Redundancy payouts don't always arrive at a convenient moment. If one partner loses their job and receives a lump sum, that money doesn't automatically stay theirs if the relationship later breaks down. Under Australian family law, a redundancy payout received during the relationship can be pulled into the asset pool available for division. A binding financial agreement (BFA), commonly called a prenup, can address this directly, but only if it's drafted carefully and before the event occurs.
How Australian family law treats redundancy payouts
The Family Law Act 1975 (Cth) does not create a fixed formula for dividing assets. Instead, courts look at the full asset pool, each party's contributions (financial and non-financial), and each party's future needs. A redundancy payout sits uncomfortably in this framework because it has characteristics of both earned income and a windfall.
Redundancy pay compensates a person for losing a job they held, often for many years. It reflects past service, not future earning capacity. That past service may well have overlapped with the entire relationship. In that context, courts have treated redundancy payments as contributions made during the relationship, which means the other partner can argue they're entitled to a share.
The timing of the payout matters too. A payment received shortly before separation is treated differently from one received five years into a 20-year marriage, but neither is automatically quarantined from the settlement process. If you want genuine protection, a prenup is the most direct way to achieve it.
What a prenup can specifically say about redundancy
A BFA can identify redundancy payouts by name and declare how they're to be treated if the relationship ends. That declaration can take several forms:
- The payout remains the sole property of the recipient, regardless of when it's received.
- Any amount invested or deposited into a nominated account retains its separate character.
- A portion is shared if the payout is received after a defined point in the relationship.
None of these approaches is automatically valid. The agreement still needs to meet every requirement of a binding financial agreement under the Family Law Act: both parties must receive independent legal advice before signing, the agreement can't be unconscionable, and it can't be used to defraud creditors. Meeting those requirements is not optional.
What the prenup cannot do is lock in an amount without accounting for future uncertainty. A fixed dollar figure written into an agreement today may look unreasonable by the time a redundancy actually occurs. The better approach is to describe a category of asset and a rule for how it's treated, rather than a specific number.
The difference between anticipated and unanticipated redundancy
Some redundancies are foreseeable. Workers in sectors with structural change, workers nearing the end of fixed-term contracts, or workers employed by companies undergoing restructuring may know their role is at risk. For these situations, a prenup drafted with redundancy in mind is straightforward: name the possibility, describe the asset class, and state the treatment clearly.
Unanticipated redundancy is harder to plan for precisely because neither party expects it. This is where a broadly drafted BFA proves its value. An agreement that addresses all future employment-related lump sums (redundancy, early retirement incentives, termination payments) gives much more protection than one that only covers what's already visible on the horizon.
It's worth knowing that if no prenup exists and a redundancy payout becomes part of the asset pool, it may also interact with other elements of the settlement. Rockwell Family Law Services has previously covered how a property settlement is affected by a redundancy payout in detail, and the dynamics described there apply equally when the question of a prenup arises.
Superannuation, redundancy, and the interaction problem
Some redundancy packages include an additional superannuation contribution. This complicates matters. Superannuation inside a fund is governed by its own rules under the Family Law Act and can't simply be treated the same way as cash in a bank account. A prenup that addresses the cash component of a redundancy payout may leave the super component exposed if it doesn't address it separately.
This intersection between redundancy and super is one reason why off-the-shelf BFA templates routinely fail. The agreement needs to address both the payment itself and any associated super contributions as distinct items. Rockwell Family Law Services has also covered how a prenup can address superannuation in Australia, which is worth reading alongside any consideration of employment-related lump sums.
When redundancy happens after the prenup is signed
A prenup signed before marriage or at the start of a de facto relationship doesn't automatically cover every event that follows. The agreement is a snapshot of intentions. If a redundancy occurs and the BFA doesn't address it, the payout may fall outside the agreement's scope entirely.
This is not a rare problem. Couples often sign a BFA to protect an existing asset (a property, a business) without thinking through employment-related windfalls. When redundancy arrives years later, they discover the agreement has a gap.
The fix is a deed of variation or a new BFA, but both require fresh independent legal advice and fresh signatures. The process isn't prohibitive. It is, however, easier done before the redundancy happens than after it, when the other party may have different incentives about how the money is classified.
Practical steps if you're considering this protection
If you're in a relationship and want redundancy protection in a prenup, start with these three steps. First, obtain independent legal advice from a family lawyer who understands BFA requirements, not a general solicitor. Second, disclose your full financial position honestly: an agreement signed with incomplete financial disclosure is vulnerable to being set aside. Third, make sure the BFA uses clear language about employment-related lump sums as a category, not just the word "redundancy", which may be interpreted narrowly.
Rockwell Family Law Services drafts binding financial agreements for couples at every stage of a relationship, including those who want specific protection for employment-related payouts. The strength of a BFA lies in its drafting, and redundancy is exactly the kind of asset where precise language pays for itself many times over.