarding all aspects of private family law including cohabitation, separation, divorce and related financial issues, disputes concerning children and nuptial agreements.
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