Pupil barrister Jack Best writes:
It could be quite sensible to presume that when spouses are dividing their finances after a marital breakdown, any personal injury monies awarded to one (or both) of the parties should not be taken into consideration and divided. As personal injury awards have not been acquired through the ‘endeavours of the marriage’, you would think it sensible to class this capital as non-matrimonial property. That’s not the approach the court has taken for some time but despite this historical stance, many are still surprised that their personal injury capital could be up for grabs.
In Daubney v Daubney  Fam 267, Scarman LJ outlined that a Judge must have regard ‘to all of the circumstances’ of a case when applying S25(1) of the Matrimonial Causes Act, more importantly ruling that when ‘damages [are] received [they] become part of the financial resources of the parties’. This indication formulates the approach that any damages awarded for any personal injury claim should be added into the marital pot and then shared between spouses accordingly depending on the individual facts of each case. In Daubney, both parties had received personal injury damages due to being involved in a road traffic collision together. The husband suffered considerable injuries from the accident, most significantly losing sight in one eye. He used his £4000 in damages to invest in a business which later failed, losing the entire amount awarded on that sour endeavour. The wife, who had no significant injuries in comparison and received a lesser amount in damages to reflect this, used her personal injury money to purchase a flat. The wife contended that the flat should not be entered into the overall asset pot of the parties as it was non-matrimonial monies which had enabled the purchase. Cairns LJ, when determining whether the flat should be considered ruled that:
“…there is no decision binding us to leave out of account the resources of the wife acquired through her damages and, with all respect to those who have expressed a different view, I am still convinced that it would be contrary to s 25(1)(a) of the 1973 Act to leave them out’.
Under s25(1)(a) of the Matrimonial Causes Act, the court shall have regard to “property and other financial resources” of the parties. In Daubney, although the damages money had been realised into property, the court focused that the origin of the money should be considered as ‘financial resources of the parties’ under s25(1))(a) and added the amount into the marital pot accordingly.
The ‘needs’ of both parties will of course be considered primarily by the court when determining how a personal injury award may be shared. The problem being that in some cases, the ‘needs’ of the spouse who received the personal damages may not be greater than the other when, for example, there is a need to rehouse. It does not always follow that the injury sustained is such that there is a need for the recipient to retain the entirety of the damages allowing for ring-fencing of the capital, due to the very fact that there may not be a serious injury that needs ongoing care or treatment. In one of the leading authorities, Wagstaff v Wagstaff  1 FLR 33, the husband had suffered life-changing injuries leaving him confined to a wheelchair from a serious road traffic collision. The court made very clear that ‘the resolution of [any] problem turns very much on the special facts’ of each case and made even clearer that:
“…the capital is not sacrosanct nor any part of it secured against the application of the other spouse.”
Expanding on that, the court held:
“Damages in the form of a capital sum awarded to a spouse as compensation for loss of amenity and pain and suffering were part of that spouse’s financial resources for the purposes of determining an application by the other spouse for ancillary relief under s 25(2)(a) of the 1973 Act. However, although the court had an unfettered discretion when considering the criteria set out in s 25 the circumstances in which capital by way of damages came into the hands of the recipient spouse and the size of the award were relevant factors which would temper the extent of, and in some cases exclude, the sharing of such capital with the other spouse.”
What we can determine from Wagstaff is that the court will consider any award as part of an application due to it being the ‘financial resources’ of the parties, confirming the position in Daubney. It follows that the court then must consider if the sharing of any damages would be appropriate considering the relevant factors of each case and the needs of the spouse who holds that capital. If the court is satisfied that the needs of the spouse whom the damages were first awarded need to be ring-fenced for the very reason they were awarded, the court has the discretion to temper, or exclude, the sharing of that capital.
This was clarified in the case of Mansfield v Mansfield  1 FLR 117, CA where the Court of Appeal held that
“… each case must be looked at on its facts, and in many instances the application of the general sharing rule mustbe tempered to reflect the particular needs of the recipient and the very nature of the acquisition of the capital, namely by way of compensation for personal injuries.”
In Mansfield, the damages were awarded to the husband pre-marriage which he used to purchase a bungalow which was adapted for his needs, where the parties then lived together acting as the FMH. He also invested in a flat to provide an income. The needs of the wife to rehouse with their children were taken into consideration by the court. The personal injury money, realised into property, was therefore given to the wife by provision to the value of £285,000 subject to a Mesher order in favour of the husband. This authority confirms that personal injury awards cannot be ring-fenced by classing them as non-matrimonial assets as they fall under the ‘financial resources’ of the parties. It begs the question that if one is awarded with damages during a marriage, which is then invested in the FMH to accommodate any added facilities resulting from the injury, that capital then could have been ‘matrimonialised’, making it more difficult for the court to distinguish between the needs of the spouse who requires the improvements and would wish to stay in the FMH because of the unique adapted premises, and the needs of the other spouse to adequately rehouse.
In both Wagstaff and Mansfield, a lasting and life-changing injury could be identified to the court. This would likely have made the argument that the ‘need’ to keep as much of the capital as possible (for the very reason it was first acquired) more persuasive to the court when departing from the sharing principle. The difficulty arises when there is a client who has no lasting or life-changing injuries or any findings to rely on from the personal injury claim if the matter has been settled between the parties outside of court, often with an attractive settlement offer to avoid litigation costs by the defendant. If a client has received damages but has no long-lasting injuries that require the use of the damages, it may be harder to persuade the court that they should temper, or exclude, the sharing of those damages with their spouse. If a personal injury claim has been settled outside of court, with no findings made by the court as to the future needs of the recipient of the award, this inevitably means it is the word of the recipient of what they have assessed their own needs (and future needs) to be and not what a judge has determined at the personal injury trial based upon any medical evidence. How does one assess these needs at an FDR and how could a judge deliver a sound indication without an independent assessment of the recipient’s injuries which may not be readily recognisable or confirmed?
In many cases it will not be proportionate to instruct single joint experts to assess the recipients needs and future needs when there is this uncertainty for an FDR as this will begin to spiral litigation costs for both parties, factoring in any questions which may wish to be sent for the expert to clarify post-report, again, adding to the already costly and lengthy process. In any event, the parties will first need the permission of the court under FPR 25.6(d) at the FDA which may prove a difficult hurdle to jump because of proportionality.
In this culture of claims and an increased encouragement for out of court settlements, the lack of medical evidence or personal injury findings will make it harder for an FDR judge. It is clear from the authorities that any personal injury award should be added into the asset schedule, but how tentatively an FDR judge may wish to indicate how such capital should be divided will, ultimately, depend on the facts of each case.
Written by Jack Best