A redundancy is where an employer no longer requires a person’s job to be performed by anyone because of changes in the operational requirements of the business. A redundancy payment is often made to the employee in this circumstance, to compensate the employee for the loss of accrued but untaken leave and the inconvenience and hardship imposed on the employee. Sometimes a portion of the redundancy payment is paid the employee in order to compensate them for lost wages in the future.
Payments received by way of redundancy, especially if received post separation, are hotly contested and relevant in family law matters including matters involving property settlement, spousal maintenance and child support.
Is a Redundancy payment property?
A redundancy is in effect a safeguard against loss of wages and other benefits during an employees working life, which can be turned into a cash payment should the employee’s position become redundant.
For the purpose of section 79 of the Family Law Act, a redundancy is an accruing potential financial resource of the employee which is transposed into property where the conditions for its payment arises: In the Marriage of Burke [1992] FamCA 64.
What this means is that until the redundancy is accepted, a redundancy is not property.
A redundancy payment becomes a form of property once the offer of redundancy has been accepted and/or after the payment has been received, which means it will then be included in the pool of assets to divide between the parties.
Consequently, you are required to disclose any documents relating to your redundancy payment when exchanging financial disclosure with your former partner. If the redundancy was received after separation, the disclosure should include documents which identify the nature and amount of the redundancy payment received and any payment that is likely to be received in the future.
If you are in the process of negotiating your redundancy, you are still required to disclose this fact and the anticipated payment. If you fail to disclose your anticipated redundancy payment, there is a risk that your financial settlement may be set aside in the future.
See the following articles for more information on the impact of non-disclosure in your property settlement:
How is a redundancy payment treated?
In the Marriage of Burke [1992] FamCA 64, the Court held that a redundancy is a form of property and it is treated as income from past employment.
In terms of its relevance as a contribution by one party, given it is viewed as income received from past employment, your former partner may therefore be regarded as having contributed to that redundancy through caring for the children and domestic activities in the same way that he/she is deemed to have contributed to your income during the course of the marriage/relationship.
What if my redundancy payment was received at the beginning of the relationship?
Your redundancy payment, if received early in the relationship, is likely to be considered an initial contribution by you. This may have an impact on the entitlements that are just and equitable to each party.
What if my redundancy payment was received post separation? Will it be included in the pool?
If you receive a redundancy payment during the relationship or after separation, it may be considered a financial contribution by you. It is likely however, that your former partner would be assessed as having made an indirect contribution to the redundancy payment in circumstances where your entitlement to the redundancy was accrued by virtue of your employment during the relationship and the other party contributed to your ability to earn an income by caring for the children and undertaking homemaking activities.
Therefore, in most cases, a redundancy payment will be considered a joint contribution by both parties.
In Bassi & K.D Sales Force Specialists Pty Ltd & Maas [1999] FamCA 1352, the Husband received a redundancy package of $386,000 after separation. The Company to which some of the Husband’s redundancy was paid was joined to the proceedings. The Trial judge made orders that the money paid to the company be refunded back to the pool and some paid to the Wife.
The Husband appealed arguing the asset did not exist at separation and the payment was to compensate him for loss of future income and payment was from an asset to which the wife made little contribution so it was unjust and inequitable to require the appellant company to refund the money to the pool.
The Wife’s argument was that the redundancy package was based on two times the Husband’s salary, plus bonus and based on the Trial Judge’s assessment that the contributions of the parties were assessed as equal, it could not be said that the Wife had made little contribution to the Husband’s redundancy.
The Full Court agreed with the Wife’s submission. At separation, there were two children (14 and 12) who remained in the primary care of the Wife including when the Husband received his redundancy package such that the Wife’s contribution as homemaker and parent continued after separation and at time of receipt of the redundancy payment. The Husband had worked for 19 years, 17 of which was when he cohabited with the Wife. In those circumstances the Full Court held it was artificial to suggest that the Wife had made little contribution to the redundancy package. Her contribution to his redundancy was substantial to his earnings and the accumulation of his superannuation. The appeal was dismissed.
In Zimin & Nickson [2014] FCCA 206 the Wife received a redundancy payment of $12M. The Husband sought to include the redundancy package in the pool, which was resisted by the Wife.
The Wife submitted that the redundancy package represented compensation for loss of future wages by the Wife, including the loss of benefits (sick and holiday pay), which she could no longer access. She submitted therefore the payment to which the Husband had contributed to during the marriage. The Court agreed and the redundancy payment was not included in the property pool.
If a redundancy payment includes a payout for loss of future earnings, and those benefits relate to post separation income, only in this circumstances may a court find that the other party has made no contribution to the redundancy package and it may therefore not be included in the pool (or more likely, it will be treated separately as an asset to which the other party has not contributed to).
My redundancy payment includes lost wages? Is this relevant?
If your redundancy payment includes a component for loss of future wages and the loss of benefits (e.g. sick leave or annual leave), a court may find that an aspect of the redundancy should be classified as income instead of property.
If a portion of the redundancy is classified as income it will not be included in the property pool but it may be taken into account when assessing each party’s future needs.
How can you protect your redundancy?
To protect your redundancy payment (as well as any future inheritance or other financial resource you may become entitled to), do your property settlement as soon as possible after separation.
Contact us to book a reduced rate initial consultation to have a confidential discussion about your individual circumstances, including advice with respect to how we can best protect financial resources that will become available to you in future.
