A common question that arises for practitioners when advising and negotiating on property settlements is in what circumstances should a party receive other assets (and to what degree) in lieu of a superannuation split in a property settlement. This paper reviews some Full Court cases and what is seen to be one of the leading cases on this question, Moore J’s decision in Levick and Levick (2006) FLC 93-255.

It then identifies some of the factors that it could be said the court has taken into account (in these and other case) when deciding what the superannuation and asset mix should be, in the particular circumstances of the cases before the court. Given the court is always restrained by the evidence before it, it also looks at the type of evidence that may need to be considered and obtained if this issue arises. Finally, it identifies what could be said to be the questions that arise from these cases , that may be matters that need to be explored further in future decisions to provide some guidance to practitioners and parties on this question.

The Cases

In Doherty and Doherty (2006) FLC 93-256 Counsel for the husband (at the Appeal) argued, as paraphrased in the Judgement, that the appeal was

“essentially one that challenged the justice and equity of orders which effectively saw the wife receive all (or more) of the realisable assets and the husband retain only his superannuation interest”.

The Full court identified the challenge as one that was “ a challenge as to the exercise of the discretion as to the allocation of assets “in specie” between the parties”.

The Appeal court said, essentially, that:

Since the availability of Orders to share superannuation entitlements, consideration of the constitution or “mix” of the assets with which each party will be left as a result of proposed orders would seem a necessary, if not critical, factor in determining the justice and equity of proposed orders in each case in which superannuation interests are involved.

Her Honour on the question of the mix of the settlement found:

57. I agree with counsel for the wife that the wife should be given the opportunity to remain in the matrimonial home. The home has a relatively modest value and the wife has the ongoing care of the youngest child of the parties. Although it will be difficult for the husband initially, I am satisfied with his greater disposable income once relieved of the mortgage payments, it will not be long before the husband’s position should markedly improve. I am satisfied the husband is in a secure relationship and has the benefit of living in his partner’s home and has her assistance with day to day living expenses. He has borrowing capacity well beyond that of the wife.

The sale of the home and the reduction through sale costs in what was a modest asset pool was also considered to be a relevant factor by the Full Court.

22. Counsel for the wife advised us (and counsel for the husband did not say otherwise) that there had been no evidence before the learned Magistrate of any particular purpose or need for which the husband would use such cash as he might receive from a sale of the home and equal division of its proceeds. Nor was there evidence of the husband’s intentions with regard to an age of retirement.

23. There will no doubt be cases in which close consideration and discussion of factors to be taken into account when deciding on division of assets, including superannuation, “in specie” is necessary. Indeed, guidance from the Full Court may be highly desirable. This is not the case for that discussion.

24. The decision about the mix of assets was a discretionary one. In our view, in the absence of evidence in support of the orders that the husband sought and more particularly in the absence of submissions on his behalf to support the form of those orders, we consider that the option which her Honour exercised, having regard to what we earlier said of the principles applicable to this appeal, was well open to her.

In McCulough and McCulough (2006) FLC 93-282, the appeal turned more on the methodology applied by the Trial Judge, but it also dealt with the asset mix question.

The court in re-exercising the discretion was stuck with findings of the Trial judge including that the 75/25 division would only see the wife being able to rehouse herself modestly.

74. There are no findings by the trial judge about any particular need of the husband for capital, although implicitly it seems to have been accepted that it was reasonable for him to purchase housing, no doubt with the help of significant borrowings. If both these ends are accepted as reasonable objectives touching upon the justice and equity of orders and in particular the ‘mix’ of assets to be retained by each party, then we think the necessary consequence is that the wife, who has much less capacity to retain and repay any borrowing, needs to receive most of the ‘tangible assets’. As perceived by the trial judge however, if the wife does receive most of the tangible assets, the only asset of substance remaining is superannuation. Like the trial judge, we conclude that it is appropriate for the husband to retain most or all of his superannuation. In this regard we also think it appropriate for there to be a splitting order in the wife’s favour of the husband’s superannuation of 20 per cent.

