Profitability of Severance Pay

Profitability of Severance Pay
Published on: 7 January 2021

According to a recent judgement handed down by the Provincial Court of Lugo, the severance payment received for dismissal is a community property even if it is paid after the divorce. The determining factor is when the right to receive the money was generated and not the time of receipt.

In cases where the dismissal takes place during the marriage, the severance payment is part of the marital property. Thus, even if the actual payment of this amount takes place after the divorce, the compensation must be divided between the former spouses (provided that they were in community of property).

This has been declared by a ruling of the Provincial Court of Lugo in which it declares the payment made by the company after the wrongful termination of a woman, after her ex-husband claimed a part of it, to be community property.

According to the ruling, the woman was dismissed in January 2014, but the money was not paid until two years later, in 2016, when the dispute arising from the termination of her contract was resolved. The couple had separated in October 2014.

The judges recall that the doctrine of the Supreme Court establishes that the severance payment "constitutes compensation for the breach of the employment contract by the employer, so it must have the same consideration as all other earnings" derived from that contract, "provided that they have been produced during the period of the community of property". However, the part corresponding to the time that the employment contract was already in force before the marriage, if such a circumstance had arisen, should be subtracted from it.

Based on this position, the Court ruled that "the date on which the right to compensation is generated cannot be confused" with the time of receipt of the compensation. The former "arises from the moment the defendant is dismissed". It is a different matter if, because of the legal claim, the amount is received later.

The judgement determines that the right to payment was generated by the existence of the marriage, "and, therefore, the compensation is a community of property". At least, the text continues, in the vast majority, because the signing of the employment contract is prior to the constitution of the marriage bond.  The amounts of the compensation corresponding to the years in which the partnership did not exist should not be considered as community property", resolves the court, which obliges the woman to hand over the corresponding part of the money.

Consult our Employment Lawyers and our Family Lawyers who will be able to resolve questions related to the severance pay and its community property nature.

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