Cunningham v. Cunningham.

• Decision Date: 13 July 2010
• Docket Number: Docket No. 285541.
• Citation: 289 Mich.App. 195,795 N.W.2d 826
• Parties: CUNNINGHAMv.CUNNINGHAM.
• Court: Court of Appeal of Michigan — District of US

289 Mich.App. 195

795 N.W.2d 826

CUNNINGHAM

v.CUNNINGHAM.

Docket No. 285541.

Court of Appeals of Michigan.

Submitted Nov. 9, 2009, at Lansing.Decided July 13, 2010, at 9:05 a.m.

Halm, Christian & Prine, P.C. (by David E. Prine), Howell, for Rosemarie Cunningham.Trost & Wolfer, P.C. (by Richard M. Trost), Brighton, for James T. Cunningham.

Before: BORRELLO, P.J., and WHITBECK and K.F. KELLY, JJ.

K.F. KELLY, J.

In this divorce action, we must decide whether, and to what extent, workers' compensation benefits received during a marriage are to be considered marital property. We hold that such benefits are marital property only to the extent that they compensate for wages lost during the marriage. We further conclude that the trial court erroneously awarded defendant, as his separate property, that portion of his workers' compensation award used as part of the down payment on the parties' second marital home. We reverse and remand.

I. BASIC FACTS

The parties were married in October 1982. In November 2007, plaintiff filed for divorce. The parties mediated the distribution of marital property, except with regard to distribution of the equity in the marital home. The home, the parties' second, was purchased in part with a portion of defendant's workers' compensation award received five years into the marriage.

A. THE WORKERS' COMPENSATION AWARD

When defendant was 16, he suffered a severe and permanently disabling injury while employed in construction work. He broke his spine and became a residual paraplegic. Although his physical abilities were limited, he was able to return to work for a period of time.¹ After the injury, defendant filed a claim for benefits under the Worker's Disability Compensation Act (WDCA), MCL 418.101 et seq. Litigation related to the compensation claim was lengthy and, while the claim was pending, defendant married plaintiff in 1982.

The claim was ultimately resolved in 1987. Defendant received a lifetime award of benefits, paid on a monthly basis. At the time of divorce, defendant was receiving $2,850 a month. The parties used the monthly benefits to defray ongoing marital expenses. He was also awarded a lump-sum payment of $150,000 retroactive to the date of injury (hereinafter the “retroactive award”).² The entire retroactive award was put into the parties' joint savings account.

B. THE MARITAL HOME

The same year defendant received the retroactive award, the parties purchased the marital home that is the subject of the present litigation. The home was purchased with $90,000 from defendant's retroactive award; $25,000 in proceeds from the sale of the parties' first home, which they had purchased together when they married; and approximately $20,000 from plaintiff's premarital 401K.³ The remaining $60,000 of the retroactive award remained in the parties' joint savings account and was spent during the rest of their 25–year marriage. At the time of the divorce proceedings, the home was valued at $252,000 and had an outstanding mortgage of approximately $56,000.

C. THE TRIAL

At trial, defendant requested that the $90,000 he contributed from the retroactive award to purchase the marital home be awarded to him as his separate property and not be included in the marital estate. Plaintiff countered that the entire retroactive award was properly included within the marital estate and asserted, in particular, that because $90,000 of the retroactive award had been commingled with other funds to purchase the martial home, it was part of the marital estate and subject to distribution.

At the close of the parties' proofs, the trial court awarded the marital home to defendant and ordered that he pay plaintiff $53,000.⁴ It found that $90,000 of the retroactive award was defendant's separate property and not subject to distribution as part of the marital estate. The court reasoned as follows:

[T]he injury happened when he was 16 years old. It took over ten years of litigation to get any money. It only came into the marriage, because it happened that that's when the lawsuit was settled. It has nothing to do when [sic] the injury was or anything else and it was given to him for his life, um, and for him to rely on that for life compensation.

* * *

Well, he can spend the money however he chooses and he chose to use it for housing, okay. And she got the benefit of having the house as well. But when the money was awarded, in this case it seems, that there is a difference in the fact that he wasn't married when the incident happened at age 16 and only because it took so long in the courts did he get an award while he was married.

* * *

It wasn't given to him for himself and dependents at that time, unless you can show a judgment that shows that. But I think that's a big difference in this case, because most of the ones that I read have to do with a person having compensation for themselves and their dependents and it's like that, but I don't see that in this case....

This appeal followed.

