Compensation to Relatives Claims: How a Forensic Accountant Quantifies the Financial Loss of a Breadwinner

When someone dies as a result of another party's negligence, the grief and disruption experienced by their family is incalculable. But the law also recognises that surviving dependants may have suffered a very real financial loss, and it provides a mechanism for that loss to be compensated.

These are known as compensation to relatives claims, sometimes referred to as dependency claims. They are among the more complex economic loss assessments a forensic accountant is asked to prepare, and they require a specific methodology that differs from a straightforward personal injury loss of earnings assessment.

Who Can Claim

Compensation to relatives claims arise under NSW legislation where a person has died as a result of the wrongful act of another party. Eligible claimants are typically the spouse, children, or other dependants of the deceased who were financially supported by them during their lifetime.

The purpose of the claim is not to compensate the relatives for grief or emotional suffering. It is specifically directed at the financial loss arising from the dependency on the deceased's income and the household contributions they made.

What the Loss Actually Represents

The starting point in any compensation to relatives assessment is understanding what financial benefit the dependants were receiving from the deceased at the time of death.

This is not simply the deceased's gross income. It is the amount of that income that was available for and directed to the support of the family, after deducting:

• The deceased's own personal expenditure, that is, what they spent on themselves

• Tax and other statutory deductions

• Any savings or retained funds that did not form part of household expenditure

What remains is the financial contribution the deceased was making to the family unit. This is the measure of the dependency.

The Role of Expenditure Records

One of the most important sources of information in a compensation to relatives claim is the household expenditure and savings pattern of the family in the years before the death.

Detailed and itemised records of household spending, combined with the individual expenditure of the deceased, allow the forensic accountant to identify what proportion of the deceased's income was being directed to the family and what proportion was personal expenditure.

In practice, this information is often incomplete, which requires the forensic accountant to make reasonable reconstructions based on what is available.

Projecting the Future Loss

Once the annual dependency is established, the assessment turns to how long that dependency would have continued.

This requires:

• An assessment of how long the deceased would have continued to work and earn income, typically based on their occupation, age, and health

• The life expectancy of each dependant and how their dependency might have changed over time

• Any assumed changes in the deceased's income over the projected future period

• Any assumed growth or change in the dependency itself

For younger families with children, the period over which the dependency is assessed may extend for decades. The present value of that future dependency is then calculated using the applicable discount rate and multiplier tables.

Non-Financial Contributions

In some cases, the deceased also made non-financial contributions to the household, such as home maintenance, childcare, or other domestic services. These contributions can also form part of the compensable loss, assessed by reference to the cost of obtaining equivalent services.

The Complexity of the Assessment

Compensation to relatives claims often involve a greater degree of reconstruction and assumption than straightforward loss of earnings claims. The financial records available may be incomplete, the dependency may have involved non-income contributions, and the applicable legal framework may impose specific rules about how the claim is assessed.

At DB Forensic, we have significant experience preparing these assessments. We work closely with legal teams and their clients to gather the relevant financial information, apply a sound methodology, and present the calculations clearly and comprehensively.

Dealing With a Compensation to Relatives Matter

If you are working on a matter following the death of a family member and need a forensic accounting assessment of the financial loss to dependants, DB Forensic can assist.

Speak to DB Forensic About a Dependency Claim