In 2005, the Texas Legislature enacted Texas Family Code Â§ 3.008 to address the characterization of casualty insurance payments, workers' compensation payments, and disability payments. Prior to the enactment of Â§ 3.008, the proper characterization of these types of payments was hotly litigated and often appealed. The 2005 legislative session cleared up any confusion by enacting Â§ 3.008, and since then, the issue has only appeared in a handful of cases.
Casualty Loss Insurance Proceeds
Any insurance proceeds paid or payable that arise from a casualty loss are characterized in the same manner as the property to which the claim is attributable. For example, if someone were to receive insurance payments on the loss of a community property boat, the insurance proceeds would also be community property. If one spouse is receiving casualty insurance payments from a piece of separate property, the payments would also be separate property. The insurance payments simply take on the characterization of the property from which they flow.
Workers' Compensation and Disability Payments
Payments received from workers' compensation or disability payments are characterized based upon the income the payments are intended to replace. If the payments are intended to replace income while the disabled or injured person is married, they should be characterized as community property. If the payments are intended to replace income while the disabled or injured person is not married, they should be characterized as separate property.
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