By Kate Wild – Senior Associate
Retired superannuates in defined superannuation benefit schemes often have a non-commutable superannuation pension entitlement.
A non-commutable superannuation pension provides an income stream in the form of fortnightly or monthly payments, but no option to withdraw the superannuation in a lump sum.
In family law property settlements, there are various ways the Court can treat non-commutable superannuation pensions. The Court can include the pension in the asset pool at a capitalised value. Or the Court can exclude the pension from the asset pool but take it into account as a form of income or as a financial resource.
How does the Court treat pensions in the payment phase?
In the leading case of Semperton v Semperton [2012] FamCAFC 132, the Full Court made clear that the Court has discretion as to how it treats a defined benefit superannuation interest.
A defined benefit superannuation interest can be included in the asset pool at a capitalised value if deemed appropriate by the judge. Some examples of where it might be deemed appropriate to include the superannuation interest in the asset pool include where this is agreed by the parties, where the Court is satisfied the interest falls within the legal definition of ‘property’, or where the value of the interest is small when compared to the value of the other assets in the asset pool. If the Court finds it is not appropriate to include the superannuation interest in the asset pool at a capitalised value, the superannuation entitlement will be treated by the Court as a financial resource.
In Preston & Preston [(2022) FedCFamC1A 157, the husband was the recipient of a non-commutable military pension. The pension was formally valued, and ascribed a capitalised value of $638,109. Neither party sought superannuation splitting orders.
At first instance, the trial judge included the capitalised value of the pension in the asset pool and thereafter ordered a distribution of the matrimonial assets in the proportions of 58.5% to the husband and 41.5% to the wife.
On appeal, the Court accepted that there was a possibility that the husband would pass away sooner than was assumed under the formula adopted by the valuation expert, in which case the pension’s true value to the husband would be much less than the ascribed capitalised value.
The Court commented “The military pension ought not have been notionally identified as an asset when it was not, as it could neither be commuted nor alienated. It was no more than a right, entirely personal to the husband, to receive defined income whilst ever medically unfit.”
The Court ultimately held that the pension should be excluded from the asset pool, and new orders were made for an equal distribution of the balance of new asset pool (which excluded the pension).
Valuing pension entitlements
In family law property settlement negotiations involving a defined benefit superannuation pension, as a first step, the parties should make enquiries as to whether the pension can be valued. If so, a formal family law valuation of the pension should be obtained, with the appointed expert being instructed to clearly set out the methodology they apply.
The formal valuation and valuation methodology will be central to arguments about whether to include the superannuation in the asset pool or treat it as an ongoing financial resource in the settlement.
If you have queries about the treatment of a pension in your family law matter, our team is here to help. Call or email us today.
