Protecting personal injury trusts in divorce – When two legal disciplines collide

This joint article by Victoria Cannon, Partner and Head of Family Law, and Cari Sowden-Taylor, Partner and Joint Head of Serious Injury, explores the complex intersection of protecting personal injury trusts in divorce and explains how clients can take preventative action to protect their compensation in the event of a relationship breakdown.

When a person receives compensation for a serious injury, whether through a road traffic collision, an accident, negligence or medical malpractice, these funds are intended to cover long-term care needs including medical expenses, rehabilitation and lost earnings. However, without the right legal protections in place, a personal injury award can become vulnerable during key life events, particularly during a divorce, separation or upon entering a new relationship.

Although these awards are meant to address the unique and ongoing needs of an injured individual, family courts do not always treat them as off-limits during financial proceedings. The intersection of personal injury and family law is complex and often misunderstood.

Victoria Cannon explains:

“Many clients assume a personal injury trust is untouchable during divorce proceedings. But, without the right legal strategy, protection can be seriously undermined. Even if funds are held by the Court of Protection, this does not mean that overarching protection is applied. The family court has a duty to consider all assets.”

Personal injury awards

Compensation received through a personal injury claim is obtained following careful analysis of the claimant’s pain, suffering and loss of amenity as well as past, present and future financial losses. The aim is to obtain fair compensation and to restore the injured person, as far as money can do so, to the position they would have been in, had the injury not occurred. It is important to ensure that the right amount of compensation is obtained so that the claimant has the funds they need to be able to pay for care needs, loss of income, the cost of treatment, therapy and specialist equipment which may be required for life, depending upon the nature of the injury. If the claimant lacks capacity to manage his/her financial affairs and property, the Court of Protection can appoint a Deputy to manage the funds on their behalf. Sometimes compensation will be placed into a personal injury trust to protect entitlement to means tested state benefits or to provide an extra layer of oversight by having trustees to agree how funds are spent.

How the courts approach personal injury awards in divorce

Disclosure and the duty of transparency

The division of assets in family law, known as financial remedy proceedings, requires both parties to give full and frank disclosure. That includes the existence and terms of any personal injury trust. Attempts to conceal, re-label or park assets typically backfire and risk incurring legal costs and adverse inferences as to a person’s honesty.

Needs, sharing and Section 25

Section 25 of the Matrimonial Causes Act 1973 requires the court to weigh needs, resources and earning capacity with the overarching aim of fairness, as confirmed in WC v HC [2022]. The court will consider ages, health, caring responsibilities and mortgage-raising capacity. If compensation has funded the family home, the non-injured spouse may still be entitled to a share to meet housing needs, particularly where they reduced or gave up work to provide care.

The case of Wagstaff v Wagstaff [1992] established that personal injury damages can be a financial resource available for distribution. Recent decisions reinforce the point that outcomes are fact specific. In TA v SB [2025], a disabled spouse received a larger share of the sale proceeds to meet housing needs, while the other spouse retained a portion. The theme is consistent: the court can ring-fence where justified by need and fairness, but compensation is not automatically excluded.

Treatment during the marriage – Is a personal injury award a matrimonial asset?

Standish v Standish [2025] did not concern injury awards, but it clarified how assets acquired outside the marriage can become shared if they are consistently treated as part of the marital economy. Applied to compensation, the more an award is mingled with joint finances, the harder it becomes to argue that it should be ring-fenced on separation.

Protecting personal injury awards during divorce

The best way to prevent future disputes over personal injury compensation is through early legal planning. Our family law team regularly works with clients affected by serious injury, often well before a settlement is reached.

Key trust considerations

• Preserve the trust’s independence – Keep clear separation between trust funds and day-to-day family spending. If trust monies are used to purchase property, take advice on ownership structures and declarations of trust or deeds of waiver that record intention. The wording of the trust and the intent behind its creation must be clearly documented. Maintain detailed, dated records of expenditure to demonstrate the link between spending and the injured person’s needs. Our Family team collaborates closely with our Trusts team to ensure these structures remain distinct from matrimonial finances.
• Use nuptial and cohabitation agreements – Prenuptial and postnuptial agreements, and well-drafted cohabitation agreements, can set out how injury compensation will be treated on separation. They are not automatically binding in England and Wales, but carry significant weight where each party had independent advice, disclosure was sufficient, and the outcome is fair when tested against Section 25 at the time of enforcement. If you’re married, planning to marry, or entering into cohabitation, a well-drafted agreement can help protect your compensation. Proactive use of these agreements is one of the most effective ways to mitigate risk and preserve the intent of the injury award.
• Seek early, coordinated legal advice – Timing matters. Where a relationship is strained or a settlement is imminent, coordinated advice from family, serious injury and private wealth teams can shape the form of the award, the trust deed, and property arrangements in ways that reduce future conflict.

Cari Sowden-Taylor notes the real-life context:

“As a solicitor specialising in life-changing injuries, I sadly sometimes see my clients’ relationships breaking down as a result of changes in behaviour, personality and circumstances and it can, sometimes, result in divorce. The family court has wide discretion to decide what is fair based on the circumstances of each couple. It is therefore extremely important to liaise with a family law solicitor and to obtain early advice on how best to protect personal injury awards for the future”

Joined-up advice

Specialist, early and joined-up advice gives the best chance of aligning family law outcomes with the compensatory purpose of a personal injury award. The court will always prioritise fairness, needs and evidence over labels. Clear structures, careful records, and realistic planning can ring-fence what must remain protected for the injured person’s long-term care, while recognising the legitimate needs of the other party.

Victoria says:

“Our priority in the family law team at Hugh James is to protect not just your relationship status, but also the financial future. Injury compensation should serve its intended purpose, which may differ from individual to individual, but often is obtained to fund rehabilitation and long-term care needs. With early, joined-up legal advice, we can help to provide security for the future.”

Cari adds:

“Injury compensation should support recovery and future stability; with timely, coordinated legal advice, that purpose can be preserved.”