This question was explored in the 2022 case of Preston & Preston [(2022) FedCFamC1A 157] in which the Full Court heard an appeal of final property Orders made by a judge of Division 2 of the Federal Circuit and Family Court of Australia. The trial judge had Ordered a 58.5/41.5 division of the marital asset pool in favor of the Husband – with the Husband’s defined benefit military pension being included as a capitalized asset in the pool. The Husband appealed the trial judge’s decision on the basis that the judge failed to properly consider the nature of his military pension and incorrectly treated it as a capitalized asset in the pool available for division, as opposed to just an income stream.
The Husband’s defined benefit military pension was in the payment phase. The pension was only payable while justified by the Husband’s medical condition, however, both the Husband and the Wife acknowledged it was unlikely the pension would ever be reduced.
At the commencement of the trial, the Wife had initially sought a superannuation splitting Order but abandoned this position throughout the hearing. In her final submissions Counsel for the Wife did not contend for the pension to be counted as a capitalized asset, but anticipated its treatment as an income stream for the Husband. Notwithstanding the Wife’s concession regarding the treatment of the pension, the trial judge still counted the capitalized value of the Husband’s pension as an asset in the pool (even though neither party sought superannuation splitting Orders).
The Full Court found that the trial judge erred in including the capitalized value of the military pension in the asset pool. The capitalized value of the pension formed an integral part of his proportional share of the divided property, notwithstanding he could never liquidate it as an asset and its continued payment was contingent upon an ongoing future review of his medical condition.
The Full Court said:
From [11] “it was impossible to commute the military pension… and neither party ultimately sought a superannuation-splitting order in respect of it… so the expert opinion evidence of having a capitalized value of $638,109… lost its utility”.
At [14] “Her Honour concluded the husband had a significantly higher income-earning capacity than the wife… which in part stemmed from his indefinite receipt of the military pension…”
At [15] “There was no need to ascribe a capitalized value to the military pension when no splitting order was sought in respect of it…”
At [17] “Having been notionally counted as an asset in the balance sheet… the primary judges’ findings necessarily meant that the husband’s 58.5% share of the assets and superannuation incorporates the military pension at its capitalized value of $638,109, even though he does not and never will have that capitalized sum available for his use”.
The Full Court allowed the appeal and the final Orders were set aside. In re-exercising its discretion, the Court Ordered a 50/50 division of the marital asset pool, the difference being that the Husband’s military pension was treated as an income stream and was not included in the marital asset pool available for the division at its capitalized value.
Family law is specialized and complex. If you are separating and considering your options regarding a property settlement with your former partner, including one that will involve splitting superannuation, you should obtain advice from those qualified to assist you.
To make an appointment with one of our specialist family lawyers contact us today at (02) 6225 7040 or by email at info@rmfamilylaw.com.au or get started now online.
Author: Ellen Russell