A Redundancy Payment is Property and Can Be Divided in a Property Settlement

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 employer’s business. It is often accompanied with a payment of redundancy pay. Traditionally, redundancy pay has been to compensate the employee for the loss of accrued but untaken leave and the inconvenience and hardship imposed on employees by the redundancy.

If you or your spouse have received a redundancy payment in the past, or if you or your partner have been offered a redundancy payment, such payment may form part of the property to be divided and it is a requirement that the party receiving the redundancy payment provide full details about the payment to the other party.

If you do not provide the details of the redundancy payment to the other party, any agreement you reach may be set aside by the Court.

Is a redundancy payment property?

In Ferraro and Ferraro [1992] FamCA 64 the Court asked the question ‘What is property?’. The Family Law Act defines property as:

“property, in relation to the parties to a marriage or either of them, means property which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion.”

Therefore, anything you or your partner are entitled to or possess will be property that the court can divide. This includes redundancy payments.

In the case of Burke (1993) FLC 92-356 the Court stated:

“A redundancy payment is capable of being regarded as a contingent right analogous to insurance which is intended to provide an accumulated safeguard against loss of wages and other benefits during an employee’s working life and which can be turned into a cash payment should the employee’s position become redundant.”

“For the purpose of s79 of the Family Law Act, that contingent right is therefore an accruing potential financial resource of the employee party which is transposed into property where the conditions for its payment arises.”

“That is, until an offer of redundancy is accepted, no chose-in-action arises and the entitlement is not property of the parties within the meaning of s79.”

In summary, until you or your partner accept an offer of redundancy, it is not property.

However, once the offer has been accepted it is classified as property and the Court may divide the payment.

What happens if the redundancy is received after you separate?

It depends on the circumstances of the relationship but in most occasions the redundancy payment will be included as property to be divided if a property settlement is yet to be effected.

After a long period of separation, the Court in I & I [2004] FMCAfam 203 (6 May 2004) was asked if a redundancy received by the husband after the parties separated should be included in the asset pool.

In this case, the payment was received years after the parties had separated. The wife had made contributions over many years by caring for the party’s children and undertaking domestic duties (including after separation) which enabled the husband to focus on his employment.

As such it was determined that the wife had contributed to the husband’s ability to obtain the redundancy and therefore it was included in the property to be divided.

Will the redundancy payment always be included?

Not always, there are exceptions. In the case of Zimin & Nickson [2014] FCCA 206 (26 February 2014) the wife received a redundancy payment of $12,840.44. The husband sought to include the redundancy package as a joint asset.

This was resisted by the wife. It was submitted that the redundancy package represented compensation for the loss of future wages on the wife’s part, including the loss of benefits such as sick and holiday pay, which she could no longer access and accordingly the payment was not referable to the parties’ marriage. The Court agreed with the wife’s submission and did not include the payment as property to be divided.

If a redundancy package includes a payout for a loss of future earnings, the court may find that, because these benefits relate to post-separation income, they should not be subject to division.

How can you protect your redundancy?

There are many reasons why you should sort out your property settlement sooner rather than later and if there is a possibility that you may receive a redundancy payment it is another very good reason why this is the correct approach.

If you or your spouse receive a redundancy payment before you reach an agreement, it will, on most occasions, be included for division.

If a redundancy payment is received after Court Orders are made or a Financial Agreement is signed by both parties the payment will not form part of the property pool.