One of the positions I had while working for the government was in a department which contracted from another agency. The agency decided, after 25 years, to not renew the contract because of statue changes, legislative changes, etc. At that time, as I was in government service, I was transferred to a department of my choice. I worked in that department for almost 4 years before I needed to relocate for hubby's job. So, in total, I worked for that agency for a little over 10 years but in three different departments.

My resume reflects this as each department and position was unique unto itself but worked as a whole for the benefit of the public. On interviews I am asked why I left all three departments. The first one was because I was offered a promotional opportunity (easy to explain and interviewers love that), the last one was because of my need to relocate (interviewers understand that) so, my problem is with the middle one that dissolved due to loss of contract.

And, it turns out, it isn't a problem at all. I simply state that the division dissolved because of the contract being rescinded. The dissolution of a "division or department' is not the same as the closing of an entire "company" so interviewers are not nearly as leary of the employee or the difficulting of obtaining references from the company.

So, just be honest when this question comes up in an interview and tell the interviewer that the division is being dissolved and (in your case) this situation leaves you without a job. There cannot possibly be any way in which this will backfire on you. (Unless you are the reason the division is going belly-up)