PERSONAL INJURY ISSUES IN YOUR FAMILY LAW PRACTICE
BY: RENÉ HAAS AND PATRICIA A. SHACKELFORD (MAY 16, 2003)
I. INTRODUCTION Forty percent of all marriages end in divorce. As many as 75 percent of persons who have sustained serious personal injury such as brain damage, paraplegia, or quadriplegia will divorce if the marital relationship was of relatively short duration at the time of the injury. Similarly increased divorce rates occur when a child is killed or seriously injured. To properly represent those clients who have recovered for personal injury, or their spouses, the family law attorney should be familiar with: 1) the statutory framework characterizing recoveries for various types of damages as separate or community; 2) the presumptions that come into play; 3) the burden of proof, in this case, clear and convincing; and 4) the types of evidence that courts have held to be sufficient. Knowing these special rules, the practitioner can ensure that recoveries are properly characterized and that the client's separate property recovery is protected. This paper will explore the rules governing characterization of personal injury recoveries, both for an injured spouse and for recoveries awarded for the personal injury to a child during the marriage, as well as the ethical obligations and constraints governing representation of a husband and wife. II. CHARACTERIZATION OF PERSONAL INJURY RECOVERIES DURING A DIVORCE A. Rules of Characterization In Texas, characterization of property begins with The Texas Constitution: “All property, both real and personal, of a spouse owned or claimed before marriage, and that acquired afterward by gift, devise, or descent, shall be the separate property of that spouse . . . .” Tex. Const. art. XVI, § 15 (Vernon Supp. 2003). The Texas Constitution provides underpinning for the Family Code provisions defining separate and community property. The Family Code provides that “[a] spouse’s separate property consists of . . .the recovery for personal injury sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.” Tex. Fam. Code Ann. § 3.001(3) (Vernon 1998). Since 1972, Texas has recognized that personal injury recoveries, other than for loss of earning capacity and medical expenses, are the separate property of the injured spouse. Graham v. Franco, 488 S.W.2d 390 (Tex. 1972). Medical expenses are also considered to be a community recovery. Id.
This statistic according to a provisional estimate for 2001. National Vital Statistics Reports, Vol. 50 No. 1 (Sept. 11, 2002). For those interested in the historical evolution of Texas law on this issue, see Graham v. Franco, 488 S.W.2d 390 (Tex. 1972), and Patricia A. Shackelford, Comment, The Community Property Defense Revisited: Twenty Years After Graham v. Franco, 45 Baylor L. Rev. 71 (Winter 1993).
B. Proof of Character of Personal Injury Recoveries When a personal injury recovery includes damages for medical expenses or loss of earning capacity as well as other damages, the party seeking to prove the separate property character of part of the recovery has the burden to do so by clear and convincing evidence. See Tex. Fam. Code Ann. § 3.003(b) (Vernon 1998); Kyles v. Kyles, 832 S.W.2d 194, 197-99 (Tex. App.—Beaumont 1992, no writ); Proctor v. Proctor, 2001 WL 1558585; slip. op. at *1 (Tex. App.—Corpus Christi 2001, no pet.) (designated unpublished). “When a spouse receives a settlement from a lawsuit during marriage, some of which may be separate property and some of which may be community property, it is that spouse’s burden to demonstrate what portion of the settlement is his separate property.” Kyles, 832 S.W.2d at 198 (citing Moreno v. Alejandro, 775 S.W.2d 735, 738 (Tex. App.—San Antonio 1989, writ denied); accord Proctor, slip. op. at *1. When the recovering party provides prima facie proof that the recovery consists only of recovery for separate property damages, the party claiming that some of the recovery is community bears the burden. Licata v. Licata, 11 S.W.3d 269 (Tex. App.—Houston [14th Dist.] 1999, pet. denied) (evidence that recovery did not include loss of earning capacity nor medical expenses shifted burden to spouse claiming that portion was community property). In the Kyles case, the husband’s failure to bring forth evidence of the nature of his personal injury recovery resulted in the entire proceeds being declared community property based upon the statutory presumption that property possessed by a spouse at the time of dissolution is community property. Tex. Fam. Code Ann. § 3.003(a) (Vernon 1998). “Since appellee did not prove what amount, if any, the settlement proceeds were separate or community property, it must be conclusively presumed that the entire proceeds are community property.” Kyles, 832 S.W.2d at 197-99. The husband in Kyles did not provide the court with any documents from the underlying personal injury case, nor did he testify as to his losses for medical expense, lost wages, or other types of damages. Similarly, in Proctor v. Proctor, the husband’s failure to provide proof to rebut the statutory presumption that property possessed at the time of divorce is community property resulted in a very substantial settlement being characterized completely as community property. See Proctor, slip. op. at *3. “A spouse seeking to rebut the presumption of community property must do so by clear and convincing evidence.” Id. at *1. A spouse who seeks to rebut the presumption bears the burden of tracing and clearly identifying the property claimed as separate. Welder v. Welder, 794 S.W.2d 420, 425 (Tex. App.—Corpus Christi 1990, no writ). The Proctor case was settled after a judgment awarded the husband $1.5 million in economic damages and $4.6 million in non-economic damages. Id., slip. op. at *3. The husband provided no documents from the underlying personal injury case and the releases themselves did not attempt to segregate the amounts awarded to each spouse for pain and suffering, loss of consortium, or other damages. Id., slip. op. at *3.
