A rare decision has been published by the family court regarding the treatment of critical illness payouts received during the divorce process.

This has been somewhat of a grey area as there were no legal authorities on this point until now. In the recent case of BC v SC [2023] EWFC 307 (B), the court determined that the proceeds of a critical illness policy received before finalisation of a divorce would be treated as a matrimonial asset capable of division between divorcing spouses.

In this particular case, the husband was diagnosed with stage three bowel cancer in early 2021 and received critical illness payments totalling £1,410,000 in March and June 2021. The parties’ divorce was finalised later that year. Crucially, the critical illness policies were in existence during the marriage and the premiums were paid from household income. Ultimately the remaining marital assets (including the critical illness payouts) were divided 70/30 in the husband’s favour to reflect his needs, particularly those arising from his medical condition, reduced earning capacity and potential care needs. It is not therefore to be assumed that critical illness payouts will be divided equally and each party’s financial needs will need to be carefully assessed.

Payouts received by parties for personal injury or medical negligence claims, or payments received because of being the victim of a crime are usually considered non marital assets. However, where the needs of the parties’ or their children require it, even those compensatory payments can be shared albeit it is highly unlikely that they will be shared equally.