Increasingly, some courts do what is termed a "purpose analysis," separating the disability benefits into a retirement component, which is marital, and disability component, which is separate "except to the extent that the benefits serve to compensate the marital partnership for lost earnings during the marriage."

Courts that have held that disability benefits are marital property generally focus on them as a form of deferred compensation, or they cite the absence of legislative law specifically excluding them distribution. Courts that have held that the benefits are separate property seem guided by the personal nature of the reason for them. Arguments one way or the other about disability benefits -- martial or separate property -- invite analogies from case law involving pensions, workers’ compensation and retirement.

Very often, many types of disability benefits are paid only after the employee waives retirement benefits. In cases where the party waives retirement in favor of disability, courts have considered the difference between the former and the latter, ruling that anything above what the party normally would have received is the "true disability component." In this way, the retirement benefit portion of the benefit can be treated as it would in any divorce action. In cases where the classification of benefits is open to argument, the burden of proof is generally on the spouse arguing that the property is separate.

Although the treatment of the disability component is mixed, a significant number of courts treat it as separate property when the payment is due after the date of the classification of assets. In other words, disability payments are separate property because they are seen as a substitute for lost wages.

In general, courts are equally divided about the classification of private disability insurance as they are about employer-provided disability insurance. Private disability insurance, however, may raise another consideration since it is generally purchased with marital funds.

See also Personal Injury Proceeds; Personal Injury Awards; Workers’ Compensation.

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