“Clear and convincing evidence is the degree of proof that produces in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.” Id. (citing Slaton v. Slaton, 987 S.W.2d 180, 182 (Tex. App.—Houston [14th Dist.] 1999, pet. denied).
In Cates v. Cates, 1995 WL 41420 (Tex. App.—Houston [14th Dist.] 1995, no writ) (designated unpublished), the injured wife, who recovered monies for personal injury, did not seek to prove characterization of the personal injury award. The trial court found that the personal injury settlement received by the wife was both community and separate property, but was unable to determine what portion of the personal injury settlement was community property. The trial court went on to award the wife a disproportionate share of the community property based upon her very serious injuries. That decision was reversed on appeal because the husband was also disabled, had limited earning capacity, and under those circumstances, the reviewing court found it would be manifestly unjust to award all of a sizable community
estate to a single party. Id. at *2. The reviewing court noted that this case was peculiar because neither party attacked the characterization of the settlement proceeds. On rare occasions, the settlement documents themselves may be clear evidence of the nature of the property recovered. In Licata, the wife settled a claim for personal injuries during the marriage. The release and compromise settlement agreements recited that “payment herein is made for physical pain and mental anguish and physical disfigurement alone.” Id. at 274. “The clear statements in the settlement documents displaced the presumption of community property and created a new presumption that the settlement proceeds are the [wife’s] separate property. These recitals become prima facie evidence that the recovery is separate property.” Id. at 274 (internal citations omitted). When one party produces prima facie evidence of the separate property nature of the recovery the spouse claiming that the property is community must then come forward with evidence to rebut this separate property presumption. A failure to do so conclusively establishes that such property is separate property. Id. The husband in Licata argued that by signing the release of his wife’s claim he relinquished a valuable right, that the funds were paid to both spouses, and therefore, he defeated the separate property presumption of the recital. But he did not introduce a copy of any of the pleadings in the underlying personal injury case that would have established whether or not he was a named plaintiff or whether any recovery was sought for community property expenses. Without this evidence, the court found that the wife had established with clear and convincing evidence the separate property nature of the settlement proceeds which proof was unrebutted. Id. at 275. In another case, Slaton v. Slaton, 987 S.W.2d 180 (Tex. App.—Houston [14th Dist.] 1999, pet. denied), a personal injury recovery by the wife arising out of a medical malpractice action was at stake. The pleadings in the underlying personal injury case were before the court. There was no recitation in the settlement documents as to the nature of the damages recovered by settlement. But during the divorce the parties stipulated to the wife’s medical expenses and lost wages related to the malpractice. That stipulation formed the basis for the trial court’s finding that the stipulated amounts constituted the community property portion of the recovery. From that, the court concluded that the balance of the recovery, over $400,000, was the separate property of the wife. The husband, who was a party to the previous suit and who claimed loss of consortium, mental anguish, and depression, was awarded nothing as his separate property. During the divorce, the husband’s only proof of his claims in the underlying action was his own testimony that he suffered mental anguish as a result of his wife’s injury. The trial court and reviewing court rejected his testimony, describing it as a “selfserving statement” that was insufficient to provide the clear and convincing evidence necessary to prove his loss and to controvert the evidence produced by the wife. Based on the husband’s failure to bring forth evidence of his claim, the reviewing court found that the evidence introduced at trial supported the trial court’s determination that the settlement proceeds, after deduction for loss of earnings and medical expenses, were the wife’s separate property. Slaton, 987 S.W.2d. at 183. Pleadings and settlement documents from the personal injury action are useful evidence to apportion settlement proceeds between separate and community property. See Licari, 11 S.W.3d at 274; Camp v. Camp, 1999 WL 511886, at *2 (Tex. App.—San Antonio 1999, no pet.) (designated unpublished). Testimony of counsel in the underlying action may also be useful. In addition, the testimony of the parties about the basis of the award can also constitute clear and convincing evidence of the character of the settlement, if uncontroverted. Camp, 1999 WL 511886 at *3. The wife’s testimony in Camp, that her medical bills from the class action lawsuit were paid by her attorney in that litigation and that she was not employed during the marriage, were held to be sufficient to
prove the separate property character of her personal injury recovery. Id. at *3. However, testimony may be insufficient if it is conclusory. See Kyles, 832 S.W.2d at 199 (rejecting husband’s testimony as insufficient because it provided no details); Slaton, 987 S.W.2d at 183 (rejecting husband’s self-serving and apparently conclusory testimony as to his damages resulting from the wife’s injury). C. Characterization of Recovery for Personal Injury to a Minor Child When a child is injured, the parents may recover for the medical expenses incurred or expected during minority. Such expenses are community property. Sax v. Votteler, 648 S.W.2d 661 (Tex. 1983). A claim for lost services or loss of earnings of a minor child is community property as well. See Tex. Fam. Code Ann. § 3.103 (Vernon 1998); Hawkins v. Schroeter, 212 S.W.2d 843, 845 (Tex. Civ. App.–San Antonio 1948, no writ); Loving v. Laird, 42 S.W.2d 483, 484 (Tex. Civ. App.–Dallas 1931), aff’d as modified, 61 S.W.2d 812 (Tex. 1933). An award of damages to a parent for the death of a child is separate property to the parent who recovers such damages. Johnson v. Holly Farms of Texas, Inc., 731 S.W.2d 641, 646 (Tex. App.—Amarillo 1987, no writ). The elements of the wrongful death action include pecuniary loss, loss of companionship, and mental pain and anguish. Id. D. Ethical Responsibilities of the Attorney and Conflicts As lawyers, we owe our clients a duty to advise them; to provide a client with an informed understanding of the client’s legal rights and obligations and an explanation of the practical implications of those legal rights and obligations. Tex. Disciplinary R. Prof’l Conduct Preamble § 2, reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G app. A (Vernon 1998) (State Bar R. art X, § 9). A lawyer is required to zealously pursue a client’s interest within the bounds of the law and to represent a client competently and diligently. Tex. Disciplinary R. Prof’l Conduct § 101(a).
