The recent state Supreme Court case Focht v. Focht was welcomed by most family law practitioners with open arms, as it resolves conflicting case law on the issue of whether an award or settlement proceeds from a personal injury claim, lottery winnings or workers' compensation that arose during marriage but received after separation should be considered marital property for purposes of equitable distribution in a divorce matter.
The Pennsylvania Divorce Code defines marital property as "all property acquired by either party during the marriage."
The Divorce Code also provides eight exceptions of when property should not be considered marital property for purposes of equitable distribution. As reflected in the Focht opinion, where the court cited Section 3501(a) of the Divorce Code: "Marital property does not include: (1) property acquired prior to marriage ... (4) Property acquired after final separation until the date of divorce ... (8) Any payment received as a result of an award or settlement for any cause of action or claim which accrued prior to the marriage or after the date of final separation regardless of when the payment was received." The debated issue surrounds the word "accrued."
"There is no statutory definition of accrue," according to the opinion. Therefore, the debate is whether a cause of action or claim accrues when the right to same occurs (such as, when a person gets injured) or when the settlement or award occurs.
In the Focht case, plaintiff Justin E. Focht "sustained a serious injury in an accident at the Family Grand Prix Raceway in Leesport" during the parties' marriage. Two weeks after the injury, Justin Focht and his now-estranged wife, defendant Tracy L. Focht, retained an attorney to represent them in "their respective claims for personal injury and loss of consortium." Approximately a year and a half later, the Fochts instituted a lawsuit against the raceway and settled the case approximately four years later. However, the parties separated approximately three years prior to the settlement being reached in their personal injury case.
According to the opinion, the only asset involved in the parties' equitable distribution case was the settlement award from the personal injury lawsuit. The special master assigned to hear the parties' equitable distribution case determined that all of the settlement proceeds were marital property subject to equitable distribution. Thereafter, the trial court confirmed the special master's decision. Both parties cross-appealed the equitable distribution order to the Superior Court.
The Superior Court held that the trial court "erred by including the settlement proceeds in the marital estate." The Superior Court vacated the equitable distribution order, relying "solely on the fact that settlement in the negligence suit had been reached after the parties' final separation," according to the opinion.
Tracy Focht filed a petition for allowance of appeal with the state Supreme Court, "asserting that the Superior Court's determination conflicted with [the Supreme] Court's precedential decision in Drake v. Drake ."
The Supreme Court's analysis in the Focht opinion focused on the interpretation of the word "accrued" and Subsection 3501(a)(8) of the Pennsylvania Divorce Code. The Supreme Court cited a number of its prior decisions defining when a cause of action accrues. According to the opinion, "a cause of action accrues only when one has the right to institute a suit." The Supreme Court closely analyzed its former decision in the Drake case. The Drake case pertained to a commutation agreement regarding the husband's disability. The Supreme Court concluded in the Drake case that the "husband's claim 'accrued' not when the commutation agreement was entered and commutation award was actually granted, but rather as of the effective date of husband's partial disability, which is when his right to seek commutation of his earnings arose."
The Supreme Court also analyzed a prior Superior Court decision pertaining to a winning lottery ticket. The court held that the settlement proceeds from a lottery ticket litigation that was settled and liquidated after the parties divorced but the ticket was purchased during marriage was marital property for purposes of equitable distribution. The Supreme Court further analyzed cases pertaining to the statute of limitations that define a cause of action accruing only when one has the right to institute the lawsuit.
In the Focht case, Justin Focht "contends that his personal injury claim did not accrue until the date of settlement, which was the first time that he was actually entitled to the settlement proceeds." He further claims that "a personal injury claim 'unliquidated' by verdict or settlement cannot be subject to equitable distribution and, indeed, cannot even be property, much less marital property."
The Supreme Court held that Justin Focht and the Superior Court incorrectly focused on the date of settlement of Justin Focht's cause of action when concluding that his cause of action did not accrue until the settlement had been reached.
The Supreme Court stated: "The decision advocated by [Justin Focht] and reached by the Superior Court is untenable in light of the plain language of Subsection 3501(a)(8); our long-established understanding of the concept of accrual of a cause of action; and this court's and Superior Court's decision in, respectively, Drake and Nuhfer [ v. Nuhfer ]. Paraphrasing Drake , the 'critical question' here is whether [Justin Focht's] right to seek damages for personal injury by filing a negligence suit accrued during his marriage, not whether his suit was settled during his marriage."
The Supreme Court highlighted that the accrual of a cause of action and the settlement of a cause of action are "two very different concepts." Because Justin Focht's cause of action accrued during the marriage, the Supreme Court reversed the Superior Court and held that the settlement proceeds are marital property subject to equitable distribution.
The case brings clarity to an issue that has been muddied by prior case law. The Supreme Court highlighted an argument raised in Justin Focht's brief where he cited the cases of Budnick v. Budnick and Hurley v. Hurley in support of his position that the focus should be on when the settlement occurs.
The Supreme Court reiterated that those cases were decided prior to the 1988 amendments to the Divorce Code, which added what has now become Subsection 3501(a)(8). At the end of the Focht opinion, the Supreme Court specifically overturned the 2002 Superior Court case of Pudlish v. Pudlish . The Pudlish case focused on the date that a lump sum workers' compensation settlement occurred, which was after the date of the parties' separation in that case and was held to be nonmarital property.
The Pudlish case created confusion as to whether settlement proceeds received after separation were to be considered marital property when the injury occurred during the marriage. The meaning of Subsection 3501(a)(8) of the Divorce Code is not ambiguous. The Focht case has removed the ambiguity created by case law and has provided clarity to the issue.
Michael E. Bertin is a partner at the Philadelphia law firm of Obermayer Rebmann Maxwell & Hippel. Bertin is co-author of the book "Pennsylvania Child Custody Law, Practice, and Procedure." Bertin is also chair-elect of the family law section of the Philadelphia Bar Association, co-chairman of its custody committee, and a past member of council and the executive committee of the family law section of the Pennsylvania Bar Association.
This article is reprinted with permission from the February 21, 2012, issue of Pennsylvania Law Weeky section in The Legal Intelligencer. © 2012 ALM Media LLC. Further duplication without permission is prohibited. All rights reserved.
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