Your Defined Benefit Superannuation Pension is in Payment Phase; So Does it form part of the Property Pool in a Family Law Case?

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

Superannuation and Pensions in Property Settlements in Australia

In most property settlements, each party will have superannuation entitlements with one or more superannuation funds. After the breakdown of a marriage or de facto relationship, it is prudent to obtain advice as to whether to seek an adjustment of superannuation interests, including pensions in payment phase.

Is it necessary to value superannuation?

One of the first steps in the property settlement process is to identify and value all of the assets, liabilities and superannuation owned by each party, or in which they have an interest. It is generally not necessary to value superannuation funds, except where one party has an interest in a defined benefit scheme or fund. The value of a defined benefit fund is determined by reference to a number of considerations, such as the salary of the member spouse over a certain period of their employment, and other factors such as age and gender.

It is prudent to value defined benefit interests in superannuation, so that parties negotiating a property settlement have certainty about the value of superannuation interests.

Can superannuation be split by the Court?

The Court has the power to order that superannuation entitlements, and pensions, be split by a superannuation fund. Before the Court can order that a superannuation interest be split however, the Court must be satisfied that it is just and equitable for there to be an adjustment of the superannuation pool.

Superannuation can also be split by entering into a Superannuation Agreement or Binding Financial Agreement pursuant to the Family Law Act.

What is the effect of a superannuation splitting order?

A superannuation splitting order could provide for three different outcomes of a superannuation split:

1. To create a new membership with the superannuation fund for the incoming spouse, where the superannuation interest is held;

2. To rollover the superannuation interest into another fund; or

3. To payout the superannuation interest as a lump sum payment.

Superannuation splits must occur in accordance with the Rules of a superannuation fund. For example, some superannuation funds will not permit a non-member spouse to make employee or voluntary contributions to their superannuation fund, whereas the member spouse may be permitted to make those contributions to their own superannuation fund.

How is superannuation treated in a property settlement?

In most cases, a superannuation interest will be treated as a capitalised asset available for division in the property settlement.

This approach is not appropriate however in cases where a party has an entitlement to a non-commutable invalidity pension, which is a pension that is not able to be split. It is well-settled in case law that as such pensions are not able to be split, they should be treated as a permanent and ongoing financial resource available to a party as an ongoing income stream, as opposed as being treated as a capitalised asset which is available for division.

Superannuation splitting in family law matters is a highly specialised and technically complex area of law. You should seek specialist advice about superannuation splitting if you are considering it as part of a property settlement with a former spouse or as part of a pre-nuptial agreement, known as a Binding Financial Agreement.

If you are seeking advice in relation to property settlement matters, contact us to arrange an appointment on (02) 6225 7040 or by email on info@rmfamilylaw.com.au or get started now online to make an appointment with one of our experienced family lawyers.

Author: Margot McCabe

Superannuation Splitting - Now and Then

Throughout the course of your life, and your marriage or de facto relationship, most people accumulate superannuation through their employment. You cannot usually access your superannuation until you reach preservation age, or other limited circumstances, such as if you sustain an injury and are unable to return to work.  However, notwithstanding this, superannuation entitlements are treated as assets of a matrimonial property pool and can be split between two parties following the breakdown of a relationship.

Under the Family Law Act 1975 (Cth), superannuation can be split in two ways:

1) By identifying a specific dollar amount; this is known as a “base amount” split; or

2) By identify a specific percentage; this is known as a “percentage” split.

Regardless of the type of superannuation split, following service of a sealed copy of the Court Orders that detail the superannuation split, the amount identified (plus/minus earnings/losses incurred since the operative date, and any applicable administration fees) is usually deducted from the member’s balance and deposited into a new account for the non-member. The non-member’s new superannuation interest will operate completely separately from the member’s interest.

However, this has not always been the case. Amendments were made to the Family Law Act 1975 (Cth) in 2001 for married couples, and in 2008 for de facto couples introducing and permitting the division of superannuation between two parties. Prior to these amendments, while superannuation was an asset of a matrimonial property pool, it was not capable of being “split” or “divided” between two parties.  

This meant that there was often one party who retained most of the superannuation in a property settlement.  In recognition of this, notwithstanding a property settlement could be, and often was completed, it may be that the superannuation aspect of the property settlement was adjourned until at time upon which one or both parties were entitled to receive their superannuation entitlements. If this occurred in your property settlement, then keep reading!

If the original orders (which would have been entered into prior to the changes to the Family Law Act 1975 (Cth)) adjourn the superannuation aspect of the property settlement, the Court will need to determine a just and equitable resolution of the issue now, notwithstanding all other assets will have been dealt with, and many years will have passed.

The Court has been required to navigate these matters.  In the Full Court case of Gabel and Yardley [2008] FamCAFC 162 the Court found that:

- It has power to make more than one set of Orders with respect to property settlement matters provided its power to do so is not exhausted by the original orders;

- The original orders can be varied or reversed without a party making an application to set aside the Orders, as “the power to make such Orders not having been “spent” or “exhausted”’; and

- Each case is unique, and the Court’s decision to vary or alter the original orders will depend upon the circumstances of each case and whether it is just and equitable for the Court to do so.   

If you completed your property settlement prior to the superannuation splitting legislation coming into effect, and your Orders adjourn a superannuation split until a later date, you should seek specialist advice from a family law solicitor.   As family law solicitors, we at Robinson + McGuinness will be able to advise you in relation to your rights and entitlements and assist you to finalise your property settlement.

If you would like to discuss your options and how we can assist you, contact us today on (02) 6225 7040 or by email at info@rmfamilylaw.com.au

Author: Peta Sutton, Associate