Total Permanent Disability (TPD) is a lump sum you may be entitled to claim if you suffer an injury or illness that restricts you from working for an income.

A sad part of my work is seeing marriages and de facto relationships fail from the financial and emotional pressures that result from a spouse suffering a serious injury.

Fundamentally, after the breakdown of a marriage or de facto relationship, a Court only can only divide property or assets between spouses. The question is whether income received under an income protection policy is property.

In a case of Tomaras, a decision of the Federal Circuit and Family Court of Australia (Division 1) Appellate Jurisdiction, the Husband was injured while contributing to a TPD Insurance policy and could no longer work as a health care professional. At the time of trial, the policy was paying the Husband monthly income protection payments, which would continue until he reached 65 years old, provided he remained unfit for work. The policy could be commuted by agreement with the insurer so that the Husband received a lump sum instead of a series of payments.

Not surprisingly, the evidence was that the Husband would never agree to commute the entitlement to a lump sum. The Wife sought an Order that 80% of the monthly payments be paid to her. This could only be achieved if the payments were characterised as an asset.

The court concluded that the payments to the Husband could only be regarded as income. A right to receive the next payment provided the Husband remained unfit for work was not an asset capable of being divided between spouses. The Wife was unsuccessful in essentially obtaining an order to split the monthly income protection payments paid to the Husband from the insurer.

A further aspect to Tomaras’s case is that the Husband also received a lump sum payment of $709,000. By the time of trial, unable to work and with time on his hands, he had managed to spend the entire amount on overseas trips and gambling.

Had the lump sum amount existed at trial, the lump sum would have been characterised as property or an asset, even though a compensation amount.

A lump sum compensation amount will form part of the pool of property to be divided between spouses. This will also be the case if received after separation.

There is no presumption that a lump sum compensation amount is divided equally between spouses. The determination on how it is divided is a highly discretionary exercise. It is not divided by any mathematical formula, and no two cases are the same.

In determining its division, there will be a recognition that the compensation amount was a financial contribution by the injured spouse. There will also be a recognition of the financial and non-financial contributions of the non-injured spouse.

For example, if the compensation amount is derived from the injured spouses superannuation that has grown during the relationship, there will be a recognition that the non-injured spouse has made an indirect contribution to that superannuation and therefore the TPD payment.

Before finally determining the division, there will be a balancing of the fact that:

The compensation payment is to compensate the injured spouse for future economic loss.
The other spouses present and future income and earning capacity, who will have the care of any children and the financial support of those children.

If you would know more about compensation payments and how they may be affected by separation, then don’t hesitate to get in touch with me or a member of my team.

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