II. STANDARDS OF REVIEW

In a divorce action, we review for clear error a trial court's factual findings related to the division of marital property. Sparks v. Sparks, 440 Mich. 141, 151, 485 N.W.2d 893 (1992). A finding is clearly erroneous if we are left with a definite and firm conviction that a mistake has been made. Pickering v. Pickering, 268 Mich.App. 1, 7, 706 N.W.2d 835 (2005). We address questions of law de novo. Id.

III. WORKERS' COMPENSATION BENEFITS AND DIVORCE PROCEEDINGS

Plaintiff first argues that defendant's entire retroactive workers' compensation award is marital property subject to equitable division because it was received during the marriage. We disagree. A spouse's workers' compensation award received during the marriage is not necessarily marital property; rather, a benefit received during marriage is marital property only if it compensates for wages lost between the beginning and the end of the marriage.

A. SEPARATE VERSUS MARITAL PROPERTY

In any divorce action, a trial court must divide marital property between the parties and, in doing so, it must first determine what property is marital and what property is separate. Reeves v. Reeves, 226 Mich.App. 490, 493–494, 575 N.W.2d 1 (1997). Generally, marital property is that which is acquired or earned during the marriage, whereas separate property is that which is obtained or earned before the marriage. MCL 552.19. Once a court has determined what property is marital, the whole of which constitutes the marital estate, only then may it apportion the marital estate between the parties in a manner that is equitable in light of all the circumstances. See Byington v. Byington, 224 Mich.App. 103, 110, 112–113, 568 N.W.2d 141 (1997). As a general principle, when the marital estate is divided “each party takes away from the marriage that party's own separate estate with no invasion by the other party.” Reeves, 226 Mich.App. at 494, 575 N.W.2d 1.

The categorization of property as marital or separate, however, is not always easily achieved. While income earned by one spouse during the duration of the marriage is generally presumed to be marital property, Byington, 224 Mich.App. at 112, 568 N.W.2d 141, there are occasions when property earned or acquired during the marriage may be deemed separate property. For example, an inheritance received by one spouse during the marriage and kept separate from marital property is separate property. Dart v. Dart, 460 Mich. 573, 584–585, 597 N.W.2d 82 (1999). Similarly, proceeds received by one spouse in a personal injury lawsuit meant to compensate for pain and suffering, as opposed to lost wages, are generally considered separate property. Washington v. Washington, 283 Mich.App. 667, 674, 770 N.W.2d 908 (2009); Pickering, 268 Mich.App. at 10, 706 N.W.2d 835. Moreover, separate assets may lose their character as separate property and transform into marital property if they are commingled with marital assets and “treated by the parties as marital property.” Pickering, 268 Mich.App. at 10–12, 706 N.W.2d 835, citing Wilson v. Wilson, 179 Mich.App. 519, 521, 524, 446 N.W.2d 496 (1989). The mere fact that property may be held jointly or individually is not necessarily dispositive of whether the property is classified as separate or marital. See Korth v. Korth, 256 Mich.App. 286, 292–293, 662 N.W.2d 111 (2003); Reeves, 226 Mich.App. at 495–496, 575 N.W.2d 1.

B. WORKERS' COMPENSATION BENEFITS AS MARITAL PROPERTY

The pertinent question in this appeal is whether, and to what extent, defendant's workers' compensation benefits are marital property, subject to division. While the distinction between separate and marital property has been well established, see Charlton v. Charlton, 397 Mich. 84, 93–94, 243 N.W.2d 261 (1976), the law regarding the division of a workers' compensation award in divorce actions when the injury occurred before the marriage has not been addressed.

“[T]he purpose of the WDCA is to compensate employees for work-related injuries.” Sweatt v. Dep't of Corrections, 468 Mich. 172, 189, 661 N.W.2d 201 (2003) (opinion by Markman, J.). As our Supreme Court has stated:

The act was originally adopted to give employers protection against common-law actions and to place upon industry, where it properly belongs, not only the expense of the hospital and medical bills of the injured employee, but place upon it the burden of making a reasonable contribution to the sustenance of that employee and his dependents during the period of time he is incapacitated from work. This was the express intent of the legislature in adopting this law.

[ Lahti v. Fosterling, 357 Mich. 578, 585, 99 N.W.2d 490 (1959).]

See also Totten v. Detroit Aluminum & Brass Corp., 344 Mich. 414, 418, 73 N.W.2d 882 (1955) (construing the act as “ ‘providing that as against the employer[,] the injured employee and his dependents have no rights and can enforce no liability except those provided in the act’ ”) (citation omitted); Evans v. Evans,...