When considering property settlement after the breakdown of a marriage, the Court generally applies a four step approach:
- Identify and value the assets and liabilities and financial resources of the marriage;
- Past contributions of the parties made to that asset pool;
- Court considers the relevant section 75(2) (or the equivalent provision for de-facto couples) factors set out in the Family Law Act; and
- The Court makes the division of assets, liabilities and superannuation between the parties.
The asset pool comprises of all property assets and liabilities accumulated from both spouses over the course of their relationship. The asset pool then becomes available for division between the spouses irrespective of when acquired or by whom. Occasionally judges may adopt a two pool approach where the division of assets to separate superannuation funds and non-superannuation funds.
In Surridge v Surridge  FamCA 493, the trial judge, Foster J, adopted a two pool approach to the division of assets that included the wife’s pension being the discrete second pool with the primary pool consisting of the parties’ other superannuation and non-superannuation assets.
The two pool approach was intended to isolate the wife’s superannuation and dealt separately with the non-superannuation assets. In this case, the wife was in receipt of a hurt on duty pension fund pursuant to the Police Regulation Superannuation Act 1906 (NSW). She originally received $900 net per week increasing to around $1,000 net per week at the time of the trial.
The “primary pool” consisted of real property, chattels (assets/belongings) and the parties’ respective interests in a self-managed superannuation fund. The “secondary pool” consisted of the wife’s “hurt on duty” pension relating to her earlier employment as a police officer. The ascribed capital value of the wife’s pension fund was determined at $1,022,821 (derived from a scheme-specific calculation methodology for the purposes of Part VIIIB of the Family Law Act 1975 (Cth)) and was included in the parties’ “assets and liabilities”.
Contributions to the primary pool were assessed as equal. The trial judge’s orders divided the “primary pool” in the proportion 62.5 per cent to the wife and 37.5 per cent to the husband. His Honour also ordered that the husband receive five per cent of the capitalised value of the “secondary pool”, that is, the wife’s pension. The husband was credited with $20,000 representing what Foster J assessed as five per cent of the ascribed capital value of the wife’s pension.
Whilst the trial judge treated the wife’s pension fund only as a form of superannuation, it could also be treated as a source of income. The nature of the wife’s pension meant there was a duality of it being treated as both a source of income and a form of superannuation. This meant that the trial judge had the discretion of treating the wife’s pension fund as either a capitalised asset which could then be split (which would be included in the asset pool) or as a financial resource or income (which would not be included in the asset pool). The term “financial resource” is not defined in the Act but can be thought of as something that is not property or an asset to be included in the asset pool but rather a factor for the Court to take into consideration under section 75(2)(o) of the Family Law Act 1975 (Cth). Despite this, the trial judge decided to treat the wife’s pension as a form of superannuation not as a source of income so it could be included in a “second asset pool.” It was then determined on appeal that the trial judge’s discretion of treating the wife’s pension as a capitalised asset was invalid and should have been treated as a financial resource (not included in the asset pool).
On appeal in Surridge & Surridge (2017) FLC 93-757, the Full Court found that Foster J’s approach to the wife’s hurt on duty pension was erroneous and that the trial judge should not have included hurt on duty pension in the asset pool. Their Honours stated that it was “a matter of significance and is productive of injustice.” (at  of their judgment). The Full Court found (at  of the judgment) that it was not just and equitable to make a splitting order in respect of the wife’s pension. In fact, there was “… a compelling case for not doing so”. The reasons for their Honours judgment were as follows:
- It was noted that the property and superannuation interests of the parties permitted justice and equity to be achieved without making a splitting order with respect to the wife’s pension. The wife has very limited earning capacity, with her current income being received entirely by way of the pension.
- The pension was the wife’s only form of income she had at the time. The wife had only a possible residual capacity for some form of future part-time employment and her pension income of $50,000.00 per annum should have been considered modest.
- Once the trial judge determined not to make a splitting order, there was no requirement to value the interest (s 90MT).
- The wife could never receive the calculated lump sum amount in its actual form, nor could she commute any part of the pension to a lump sum. Her only entitlement was to an income stream for so long as she remained entitled to receive the pension. If no splitting order is to be made but an assessed percentage entitlement is attributed to the lump sum amount on account of the husband’s contributions (even if those contributions are assessed to be modest as his Honour considered them to be) the husband is receiving a lump sum entitlement from a lump sum that the wife could never receive.
- The pension was taxed, but the scheme-specific methodology by which the capital was calculated referred only to the gross amount of the pension (before tax and other deductions came out).
- If the wife’s pension was to be included in the parties’ assets and liabilities, even if it was treated as a separate pool, her very significant contributions to it needed to be considered but the trial judge gave no consideration of such contributions.
- The proper way of dealing with the wife’s pension was under s 79(4)(e) as income in the hands of the wife.
Their Honours were of the view “to take up the gross value of the wife’s superannuation fund in the manner in which his Honour did, resulted in the miscarriage of the trial judge’s discretion leading to orders which were unjust to the wife” (at ). In other words, the trial judge’s discretion of treating the wife’s pension as a form of superannuation to be included in the asset pool when it shouldn’t have been treated as a source of income (not included in the asset pool) resulted in a miscarriage of justice.
Subsequently in their judgment, the Full Court increased the wife’s entitlements overall to 75% by way of s 79(4)(e) adjustment of 25%. This was largely due to the large transactions made by the husband which were unexplained and significantly depleted the pool, although the couldn’t be precisely quantified
Written by James Tan
Have a question about property settlement after a marriage has broken down? Get in touch with one of our property settlement team at Corney & Lind Lawyers today.