Background
Daniel and DeeAnn Bennett divorced after a 22-year marriage. During the marriage, Daniel, a Union Pacific machinist, suffered a wrist injury and later settled his claim with the railroad for $150,000. The settlement agreement allocated $18,531.20 to “time lost”—to preserve Daniel’s Railroad Retirement Act credit—and the remainder to “other factors,” which Daniel testified covered pain and suffering and anticipated future medical expenses. After withholding and taxes, Daniel received a net of $123,770.52, deposited into the parties’ joint Platte Valley checking account in May 2023. Over the following months, the funds moved through multiple accounts: some paid off marital debt, $38,000 went into a joint Wells Fargo account, $37,000 into a savings account held only in DeeAnn’s name, and Daniel later consolidated roughly $35,000 plus a $10,000 gift from his father into a new First National Bank of Omaha (FNBO) account held solely in his name. By trial in January 2025, the FNBO account held only $16,594.92.
The district court for Lincoln County classified the entire settlement as marital property, finding the apportionment agreement did not establish a noneconomic purpose and that, in any event, the funds were untraceable. The court also classified Daniel’s approximately $6,250 tax debt as nonmarital because it arose postseparation and from a separate filing. It awarded DeeAnn $1,000 per month in alimony for 90 additional months, finding she was unlikely to increase her earnings in her remaining preretirement years, having given up her licensed practical nurse prospects to care for a seriously ill child and being unable to work as a hairdresser due to back pain. Both parties appealed.
The Court’s Holding
The Nebraska Court of Appeals affirmed the judgment as modified, correcting one ruling in Daniel’s favor on the tax debt while otherwise upholding the property distribution and alimony award.
On the settlement classification, the court agreed with Daniel that a portion of the funds was nonmarital. Under Marshall v. Marshall, 298 Neb. 1 (2017), compensation for pain, suffering, disfigurement, disability, or loss of postdivorce earning capacity belongs to the injured spouse and is not part of the marital estate. The district court had relied on apportionment agreement language saying the allocation was made “only for provisions of the Railroad Retirement Act . . . relating to ‘time lost’ . . . and for no other purpose” to conclude the whole settlement was economic. The court of appeals rejected that reasoning: reading the agreement as a whole, the “other factors” bucket was plainly intended for something beyond time-lost compensation, and Daniel’s uncontradicted testimony identified that bucket as pain and suffering and future medical costs. Courts will not presume a personal injury settlement is entirely marital simply because the agreement is silent on the economic/noneconomic split. However, the court affirmed the district court’s alternative holding that Daniel failed to trace the nonmarital portion. The $123,770 net settlement flowed into a joint checking account that already had heavy transaction activity—total debits in June 2023 exceeded the settlement amount—and then into a chain of other accounts. Daniel’s documentation consisted of “a few screenshots and statements,” which did not establish a clear chain of custody for any identifiable nonmarital sum. Because the nonmarital portion had been inextricably commingled with marital property, it lost its nonmarital character, and the FNBO account was properly treated as marital.
On the tax debt, the court reversed. Nebraska has declined to adopt a rule that debts must arise before separation to be considered marital. Income tax liability incurred during the marriage is an accepted cost of producing marital income and is generally a marital debt regardless of postseparation filing or separate returns. The parties continued to live as a practical economic unit even while geographically separated—Daniel paid marital expenses throughout. Because the $6,250 debt arose from Daniel’s 2023 income (earned during the marriage) and DeeAnn failed to demonstrate the debt was nonmarital, the court prorated it to the August 2023 valuation date: seven-twelfths of $6,250 equals $3,646, a marital debt credited to Daniel, modifying his equalization payment to DeeAnn by $4,352.59. The alimony award was affirmed in full.
Key Takeaways
- A personal injury settlement divided into “time lost” and “other factors” components may be partly nonmarital; courts will not treat silence in the allocation agreement as proof that the entire settlement compensates only economic loss—uncontradicted testimony that the remaining component covered pain and suffering is sufficient to raise a nonmarital claim.
- The party claiming a nonmarital interest bears the burden of proof, and tracing requires clear documentary evidence of the specific funds through each account in the chain; testimony alone, without supporting account records, will not defeat a commingling finding when substantial marital activity ran through the same accounts.
- A tax debt incurred during the marriage is presumptively marital even if the parties were separated and filed separate returns; postseparation status and separate filing alone do not make a tax debt nonmarital—only income earned after divorce, or clear evidence of economic disengagement, would change the analysis.
- A spouse who has successfully made temporary alimony payments even while not working due to medical treatment has demonstrated the ability to pay, supporting a permanent alimony award based on pre-disability income levels.
Why It Matters
Bennett v. Bennett gives Nebraska family law practitioners a concrete example of both the strength and the limits of the personal injury settlement exception to marital property. The exception is real—pain-and-suffering compensation is the injured spouse’s own, not the marital estate’s—but winning the classification argument only matters if the party can actually identify the nonmarital funds at the time of divorce. When settlement proceeds flow into joint accounts alongside wages, bill payments, and other deposits, the paper trail must be detailed and complete. Practitioners representing an injured spouse should advise early: keep settlement funds in a segregated, sole-name account, make no transfers to joint accounts, and preserve every bank statement from the date of deposit forward. A commingling problem discovered at trial cannot be cured by testimony alone.
The tax debt ruling is equally significant for long-separation cases. Nebraska spouses who live apart for years before filing for divorce—sometimes by agreement, sometimes due to job relocations—often file separate tax returns and run separate finances. But separate returns do not create separate tax debts in the eyes of Nebraska divorce law; income earned while still married produces marital tax liability. Practitioners handling late-filed dissolution cases or high-income earners should anticipate that unresolved tax debts will be included in the marital estate and counsel their clients accordingly.