The elements of damages the husband claimed are separate property to that spouse. See Graham, 488 S.W.2d at 396.
In settling a personal injury case, the personal injury lawyer often represents both the injured person, that person’s spouse, and potentially other family members with derivative claims. Such representation is permissible, but may also pose a conflict of interest. Representation of all of the parties presents a conflict when such representation will affect the lawyer’s independent judgment on behalf of the client, or the lawyer’s ability or willingness to consider, recommend or carry out, a course of action. Tex. Disciplinary R. Prof’l Conduct §1.06 and cmt 6. For example, in a case involving a marriage of short duration and a serious injury to one spouse, the likely reality is that the marriage will end in divorce. This reality is one that may need to be explored by counsel for the parties. In this scenario, the injured party’s best interest may be served by maximizing recovery for elements of damage other than loss of earning capacity and medical expenses that may later have to be divided with his current spouse. The non-injured spouse who foresees a possible divorce will seek to maximize her loss of consortium claim and also the recovery for loss of earning capacity and medical expenses. Both spouses should be aware of the nature of their recovery at the time recovery is made. After a personal injury settlement, if the parties later divorce, the attorney who handled the personal injury matter is precluded from representing either of the spouses when a contest later arises over the proceeds. Tex. Disciplinary R. Prof’l Conduct §1.06(d). Despite that prohibition, the personal injury lawyer and non-privileged portions of his or her file may be a resource for the divorce attorney seeking to characterize the proceeds from the prior representation. Among the questions to ask: 1) were both the husband and wife parties to the litigation; 2) what claims did each pursue; 3) what damages were proven in
that litigation; 4) what do the settlement documents recite; and 5) what does the settlement worksheet provided by counsel to his clients at the end of the litigation show as recovery to each. Copies of all of these documents should be obtained, reviewed, and authenticated if necessary, to be used in the trial of the divorce.
Although these cases pre-date Graham v. Franco, they appear to continue to correctly state the law regarding characterization of the claim for a minor’s services and are consistent with the current Family Code. A lawyer who has represented multiple parties in a matter shall not thereafter represent any of such parties in a dispute among the parties arising out of the matter, unless prior consent is obtained from all such parties to the dispute. Id.
Some settlement agreements will contain helpful recitations, such as a recitation of the claims of damages recovered (see Licata, 11 S.W.3d at 274), or that the recovery of each spouse is that spouse’s separate property. For example, in some of the settlement documents we prepare where we represent both husband and wife, we consult with the clients and may include a paragraph that reads as follows: Separate property: All recoveries made herein by [husband] are made in satisfaction of his claims for damages arising out of the injury to [wife] and damages resulting therefrom, all of which claims for damages are the separate property of said respective plaintiffs. Plaintiff [husband] hereby agrees that the monies paid to him are his separate property. Plaintiff [wife] hereby agrees that the monies paid to her are her separate property. [Husband and wife] hereby agree that this paragraph shall constitute clear and convincing evidence of separate property necessary to override the presumption of community property established by section 5.02 of the Texas Family Code. As far as we know that provision has not been challenged. III. CONCLUSION Personal injury recoveries may be one of the largest assets held by a divorcing couple. Proper characterization of the various elements of the recovery is important in assuring a just and equitable division of the community portion of such recovery and preservation of the separate property recovery of the remainder. Diligent, competent and zealous representation of the client requires the domestic relations attorney to carefully prepare for what may become a mini-trial of the personal injury action inside the divorce proceeding to maximize the client’s share of an unapportioned recovery.