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Court Holds Disability Payments are Income, but not Marital Property

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In an opinion issued last fall, the Superior Court of Pennsylvania upheld a trial court’s characterization of disability payments in the context of divorce.

The case, Yuhas v. Yuhas, involved a surgeon who had to stop working due to surgery for carpel tunnel syndrome. He married his wife on June 4, 1988, and they separated on July 20, 2007. Shortly after they married, the parties purchased a disability insurance policy. The premiums were paid during the marriage with the parties’ personal money, as well as with money from the husband’s medical practice.

The husband applied for disability benefits in April 2007 and received a lump sum retroactive payment of $71,000 covering January through July 2007. Subsequently, he received monthly disability checks for $10,200. These monthly payments were contingent on annual physical exams showing the husband’s continuing disability – his inability to work as a surgeon.

The husband and wife agreed that the $71,000 retroactive payment was marital property, however they disagreed as to treatment of the monthly disability payments that were paid after the parties’ separation. The trial court held that they were income for support purposes but were not marital property. The court reasoned that the husband’s right to receive the payments terminated each year and re-accrued after his annual examination showing his disability was continuing.

On appeal, the wife argued that the monthly disability payments were marital property, because her husband’s right to receive them accrued during the marriage, when he developed carpel tunnel syndrome. The Superior Court rejected her argument. In its analysis, the Superior Court cited the language of 23 Pa.C.S. § 3501(a)(8) and Pennsylvania case law establishing that payments received “as a result of an award or settlement for any cause of action or claim which accrued” during the marriage is marital property. Therefore, if spouses receive a lump sum settlement payment after they separate, the lump sum will still be  marital property if the injury that led to the right to sue occurred during the marriage.

In Yuhas, however, the Superior Court held that the husband’s disability payments were not “received as a result of an award or settlement for any cause of action or claim.” Instead, the monthly disability payment resulted from an insurance contract that ensured alternative income if the husband became unable to work as a surgeon. Moreover, if the husband had any enforceable right to sue, that right was conditioned on the annual examinations required by his insurance contract. Therefore, the court upheld the trial court’s decision.

Yuhas shows that the difference between income and marital property is not always clear. In fact, some payments can be treated as income or marital assets. The family law attorneys at Petrelli Previtera, can advise you on tricky legal issues like this to help make your divorce as stress-free as possible.

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