Commonwealth of Kentucky Court of Appeals

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1 RENDERED: MAY 8, 2015; 10:00 A.M. NOT TO BE PUBLISHED Commonwealth of Kentucky Court of Appeals NO CA MR STEVEN WILDT APPELLANT APPEAL FROM JEFFERSON FAMILY COURT v. HONORABLE DOLLY W. BERRY, JUDGE ACTION NO. 13-CI PATRICIA WILDT APPELLEE OPINION AFFIRMING IN PART, VACATING IN PART, AND REMANDING ** ** ** ** ** BEFORE: COMBS, J. LAMBERT, AND STUMBO, JUDGES. COMBS, JUDGE: Steven Wildt appeals from an order of the Jefferson Family Court denying his motion to alter, amend, or vacate its judgment and order that had divided between the parties the proceeds of personal injury settlements

2 designated by the court as marital property. After our review, we affirm in part, vacate in part, and remand for further proceedings. Steven and Patricia Wildt were married on July 7, Three children were born of the marriage; two are now emancipated. The parties separated on January 1, 2013, and Patricia petitioned for dissolution of the marriage on February 1, Patricia is an electrical engineer earning about $8, per month. Steven is permanently disabled as a result of a 1997 automobile accident. He receives a monthly Social Security disability benefit of $954 and an additional sum of $438 per month as part of a structured settlement. After their separation, the parties agreed on all issues relating to the custody and support of their minor child. They also stipulated to a division of their personal property and Patricia s retirement accounts and pension benefit. At trial, Steven introduced evidence pertaining to the severity of the injuries that he had sustained as a result of the automobile accident in August His evidence established that he received short-term disability payments on a policy provided through his employer from the date of the accident until February 1, 1998, when his long-term disability payments began. Steven filed an action against the disability insurer when the payments terminated in April The parties settled this claim for $30, As a consequence of the accident, Steven was also awarded Social Security disability benefits in March He received a lump-sum payment of $16,

3 to compensate him retroactively for the disability. Additionally, Steven received basic reparation benefits, half of which, maybe $6, or so went towards lost wages and the rest towards his medical bills. Steven also filed a personal injury action against the tortfeasor. He settled that claim in 2001 for $185, From this settlement, Steven paid his costs and attorney fees as well as some medical bills. He also funded a structured settlement annuity. The release recited that the payment: includes, but is not limited to, all recoverable out-ofpocket expenses, attorney fees, all medical liens, all rights of recovery, all medical subrogation claims except PIP from State Farm, all Worker Compensation subrogation claims, known and unknown, and claims for general damages. Steven s attorney testified that the phrase claims for general damages in the release referred to pain and suffering. Steven used $80, of the settlement proceeds to pay off the mortgage on the marital residence. Steven s attorney indicated that he believed that the value of Steven s claim for pain and suffering exceeded $800, Since the tortfeasor s insurance was insufficient to compensate him fully, Steven filed an underinsured claim against his own insurer. That claim was eventually settled for an additional $50, Steven s attorney testified that Steven was compensated for his lost wages through the disability payments, PIP payments, and Social Security benefits. His medical bills were paid from the settlement with the tortfeasor. -3-

4 In April 2012, following another motor vehicle accident, Steven was awarded $42, from a settlement with the tortfeasor. The release provided that in exchange for the settlement, Steven was releasing the defendant from: any and all claims, actions, causes of actions, demands, rights, damages, costs, loss of wages, expenses, hospital and medical expenses, accrued or unaccrued claims for loss of consortium, loss of support or affection, loss of society and companionship, attorney s fees and punitive damages. Eventually, $35, of the net recovery was deposited into a joint savings account. After Patricia filed the petition for divorce, Steven withdrew $25, that remained in the account. Relying on the court s decision in Weakley v. Weakley, 731 S.W.2d 243 (Ky. 1987), Steven contended that the compensation that he had received from the personal injury settlements was meant for his pain and suffering and, consequently, constituted his nonmarital property. Steven argued that the court should have set aside as his separate property the value of the mortgage payoff, the $25, that he withdrew from the joint savings account, and $4,920 in cash on hand. In the alternative, he argued that some portion of the 2001 settlement attributable to an impairment of his ability to earn money should also have a nonmarital component that should have been set aside to him based upon his life expectancy. In general, the character of the proceeds of a settlement of a legal claim will be determined based upon when the underlying claim arose and the purpose for which the judgment or settlement was awarded. See Maclean v. Middleton,

5 S.W.3d 755 (Ky. App. 2014). Based upon the evidence presented, the family court concluded that Steven failed to prove that the value of the settlement proceeds that he sought could be characterized as his nonmarital property. Instead, the court found that [Steven s] contribution was in lieu of money he would have earned over the course of years and brought into the marriage had he not been injured money that would have been applied to the mortgage as well as other family expenses. In its final judgment, the trial court awarded Patricia personal property valued at $31,277; an equalization payment from Steven of $25,500; half of her retirement accounts; half of the value of the parties bank accounts; and half of the equity in the marital residence. Steven was awarded personal property valued at $20,755; half of Patricia s retirement accounts; half of the value of the bank accounts; and half of the equity in the marital residence. The trial court also awarded Steven permanent maintenance in the amount of $1,617 per month and a portion of his attorney s fees. On February 28, 2014, Steven filed a motion to alter, amend, or vacate. He argued that the family court had erred by failing to assign to him as his nonmarital property the value of the personal injury settlements. He contended that the proof submitted in support of his claim to the settlement proceeds showed that the settlements were intended to compensate him for pain and suffering. Alternatively, he argued that the proof supported his claim that the settlements were intended to compensate him for loss of earnings and impairment of his ability to earn money, -5-

