Protecting Personal Injury Compensation In Prenuptial, Postnuptial, And Cohabitation Agreements
Personal injury compensation after accidents or injury can be a lifeline to help you get life back on track. Due to their importance, it is vital to protect the funds for the long-term. Rebecca Bates, Associate Solicitor in the Family team at JCP Solicitors, explains how to protect personal injury compensation with family agreements.
For many people, a personal injury compensation represents more than just financial gain: it is a form of justice which recognises the pain and suffering an accident has caused, and many people rely on these payouts to help them recover physically and emotionally.
Understandably, most recipients of personal injury compensation want to ensure that their hard-won funds remain protected for the long-term.
This is where a carefully drafted prenuptial agreement, postnuptial agreement, or cohabitation agreement can play a vital role. Recording intentions at the outset can promote a happier relationship in the long-run, and save a lot of stress and heartache if the relationship does break down in future.
What Agreements Are Available?
Whether you are cohabiting, engaged, or married, there are different family agreements which can be drafted to suit your circumstances.
Prenuptial Agreements: Before marriage, you and your partner can draft a prenuptual agreement to determine how assets would be split in the event of divorce. If considering how to protect compensation, you can agree that any personal injury settlement — yours or your child’s — belongs solely to the person it was awarded for, and this can be taken into account by a Court in the event that the marriage later breaks down.
Postnuptial Agreements: If you are already married, it is possible to draft a ‘postnup’ which specifically addresses any funds gained after the marriage. This might include personal injury compensation, an inheritance, or shareholder payout for example. A postnup can specifically address what happens to these funds in the event of divorce, providing much-needed clarity and reassurance for you and the Court.
Cohabitation Agreements: For couples living together, cohabitation agreements can serve a similar function to a pre- or post-nup. Cohabitation agreements set out how assets, including compensation payments, should be treated if the relationship comes to an end.
How Can Agreements Help Me?
In family law, the starting point in divorce in in England and Wales is often to divide assets fairly, and in many cases that means equally. While a court may recognise that a personal injury award has a different character from other assets, it is not automatically ring-fenced as one party’s sole ‘property’.
If the compensation has been used for shared purposes – such as contributed to the rent or mortgage, or pay household expenses –it will be considered a ‘matrimonial’ asset. By demonstrating its use for shared finances, this makes the compensation subject to the ‘sharing principle’, meaning it will likely be divided equally.
Without clear protection in place, there is a real risk that part of the settlement you received for your injury could end up being shared.
What About Compensation On Behalf Of A Child?
Where compensation has been received on behalf of a child - special consideration must be taken as to who should manage their finances going forward.
In principle, these funds are intended for the child’s benefit alone. However, if not dealt with properly, there is a risk that they could be viewed as part of family resources in a financial dispute. For example, if used to pay for adaptations to a car or home.
By addressing the child’s compensation clearly within a prenuptial, postnuptial or cohabitation agreement, you can strengthen the argument that such compensation is strictly for the child and should not be drawn into settlement negotiations between the adult parties. In divorce, child matters are always dealt with separately to financial matters, and so whomever manages the child’s finances will have no bearing on the child arrangements (formerly referred to as ‘child custody’).
Why Prepare An Agreement?
By having your agreement in writing, it provides certainty for you and evidence for the Court. This avoids costly, emotional, and long drawn out disputes as you have clearly written, signed documentation sharing your intentions for assets including personal injury compensation.
What is more, a written agreement keeps compensation for its intended purpose: supporting your needs, and your recovery. You can keep them highly personalised, and even allow for some of your personal injury compensation to be used for family expenses while still safeguarding the majority of the funds for your future.
At JCP Solicitors, our expert team of family law specialists can provide tailored, personal advice and guidance suited to your circumstances. If you would like support in family law, contact Rebecca Bates by emailing rebecca.bates@jcpsolicitors.co.uk or call 03333 208644.