What is total and permanent disability insurance?
Total and permanent disability (“TPD”) insurance is insurance received by an individual in circumstances where permanent illness or injury has rendered that person unable to work in their occupation or any occupation for which they are suited by training, education or experience.
Following making a claim and being accepted, TPD insurance is received by the individual in a lump sum payment or in reccurring payments, based on the terms of the policy.
What is Property in Family law?
Section 4 of the Family Law Act 1975 (Cth) defines property in relation to a marriage or de facto relationship, as “property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion”.
Property includes assets, liabilities and superannuation.
Assets
In the family law context, an asset is any property of the relationship (whether tangible or intangible) regardless of whose name the assets are held in.
Examples of assets include cash at bank, shareholdings and cryptocurrencies, real property, motor vehicles and other personal property such as jewellery and furniture.
Liabiltiies
It is important to understand that property also consists of liabilities. A liability is a type of debt including unsecured and secured liabilities.
Examples of liabilities include mortgages, car leases, credit card debts, personal loans and unpaid taxes.
What is a Financial Resource in Family Law?
A financial recourse is a source of financial support which a party can reasonably expect will be available to him or her to supply a financial need or deficiency.
Financial resources are taken into consideration by the Court pursuant to Section 75(2)(o) of the Family Law Act.
Examples of a financial resource include overseas superannuation, future pension entitlements, long service leave and retirement benefits, tax losses or an anticipated inheritance.
Recent Case of Tomaras & Tomaras
In the recent case of Tomaras & Tomaras (2021) FedCFamC1A 82, the Federal Circuit and Family Court of Australia (Division 1) Appellate Jurisdiction decided in respect of the treatment of a TPD insurance policy in Family Law.
In 1997, Mr Tomaras (“the Husband”) took out a TPD insurance policy which included a component for loss of income. The Husband, who was a healthcare provider, ultimately injured his wrist in December 1997 and received some intermittent payments under the TPD insurance policy. From 2002, the Husband received a regular income protection payment under the policy of up to $150,000 per year, based on the consumer price index, provided he was permanently disabled from returning to work as a health care professional. In addition to the regular payments received, the Husband also received a lump sum payment in November 2008 in the sum of $709,201.
Ms Tomaras (“the Wife”) contended that the Husband’s entitlements under the TPD insurance policy were “property”, and therefore divisible under Section 79 of the Family Law Act and that an order should be made to the effect that the insurer pay to her an amount equal to 80 percent of the TPD payment entitled to be received by the Husband each month.
The Husband contended that his entitlements under the TPD insurance policy were not property or a financial resource. The Husband relied upon the decision in Raine & Creed (2013) FamCA 362, where the Judge found that a weekly disability payment was neither property nor a financial resource in circumstances where the benefits under the policy were not transferrable.
Primary Proceedings
In the primary proceedings, the Judge rejected the Wife’s contention that the TPD entitlement was “property” on the following basis: –
- The Husband had a right to receive the disability income insurance and be assessed for income tax purposes;
- The Husband’s right to receive the TPD payments arose only where he met certain obligations. Therefore, if he did not meet these obligations the payments ceased; and
- Pursuant to the terms of the policy, the entitlement was capable of being reduced or terminated at the insurer’s discretion.
It followed that the primary proceedings were ultimately dismissed because the primary Judge found there was no property or financial resource to be divided.
Appeal Proceedings
The Wife filed an Appeal of the decision of the primary judge in August 2020. On the day of the hearing the Wife did not press the Application and accordingly it was dismissed.
The Wife filed a further Appeal of the decision of the primary judge in April 2021 to adduce a bundle of documents that the Wife argued show the Husband’s lack of disclosure and attempts to mislead the court. As this was filed out of time the Wife was required to seek leave, which was successful.
The Wife argued that the TPD policy could be commuted and the Husband’s entitlement assigned. To ‘commute’ an insurance policy means the right of a beneficiary of the policy, in this case the Husband, to exchange one type of income for another (for example exchanging the monthly payments to a lump sum payment).
The Full Court of the Family Court of Australia ultimately dismissed the Wife’s Appeal and did not depart from the relevant authorities on the following basis: –
- While the TPD policy is commutable, the Husband and the insurer would need to agree to commute the TPD policy. The Husband’s position was that he would not agree to commuting the TPD Policy; and
- The insurer is permitted to alter the benefits provided for in the contract, and the TPD policy is not a continuous disability policy for the purpose of the Life Insurance Act and thus is not assignable.
Need Advice?
To obtain specialist advice about what is “property” in your family law matter, please contact our expert family lawyers at Dorter Family Lawyers and Mediators on (02) 9929 8840 and we will assist you.
Brittany Meehan