Tort Settlement as part of the Marital Pot?

In dissolution of marriage cases in Indiana, the issue of property settlement (by an agreement) or award (by trial) is a two-step process. First, what is marital property? And, second, how should it be divided?

In Indiana, marital property is any property acquired or owned by either husband or wife prior to the marriage, or during the marriage, including personal property, real property (land, house, real estate), and property rights (something not tangible that someone has the right to acquire later).¹ This is called the “one marital pot” theory. It is all acquired up to the date of filing; and property includes liabilities.

Indiana law states that everything in the “marital pot” is presumed to be evenly split between husband and wife upon divorce. However, there are exceptions the court can address to effectuate an unequal split, so long as 1) the ultimate division is just and reasonable, and 2) the court states why it is deviating from the presumption of an equal division.² Some factors a trial court may consider, but is not required to (it is within the discretion of the trial court), are:

(1) The contribution of each spouse to the acquisition of the property, regardless of whether the contribution was income producing.

(2) The extent to which the property was acquired by each spouse:

(A) before the marriage; or

(B) through inheritance or gift.

(3) The economic circumstances of each spouse at the time the disposition of the property is to become effective, including the desirability of awarding the family residence or the right to dwell in the family residence for such periods as the court considers just to the spouse having custody of any children.

(4) The conduct of the parties during the marriage as related to the disposition or dissipation of their property.

(5) The earnings or earning ability of the parties as related to:

(A) a final division of property; and

(B) a final determination of the property rights of the parties.³

Given these definitions and presumptions, the next question is: what is the cut off, or valuation date of property of the marriage?

Generally, after a petition is filed for dissolution, there is a waiting period, until the marriage is declared dissolved. (Please note, this is not the date of separation, if persons chose to live separately for months prior to filing anything with the court, any action by either person, including the acquiring of property, is considered “marital.”) At a minimum, the court cannot set a final hearing, generally, any sooner than sixty (60) days after the petition is filed. Oftentimes, and especially when there are contested custody or property matters, the time period between the filing of the petition for dissolution can be up to a year or more. Therefore, what happens to the property that is acquired or otherwise, during this in between time?

Usually, the existence of property of the marriage, and its value, is set at the time the petition for dissolution is filed.⁴ For property, such as the marital home, this is an easy valuation, the marital home is valued at the date the petition was filed, even if the property increases in value in the time period between the filing of the petition, and the final dissolution decree is ordered. Property rights, mentioned above, which have no specific value at the time of the petition for dissolution’s filing, but the right has already vested, meaning the person knows they can acquire this property in the future, but does not know when or how much yet, becomes a far trickier valuation equation.

In a recently decided case, Edwards v. Bonilla-Vega, the parties were married in 1999; Husband initiated a law suit against his employer in 2006, which was still pending when Wife filed her petition for dissolution of the marriage in 2010.⁵ Husband settled his lawsuit with his employer three (3) months after Wife filed for divorce. The court ordered the marriage dissolved in 2011, more than a year after Wife filed her petition for dissolution of the marriage.⁶

In the Edwards case, Husband’s future property rights to the settlement or proceeds of the litigation (if any) were known before the Wife filed for divorce, however, any exact amount or value of that property right was still unknown.⁷ This is because a tort action (one for personal damages) is considered by Indiana caselaw, to vest, or in other words, the person acquires the right to the property, at the time the harm occurs.⁸ In this case, the harm to Husband, by his employer occurred in 2006, while the parties were still married.⁹

Because Husband acquired rights to this property, without knowing its value, before Wife filed for divorce, the court included the settlement value, which became known sometime in between the filing of the petition for dissolution, and the final order, into the “marital pot” and thereby divided it equally.¹⁰

Thus, stock options, future proceeds from a law suit can be tricky items to determine if they are in the martial pot and how they should be divided. Where these exist, it is critical you provide your attorney with all of the necessary facts about such hard-to-value or unvalued assets so they can be accounted for in a divorce trial or settlement agreement. Sometimes they are not marital property, such as unvested stock options.

We hope that this blog post has provided you with some helpful information on property distribution concepts in a divorce matter. Ciyou & Dixon, P.C. practices throughout the state of Indiana. This blog post was written by attorney, Lori B. Schmeltzer.

1. I.C. § 31-15-7-4
2. I.C. § 31-15-7-5
3. I.C. § 31-15-7-5
4. Alexander v. Alexander, 927 N.E.2d 926, 940 (Ind.Ct.App.2010)
5. Edwards v. Bonilla-Vega, __ N.E.2d __ (Ind.Ct.App.2013)
6. Edwards v. Bonilla-Vega, __ N.E.2d __ (Ind.Ct.App.2013)
7. Edwards v. Bonilla-Vega, __ N.E.2d __ (Ind.Ct.App.2013)
8. Kuhn v. Kuhn, 402 N.E.2d 989, 991 (Ind.1980)
9. Edwards v. Bonilla-Vega, __ N.E.2d __ (Ind.Ct.App.2013)
10. Edwards v. Bonilla-Vega, __ N.E.2d __ (Ind.Ct.App.2013)