6 in part, for a period following the parties divorce. On April 2, 2014, the family court denied the motion. This appeal followed. On appeal, Steven first contends that the family court erred by concluding that the evidence presented did not establish what portion of the personal injury settlements was intended to compensate him for his pain and suffering. Patricia argues that the family court correctly determined what types of damages the settlements represented and that the proceeds were properly characterized as marital property under the provisions of Kentucky Revised Statute[s] (KRS) Pursuant to KRS (2), all property acquired by either spouse subsequent to the marriage is marital property -- other than the types of property specifically excepted by the provision. A party claiming that property acquired during the marriage to be nonmarital bears the burden of proof. Terwilliger v. Terwilliger, 64 S.W.3d 816 (Ky. 2002). On appeal, [w]hether certain property is part of the marital estate subject to division presents a question of law that we decide without deference to the trial court s decision. Overstreet v. Overstreet, 144 S.W.3d 834 (Ky. App. 2003). In Weakley, 731 S.W.2d at 243, , the Supreme Court of Kentucky observed as follows: When [a personal] injury occurs during the marriage, the recovery allowable for loss of wages and permanent impairment of the power to earn money is, in many respects, similar to a workers' compensation award. It is a replacement for the ability of the injured party to earn -6-

7 money that otherwise would have been earned during the marriage. Both the injured party and the spouse of the injured party had an expectation that those earnings would have continued but for the injury. Loss, during the marriage, of ability to earn money which otherwise would have been earned during the marriage is a loss to the marital estate. To the extent that a personal injury award for loss of earnings and permanent impairment of ability to earn money is applicable to the years while the marriage existed, it is marital property. To the extent that the award can be prorated to the remaining years of life expectancy following the dissolution of the marriage, it is nonmarital. However, any portion of the recovery which constitutes damages for pain and suffering must stand on a different footing because it is in no sense the replacement of earnings that otherwise would have accrued during the marriage. As a matter of fairness it does not seem right that upon the dissolution of the marriage one of the parties should be rewarded because the other party had the misfortune to suffer painful injuries as a result of an accident. The law does not require such a result. Even when the injury occurs during the marriage, the injured party, prior to marriage, was free of the pain for which damages are awarded. The pain-free physical condition which existed before the marriage is exchanged for a condition burdened with pain. We consider KRS (2) applicable, and hold that as to pain and suffering resulting from an injury sustained during the marriage, the injured party has simply exchanged property acquired before the marriage, i.e., good health, free from pain, for the money received as compensation for the loss. * * * * -7-

8 We do not attempt to decide here the proper procedure for the allocation between marital and nonmarital property of a personal injury award for an injury sustained during the marriage where the settlement or judgment does not indicate what portion of the award applies to earning capacity and what portion is allocated to pain and suffering. According to the evidence presented, Steven s original disability insurance payments replaced only half of his income. His eventual settlement with the disability carrier resulted in his recovery of only a fraction of the benefits to which he had claimed to be entitled. There was also evidence to indicate that the parties incurred significant out-of-pocket medical expenses in connection with Steven s medical care from the time of his first accident. The family court concluded that an apportionment of the settlement funds with respect to lost wages, pain and suffering, and other types of damages was not required under these circumstances because the funds were meant to compensate the marital estate. Based upon the evidence, we cannot agree that the findings of the family court were clearly erroneous or that it erred in its application of the law to those facts. Additionally, the family court did not err by finding that Steven failed to meet his burden of proving that the settlement proceeds were intended to compensate him for his pain and suffering. Instead, the value of the personal injury settlements that Steven sought to have characterized as his nonmarital property was used to compensate the marital estate for losses caused by his accidents. Therefore, it is properly characterized as marital property subject to division. -8-

9 Nonetheless, we are persuaded that the family court omitted to determine which part, if any, of the settlement proceeds compensated Steven for the loss of his ability to earn money post-dissolution. To the extent that the award can be prorated to the remaining years of life expectancy following the dissolution of the marriage, it is nonmarital. Weakley, 731 S.W.2d at 244. Therefore, we must vacate and remand on that issue. After prorating the settlement funds as directed, the family court may also need to reevaluate the terms of its maintenance order on remand. The judgment of the Jefferson Family Court is affirmed in part, vacated in part, and remanded for further proceedings as directed by this opinion. ALL CONCUR. BRIEF FOR APPELLANT: Mary Janice Lintner Louisville, KY BRIEF FOR APPELLEE: Melanie Straw-Boone Louisville, KY -9-

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