Jack and Jill fall in love and get married.  Jill hurts herself coming down the well and makes a Workers’ Compensation claim.  Because Jill fell in 1992 and this occurred under the California Workers’ Compensation system, this was going to be a long, drawn-out affair.

Jill’s injury left her unable to work, and, in 2002, she received a lump sum award of just over $172,000 (after her lawyer was paid).  In 2005, Jack and Jill decided to go their separate ways, but there was some dispute as to how, exactly, they ought to split the sheets.

Jill, of course, maintained that the Workers’ Compensation award was her separate property!  Jack, on the other hand, claimed that it was community property and should therefore be split between them, in accordance with Family Code § 760.

So what is the right answer?  Are Workers’ Compensation benefits community property?  Or do they stay with the injured spouse?  That was the issue in the case of In re the Marriage of Flora S. and George L. Ruiz (2011).  [Practitioners, be careful – not all parts of this case are certified for publication.]

The trial court held, and the Court of Appeals affirmed, that the portions of a lump-sum Workers’ Compensation award that are meant to cover out-of-pocket expenses for medical treatment and to replace the lost earning capacity during marriage are community property.  The rest sits comfortably in the injured spouse’s pockets.

But here’s the catch – the burden of proof lies squarely on the injured spouse to prove that this property is separate.  Without some proof as to how the lump sum was calculated, the injured spouse is out of luck.  Otherwise, the Family Code presumption kicks in and the community wins.

The implications of this case are something to look out for when the injured worker wants to itemize his or her benefits award (Yes, I’ll waive reimbursement for medical treatment if you note in detail that all benefits are for lost earning capacity…)