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Is an income protection insurance TPD policy “property” in family law?

By March 22, 2022May 10th, 2022No Comments

Is an income protection policy, such as a total and permanent disability insurance policy (“TPD policy”), property capable of division? Or should potential proceeds from such a policy be regarded as an income stream? Let’s take a look at this complicated question.

[Is an income protection insurance TPD policy “property” in family law?…continued]

If you receive payments from a TPD policy and are separating, should those payments form part of the matrimonial pool of assets to be divided? This issue was addressed in a recent matter known as Tomaras & Tomaras (pseudonyms). In this matter, a wife was appealing the outcome of her property settlement and spousal maintenance matter. At trial, the matter was dismissed because the primary judge found there was no property of the parties to be divided. In reaching this decision the primary judge rejected the wife’s contention that the TPD policy held by the husband was property capable of division.

The appeal court found the trial judge had not erred in deciding the policy was not property, was not assignable, and that it might instead have been an income stream. As such, potentially it could have been taken into account in the spousal maintenance decision. However, the wife was not able to show she was unable to support herself, so her claim for spousal maintenance was rejected on that basis, and there was no need to further consider the issue of the TPD policy payments.

So what does this mean? Are future payments from a TPD policy property or income? Well, the answer is it depends. There are a lot of moving parts to this area of law, and each situation is so different that it is almost impossible to answer in general terms. That’s why it’s critical that, if you ever find yourself in a situation where you are receiving TPD payments and this could be a factor in your property settlement, you seek advice from an experienced family lawyer. The following is a brief outline of what this case shows about this area of family law and how complex it can be.

What happened in this case?

The husband’s TPD policy included a policy for loss of income. A former healthcare professional, he had hurt his wrist and was receiving regular income protection payments under the policy of up to $150,000 per year (until age 65). These payments are contingent on the husband being permanently disabled from returning to work.

The wife contended the entitlements under the TPD policy were divisible property under the Family Law Act 1975. She submitted that an order should be made that the insurer pay her 80% of the full amount payable to the husband each month.

Why was it not property?

In Australia, property is defined very loosely under the Family Law Act 1975. Property covers an enormous range of things, and it can be a controversial and difficult subject, especially when it concerns future and/or contingent interests.

Here, the trial judge relied on well-known Australian authorities in reaching the decision, which follows the earlier decisions of the Full Court in Australia. These authorities “have consistently said that continuous payments are income”. The appeal judges referred to judicial decisions that the “expectation of future income, however real and imminent, does not constitute property under the Act”:

“Where a party has a right to a fixed fortnightly sum but is precluded from capitalising it, assigning it, or otherwise dealing with it, it is straining the language to call such a payment property, rather than what it really is, namely, income.”

Some of the issues that come into play

  • Are the benefits assignable?

The issue of whether the benefits under the policy are assignable is pivotal in these kinds of cases.

In this matter, the trial judge found the rights were not assignable and the appeal judges did not find this to be in error. The appeal judges noted an assignment would need husband and insurer to agree, but that the husband had said he would never agree. As such, there was no possibility of assignment.

However, it’s worth noting the dissenting judge did point out that an order could be made to require the husband to assign rights under the policy with a mandatory injunction to implement the order. That judge said the husband’s attitude was “ultimately irrelevant”.

  • Questions around the insurer and policy

There are lots of elements of doubt in this area, such as when an insurer is not obliged to commute or assign an aspect of the policy. Payments might also be contingent, such as in this matter where they are contingent on the husband continuing to provide medical evidence (including regular assessments) of his ongoing inability to work.

  • Could “equitable assignment” be relevant?

In this case, although the wife did not argue it the appeal judges considered the possibility of something called equitable assignment, where authorities have “already considered the difference between assigning presently held property and assigning a mere expectancy”. Under equitable assignment, the appeal judges noted, it may be possible to make an order for a portion of the husband’s payments to be paid to the wife.  The court found this could be possible, “because it is an application to receive a transfer of a portion of each payment as it is received, which is, in reality income.” 

  • If not property, could it still be relevant as income?

The appeal judges said even if the policy was assignable, “the question remains – is that a property order or a spousal maintenance order?” In this case, given the primary judge’s central finding that the appellant had the capacity adequately to support herself, the issue essentially became moot. Including the TPD policy payments could well be relevant in property proceedings so this aspect should be considered.

  • What kind of order is being sought?

Consideration needs to be given as to whether an assignment of the entitlement is being sought, or an order for the division of a capitalised present value of the entitlements. This is something for which you really would need the advice of an experienced family lawyer.

Key takeaways

  • This is a highly nuanced area of family law and if you are mediating or litigating, you’re well advised to speak to a family lawyer about your TPD policy.
  • You might like to look more closely at this judgment, as it contains a good discussion of the issues and provides plenty of useful references to authorities and case law.
  • It helps to put a lens of your circumstances over the various judgments and see if any align, and whether the authoritative judgments could be relevant to your matter.
  • Finally, there’s little point making submissions based on international authorities. Judges are quite likely to dismiss them as being irrelevant (as happened in this matter), just because our laws are so different. It’s apples and oranges.

If you would like assistance with a property settlement, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.

Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family Law

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