76 We note the ages of the parties at 50 and 48. The time for which the husband might retain his greater earning capacity is obviously limited by his age, but nonetheless might be seen as extending beyond the age of 60. We note the wife’s continuing care of the two children of the marriage, but that the younger is 13 years of age. As found by the trial judge, the husband is likely to pay appropriate child support. Of course by the time the husband pays taxation and child support the differential between the parties in disposable income may not remain as great as the wife’s disposable income being only one-third of that of the husband. Nonetheless, we think it probable that the husband can set aside some savings or capital from income each year, or at least service borrowings which include capital reduction.

78. The consequence of our conclusions is that the wife should receive 67.5 per cent of the tangible assets, a split of the husband’s superannuation interest of 20 per cent, as ordered by the trial judge, and retain her superannuation of $6,746.

Levick and Levick (2006) FLC 93-254 was a Family Court decision of Moore J.

For various reasons there was a 2% adjustment on contributions the husband’s way. Her Honour found there needed to be a meaningful adjustment the wife’s way, weighing the Section 75(2) and related factors, and accordingly she made a 10% adjustment in the wife’s favour.

Her Honour then looked at the S.75(2) and related factors noting, following that analysis that she would then look at whether or not the outcome was just and equitable and that:

“ it is only at that latter stage of reviewing their respective positions overall that there can be a resolution of the argument about whether the superannuation should be split to reflect their contributions (as these figures do) or Ms Levick’s entitlement satisfied out of currently available non-superannuation assets. “

In looking at the effect of the orders (as the fourth stage) she noted the wife would have an entitlement of $755,366 plus a split of $206,000in superannuation. After the sale of the house it would leave her with around $700,000 to re-house and meet associated expenses. Interestingly Her Honour did not apply a S.75(2) and related factors analysis to the parties’ superannuation

Her Honour found that the wife should receive 40% of her superannuation entitlement as superannuation and 60% through assets in lieu, discounted for tax and due to the monies being received upfront.

In looking at the relevant considerations, Her Honour found:
65. From Miss Levick’s$703,000 she shall be required to meet not just purchase price but also the costs associated with that and removal expenses. The indicators are that she could acquire a three-bedroom home in the same locale from those funds, meet the associated costs, and she may have some funds leftover. But, being compelled to look at the position generally it seems to me on that scenario things could end up being a bit tight, living her with little left over as a buffer for contingencies and independent living. This suggests her position of taking her superannuation entitlement by an adjustment to the other assets might be a better arrangement for her. Of course that would result in her taking now all of her entitlement from the currently available assets and would leave her with no provision for future retirement, save the extent that she built that up after she starts to earn income later.… So the probabilities are that she would have little or no retirement funds in that event. The tension between these two possible outcomes has led me to conclude the better arrangement would be for her to take her entitlement partly by a splitting order and partly by an increase in entitlement to other assets. As to the apportionment, if she were to retain 40% of her superannuation entitlement under a spitting order, that would leave her with $82,551 invested in a Fund for her later security.

66. Having said that, the outcome must be just and equitable overall, not just to her, and it is necessary to say something about Mr Levick’s position in either event. Acknowledging, as I have, the reasonableness of his wish to buy a home and taking the asking price of properties in the area as a guide, if a splitting order were made to meet all of Mr Levick’s entitlement, he would still have insufficient capital to buy a property outright. Even less if her entitlement were met entirely from other available assets. So, I do not think the mid-course proposed disadvantages him in any real way. Not to be forgotten is his substantial earning capacity and his ability in the past to borrow at favourable rates from his employer.

Some other cases that have looked at this question include Henty and Henty [2007] FamCA 15, Craven and Crawford Craven [2008] FamCAFC 93 (also an appeal), Walden and Roman [2007] FMCAfam 342, Choate and Baker [2008]FMCA fam 945, Jasper and Jasper [2009}FMCAfam 250, and Benford and Benford [2012]FMCAfam 8.

