In 2011, the Pennsylvania Supreme Court decided the case of Focht v.  Focht, 32 A.3d 668 (Pa. 2011), which resolved prior 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.

In the Focht case, Justin Focht was injured during the parties'  marriage and received a settlement related thereto after the parties separated.  In deciding whether the settlement proceeds were marital property subject to  equitable distribution, the Pennsylvania Supreme Court focused on the  interpretation of the word "accrued" and Subsection 3501(a)(8) of the  Pennsylvania Divorce Code.

Because Focht's cause of action accrued during the marriage, the  Pennsylvania Supreme Court held that the settlement proceeds were marital  property subject to equitable distribution. The Supreme Court closely analyzed  its former decision in Drake v. Drake, 725 A.2d 717, 722 (Pa.1999). 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."

Recently, another wrinkle along this line of cases arose in the Pennsylvania  Superior Court case of Yuhas v. Yuhas, 79 A.3d 700 (Pa. Super. 2013). In Yuhas, the Superior Court (en banc) was faced with an issue of first  impression because of the unique facts contained therein. According to the  opinion, Dr. Thomas Richard Yuhas, a board-certified vascular surgeon, underwent  surgery for carpal tunnel syndrome prior to the parties separating. Because of  the surgery, Yuhas was no longer able to operate because of, among other things,  numbness in his hand.

Shortly after the parties' marriage, a disability income policy was issued  to Yuhas. A number of the premiums paid toward the policy were paid from the  parties' personal funds and many of the premiums were paid through Yuhas'  medical practice. Yuhas applied for benefits under the policy and received a  retroactive lump sum as well as monthly disability checks. The monthly  disability checks are contingent upon "proof of husband's continuing disability,  i.e., his inability to work at his former occupation as a surgeon." Initially,  Yuhas had to renew his right to receive the monthly benefits every six months,  but was later required to renew the same annually. The parties agreed that the  lump sum retroactive payment received by Yuhas was marital property but  disagreed whether the monthly payments were marital property subject to  equitable distribution or income to Yuhas and not subject to equitable  distribution.

A master's hearing was held, after Mary Kathryn Nentwig Yuhas filed a  divorce complaint, and the master determined that all of Thomas Yuhas' monthly  disability benefits were marital property. The master based her determination on  the Drake decision, according to the opinion. After Thomas Yuhas filed  exceptions to the master's decision, the trial court sustained the husband's  exception "to the master's report concerning the characterization of the monthly  disability payments" and found that "any monthly disability insurance payments  received by [husband] starting on the date of the first six-month renewal after  the parties' separation ... are income but not marital property."

The trial court also relied on the Drake decision, citing that the  court in Drake directed that the trial court must "look only to the  timing of the right to receive" the payments. The trial court stated: "Here,  husband's disability payments 'are not guaranteed but renewable every six  months.' Therefore, husband's right to receive disability payments terminates  and re-accrues, if at all, every six months." The case was then remanded by the  trial court to the master for additional proceedings. After the remanded hearing  before the master, the master issued a supplemental report incorporating the  trial court's directive that the monthly disability payments be deemed income  and not marital property. Mary Yuhas then filed exceptions to the master's  supplemental report, which the trial court overruled. She filed the instant  appeal thereafter, questioning "whether the trial court erred in concluding that  the disability payments received by husband after the date of separation should  not be considered marital property."

Distinguishing the present case from the decisions in Focht and Drake, the Superior Court concluded that the trial court's "decision to  identify husband's monthly disability benefit that he received after separation  as nonmarital property is in concert with the language of the Divorce Code and  case law," and affirmed the trial court.

On appeal, Mary Yuhas argued that Thomas Yuhas' right to receive the  disability payments accrued when he became disabled prior to the parties'  separation, which renders the payments marital property. The Superior Court  focused its analysis on the Focht and Drake decisions as well as  Section 3501(a) of the Divorce Code in addressing Mary Yuhas' argument. As a  reminder, Section 3501(a) of the Divorce Code provides, in part: "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." According to the  opinion, the Superior Court found that the present case "does not fall within  the confines of Subsection (a)(8), because it does not arise from an injury that  leads to a right to institute a suit for damages." The Superior Court also held  that the present case is distinguishable from Focht and Drake,  since both of those cases involved lump sum payments and not "monthly payments  that are contingent upon proof of continuing disability." The Superior Court  found that "if any accrual, i.e., the existence of an enforceable right, comes  to fruition, it is conditioned each year on husband's submission and the  insurance company's actions on that submission." Therefore, the Superior Court  affirmed the trial court's decision.

There was a lengthy dissent to the opinion that stated that the disability  policy is akin to a life insurance policy and that the focus should be on the  timing of when the policy was acquired/purchased. The dissent stated that since  the policy in the present case was purchased during the marriage, the disability  payments therefrom should be considered marital property subject to  distribution.

This case is important for family law practitioners because it covers an  issue just outside of the string of cases pertaining to situations where there  is a receipt of funds after the parties separate related to an incident during  marriage. However, in this case, the fact that the right to the continuing  receipt of the funds is contingent on an ongoing renewal affected the  consideration of when the accrual of said right exists. This was unchartered  territory. There is now guidance in such circumstances.

Monthly Disability Payments Not Considered Marital Property.pdf

Michael E. Bertin is a partner at the law firm of  Obermayer Rebmann Maxwell & Hippel. Bertin is co-author of the book  "Pennsylvania Child Custody Law, Practice, and Procedure." Bertin is the  immediate past chair of the family law section of the Philadelphia Bar  Association, co-chair of its custody committee, and chair of the rules committee  and a member of council of the family law section of the Pennsylvania Bar  Association.

The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.

Reprinted with permission from the January 14, 2014 edition of THE LEGAL INTELLIGENCER © 2014 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 347-227-3382, reprints@alm.com or visit www.almreprints.com. # 201-01-14-01