Payouts to individuals may be made following claims on various insurance policies, such as those covering income protection, trauma and total and permanent disability (“TPD”), to name a few. While the Courts have been willing to treat these payouts as “property” or a “financial resource” in Family Law proceedings for property settlement, they are generally made to compensate a party for future economic loss and parties to such proceedings should be aware of the following:
1. Where the payment is made during the course of the relationship (or even soon after separation), the Courts have accepted that the payout may form part of the asset pool, albeit in a separate “TPD/insurance payout” pool.
In the matter of Beckett v Beckett  FCCA 608, the parties married in 2006 and separated in February 2014. In October 2014, the husband received a partial TPD payment of $180,000. The main issue in dispute was how the Court should treat the monies held in the husband’s solicitors trust account, totalling $880,878.91, representing the proceeds of the husband’s TPD claim.
The wife submitted that the monies should be treated in the one pool of assets, whereas the husband argued it should be omitted from the asset pool entirely in circumstances where: the monies were intended to compensate for his future economic loss; they were received after separation; and the wife made no contribution to receipt of those monies.
The Court rejected both parties’ arguments and held that a separate TPD pool would be created to deal with those monies, in circumstances where those monies were intended to compensate the husband for his future economic loss (where the medical evidence suggested he would not work again), and were monies “sitting in a bank account” and could not simply be ignored.
2. Where the insurance payout has been made sometime after the parties have separated, the Courts have been less willing to include the payout in the asset pool.
In the matter of Irving & Parkes  FCCA 3049, the date of separation was in dispute but it was agreed that the parties separated physically in June 2011. The wife received TPD compensation payments ($563,483 in August 2012 and a further TPD payment of $57,000 at about the same time) and had been receiving a Disability Support Pension and Centrelink family payments. The Court found that the TPD payments were paid as a result of the wife’s chronic liver disease, and their purpose was to compensate her for her loss of future earnings.
In circumstances where the TPD payments were made in August 2012, more than 12 months after separation, those payments were not part of the parties’ assets for the purpose of the proceedings. They were however considered a “financial resource” available to the wife, to be accounted for when considering future needs factors.
3. Whilst the party not receiving the payout may have indirectly contributed to the payout (because the parties may have jointly decided to take out the insurance and jointly paid the premium during the relationship), the contribution by the non-receiving party is often considered minor and not an equal contribution.
In the matter of Martell v Allard  FMCAFAM 326, the parties were married in 1989 and separated in 2010. In July 2007, the wife received a lump sum payment of approximately $295,000 being the proceeds of a claim on her life insurance policy for TPD.
The Court found that the TPD claim was compensation for future economic loss. Although the husband made an indirect contribution to the insurance payment of $295,000 because the parties jointly decided to take out the insurance and jointly paid the premiums, the husband’s contribution was not significant. The $295,000 was considered a significant financial contribution by the wife, of which the husband made a small indirect contribution.
How a Court will treat an insurance payout received by a party is dependent on several factors, and a blanket rule cannot be applied to all payouts.