What Does It Appear The Court is Doing in Deciding This Question

It appears from the decisions that:
1. It appears to be a fourth stage question, noting Stanford and whether or not this is still correct methodology – even if it is isn’t, it is a question that is part of the determination of whether or not orders are just and equitable, in all of the circumstances of a particular case.
2. In terms of what the court appears to be doing, it seem to be:

1. Comparing the overall asset, superannuation, need and income position of both parties (now and into the future) and essentially saying should there be a departure from the outcome that the Application of the Act to the assets and then superannuation of the parties comes to (and to what extent), to make the overall outcome just and equitable (for both parties)
2. The factors the court seems to take into account (balance) in answering this question of what is a just and equitable mix of asset types, appear to be:
   1. What each parties ability to pay monies towards superannuation is into the future and, accordingly what their respective superannuation positions might reasonably look like;
   2. What the overall outcome means in terms of both parties’ ability to house themselves or re-house, should that be applicable;
   3. What income borrowing capacity does each party have- and the parties respective incomes and earning capacities going forward;
   4. If there are children, the importance of them being housed;
   5. Whether or not there is enough superannuation to make a difference to whether or not either party will have adequate superannuation;
   6. Achieving an outcome that sees both parties able to re-house, if possible, ie sufficient monies for a deposit for a husband for example;
   7. The need for each party to have a financial buffer (where that is possible and reasonable);
   8. Whether or not the party seeking a greater superannuation split has evidenced a need for capital going forward;
   9. Whether or not the party receiving more of a super split is not put at a significantly higher financial risk by receiving less tangible assets. In other words, can they reasonably bear this occurring;
   10. It seems, despite Doherty given the 2001 reforms, that it is fair to say that a court should be interested in weighing as a factor, and perhaps it having considerable weight the need to have some sort of a split, as why bring the Reforms in, that were essentially designed to provide “equity in future retirement security”, if that is not the case;
   11. The impact of the S.75 (2) factors to the apportionment of superannuation, ie the determination of the asset and superannuation mix;
   12. If the person receiving less tangible assets has a particular reasonable purpose or need for the monies they would be missing out on;
   13. The forcing of the sale of a property diminishing the size of the pool, when that is significant;
   14. Whether or not a party will be left with no real estate or ability to acquire it; and
   15. As FM Altobelli indicated in Choate and Baker arriving at:An outcome that is just and equitable as between the parties, and balances their respective needs, and capacities to provide for those needs, as between superannuation and non-superannuation assets. It (the outcome in that case) provides both of them with the opportunity to start again independently of the other with an equitable capital base having regard to their age, needs, circumstances and earning capacity, and with some measure of provision for their long term superannuation needs.

In terms of evidence that you would need to be mindful of gathering in this sort of case, depending on the circumstances, that could include:

1. Evidence on a parties borrowing capacity, say from a broker;
2. Prices and detail of suitable accommodation in the area that a party can reasonably afford to live, perhaps through evidence from a valuer or agent;
3. Having a reasonable plan/ position as to what you need to use your share of the tangible assets for, for example to buy a business or have funds for reasonable contingencies; and
4. Evidence on any Section 75(2) and related factors.

Some Questions That Arise From These Cases

Some of the questions, in terms of identifying a test or principle, that may be able to be identified from these cases appear to be:

1. Is there a guiding principle or principles identifiable from the cases?
2. Is it reasonable or adequate to say it is a matter of the justice and equity of the case and leave it to the broad application of the discretion or given particularly the 2001 reforms and their intent, should there be a narrower test that perhaps mandates that save for in unusual circumstances that there must be a split of at least some superannuation unless certain criteria are met? Or, should there be some other test or principle applied?
3. Should the Full Court formally identify the matters that are relevant to this question and. or provide other guidance?
4. What weight should be given to the various factors that have been identified?
5. Does the current potentially fairly broad approach (if it is that) simply encourage disagreement between parties (and cost) as this becomes another matter that a party can argue a discretion on? Is that an appropriate position, given the different circumstances that can arise in individual cases?
6. Has enough weight in the cases been given to the 2001 reforms – and the idea that these reforms were made to give the court the ability to equalise the parties’ future superannuation entitlements? Has this been lost through the application of a fairly broad discretion and is that reasonable?

Time will tell whether or not these matters are addressed. It may well be that further guidance from the Full Court could be of some assistance.

Published 8th July 2014