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Phoenix AZ Family Law Blog

Tuesday, November 11, 2014

Disability Payments Are Not Marital Property in Arizona Dissolution of Marriage

When Kara and Steven Helland were married in 1989, he was gainfully employed as an anesthesiologist.  Eleven years later, a disability left him unable to work in that field.  Under a disability insurance policy he had purchased, he began receiving disability payments of roughly $15,000 a month.

The policy allowed him to work in other capacities and, with his wife, he opened a pain management medical practice.  But he became involved in criminal activities, lost his medical license, and had to give up the practice.  He and his wife sold the practice to another doctor for $750,000.

In their dissolution of marriage in 2010, a court ruled that Steven Helland's disability payments were his alone and not part of Hellands' shared marital property.  He did, however, order Steven Helland to pay his wife $5000 per month in spousal support for seven years.  The court rejected Kara Helland's argument that her husband's criminal acts, which cost him his medical license and his medical practice, constituted "waste" of their assets entitling her to an "equalization payment."  

Both appealed, but the Arizona Court of Appeals upheld the lower court's order.  It agreed that a disability policy is not community property.  Unlike payments from an investment or annuity, disability payments are contingent on the recipient's continued disability and other conditions.  The Court of Appeals followed case law that said that, although a couple might share in a spouse's payments for lost earnings during marriage, at dissolution, the loss of earning power and the proceeds of a disability policy belong to recipient alone.

The court concluded that the husband's criminal activity had not been proven to be a "waste" of marital assets, because the couple had gotten what seemed like a reasonably fair price for their medical practice.  It also said that the amount of the award of spousal support for seven years was reasonable.

For a couple considering separation, the case is an important reminder that division of marital property is a complicated matter, with the potential for unhappy surprises.  Both parties should carefully investigate the impact of dissolution of marriage on disability payments, pensions, workers' compensation payments, veteran's benefits, and similar sources of income.  Proceeds from the sale of a business or professional practice may also be a point of contention.  Attorneys at Cohen Family Law in Phoenix, Arizona have expertise in all aspects of divorce, including division of community property and disputes over spousal support and child support.  Call (602) 714-8898 for a free consultation.

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