There are few types of capital as sensitive on divorce as personal injury and clinical negligence awards. They are not the product of enterprise or hard work, but will often have arisen as a result of a catastrophic life event. They exist to meet need arising from and to compensate serious injury.
When a marriage breaks down, those same funds must be disclosed and the question as to how they should be utilised will need to be revisited and examined. The integrity of the damages is compromised and this can seem incredibly unjust to many recipients of personal injury awards.
The family courts have far reaching powers however, and an overarching duty to identify the right outcome – one that is fair in all the circumstances of the case. This means that all resources available to a divorcing couple, even those that might have been assessed or earmarked in a particular way, must be considered.
How the Damages are Seen by the Family Courts
English law does not provide for an automatic ringfencing of any type of asset on divorce. The complete asset pool of a husband and wife, regardless of how it was sourced, must be disclosed and is exposed to a spouse’s financial claim. A personal injury award does not sit outside the court’s reach simply by virtue of its origin.
That said, the treatment of those resources is highly fact‑specific. An analysis of whether the capital is matrimonial or non-matrimonial is often undertaken; non-matrimonial assets deriving from outside sources or prior to the marriage. Personal injury awards are often characterised as non-matrimonial, however there is an additional layer of complication to them in the context of a financial remedy owing to their various components, often including:
- General damages, compensating for pain, suffering and loss of enjoyment, specific to the individual.
- Special damages, to include past loss of earnings, expenses, care and rehabilitation costs. They are a reimbursement of expenses already incurred.
- Future losses, assessed for future care and case management, future loss of earnings, accommodation needs, therapies and increased living costs.
In the assessment of financial remedies on divorce, needs are always a factor that must be carefully considered, however those needs assume a special prominence where there is an award deriving from personal injury or clinical negligence.
An Example in Practice
The leading authority on the treatment of damages on divorce is Mansfield v Mansfield [2011] EWCA Civ 1056. In that case, the husband had received £500,000 in personal injury compensation prior to the marriage, reflecting injuries leaving him partially disabled. Those funds were deployed in the purchase of an adapted property to meet his needs, together with an investment property which later became the family home.
On appeal, it was accepted by the courts that the derivation of capital from a personal injury award does not place it beyond the court’s reach. However, it was made clear that the sharing principle that operates as the starting point to many divorces must often yield to the particular needs of the personal injury award recipient and the fundamentally compensatory nature of the asset in question.
Even where the court is sympathetic to ringfencing arguments, the uncertainty, stress and costs that can arise from a divorce can be devastating. Exposure to the risks of this does not sit well for many injured individuals, particularly those with deputyship arrangements. A huge amount of effort, professional time and cost has already been invested in assessing the level of damages needed, feeding into a carefully assessed sum intended to last a lifetime. That calculation is not designed to accommodate claims on divorce.
Nuptial Agreements to Protect Damages
Against that backdrop, nuptial agreements (both pre and postnuptial) are increasingly being deployed as a means of protecting clinical negligence and personal injury awards from claims on divorce.
Whilst these agreements are not legally binding, they can carry significant weight in the family courts if correctly drafted. This means each of the spouses:
- Providing full financial disclosure;
- Receiving independent legal advice;
- Being free from any undue pressure to enter into the agreement;
- Being able to meet their reasonable needs on divorce through the operation of the agreement.
Provided these safeguards are followed, where both parties freely enter into an agreement with full appreciation of its implications, it becomes significantly harder to argue at the time of any divorce that a different arrangement should be followed.
Frequently, an agreement seeking to protect personal injury damages might set expectations at the outset as to what is to be shared or exposed to a needs claim, and what is not.
Early specialist input is essential from solicitors experienced in dealing with nuptial agreements and vulnerable clients. It will often be provided with ongoing deputy input and oversight.
For deputies, nuptial agreements provide an effective means of preserving the protected party’s award for its intended use. Particularly where those awards are substantial, the needs are long‑term and there is an obvious vulnerability, to not at consider a nuptial agreement is, in many cases, to leave a known risk unmanaged.
As the use of nuptial agreements in this way continues to mature, and as the courts increasingly respect properly constructed agreements, their role in protecting personal injury awards is only going to become more prominent.
If this topic affects you and you are looking for advice, please speak to our Family Law team.