Bulow & Bulow (No 3)
[2021] FCCA 314
•15 March 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Bulow & Bulow (No 3) [2021] FCCA 314
File number(s): ADC 1674 of 2014 Judgment of: JUDGE HEFFERNAN Date of judgment: 15 March 2021 Catchwords: FAMILY LAW – property – limited rehearing after appeal – superannuation – nature form and characteristics of superannuation fund – contributions – where husband declined to attend trial – where hearing proceeded on undefended basis – final orders Legislation: Family Law (Superannuation) (Methods and Factors for Valuing Particular Superannuation Interests) Approval 2003 (Cth)
Family Law (Superannuation) Regulations 2001 (Cth)
Family Law Act 1975 (Cth), ss 75(2), 79, 90XT(1)
Family Law Legislation Amendments (Superannuation) Act 2001 (Cth)
Federal Circuit Court Rules 2001 (Cth), r 13.03C(1)(e)
Superannuation Legislation Amendment (Family Law) Act 2004 (Cth)
Cases cited: Bulow & Bulow [2017] FCCA 2657
Bulow & Bulow [2019] FamCAFC 3
Bulow & Bulow (No.2) [2019] FCCA 2251
Bulow & Bulow (No.2) [2020] FamCAFC 120
Garrett & Garrett (1984) FLC 91-539
Petruski & Balewa [2013] FamFCA 15
W & W (2005) FLC 93-222
Other:
Stephen Bourke, ‘Super Splitting for Family Lawyers’ (201,) Certus Law, 2010
Number of paragraphs: 78 Date of hearing: 13 August 2020 Place: Adelaide The Applicant: In person The Respondent: No Appearance ORDERS
ADC 1674 of 2014 BETWEEN: MS BULOW
Applicant
AND: MR BULOW
Respondent
ORDER MADE BY:
JUDGE HEFFERNAN
DATE OF ORDER:
15 MARCH 2021
AMENDED 12 APRIL 2021THE COURT NOTES THAT:
A.Order 3 of the orders of Judge Heffernan dated 21 November 2017 was not set aside by the Full Court in Bulow & Bulow [2019] FamCAFC 3.
B.Order 3 of these orders, and payments made as a result, will be affected by the Superannuation Legislation Amendment (Family Law) Act 2004 which came into effect on 18 May 2004 and the Family Law (Superannuation) Regulations 2001 which together provide for a separate superannuation interest to be created for the non-member spouse and for consequential effects on payments.
THE COURT ORDERS THAT:
1.Nunc pro tunc, noting that the terms of order 1(a) of the orders of Judge Heffernan dated 21 November 2017 in Bulow & Bulow [2017] FCCA 2657, as set aside by the Full Court in Bulow & Bulow [2019] FamCAFC 3, have already been effected by the parties, the Court orders that:
There be a 60:40 division of the non-superannuation assets of the parties in favour of the wife with the following orders to give effect to the same:
(a)The parties shall do all such acts and things to facilitate the balance of the proceeds from the sale of the property at B Street, Suburb C presently held in the Bank SA Account BSB: …92, Account Number …40 (controlled by Ms D, conveyancer) being disbursed as follows:
(i)The sum of $87,332.80 to the husband; and
(ii)The balance then remaining to the Johnston Withers Solicitors Trust Account for and on behalf of the wife.
2.Nunc pro tunc, the husband is to pay the costs of the wife in the amount of ELEVEN THOUSAND, EIGHT HUNDRED AND EIGHTY NINE DOLLARS ($11,889.00) noting
nothingthat paying of this amount has already been effected by the parties in compliance with orders 1(a)(i) and (ii) of the orders of Judge Heffernan dated 21 November 2017.3.Paragraph 3 (inclusive) of this order is binding on the Trustee of the H Super Fund (‘the Fund’):
(a)In accordance with s 90XT(4) of the Family Law Act 1975 (Cth) (‘the Act’) the base amount of $225,262 is to be allocated to the applicant of the interest of the respondent in the Fund (Member No: …44);
(b)Pursuant to s 90XT(1)(a) of the Act, wherever a splittable payment becomes payable in respect of the respondent’s interest in the Fund, the applicant shall be entitled to be paid an amount calculated in accordance with Pt 6 of the Family Law (Superannuation) Regulations 2001 (‘the Regulations’) using the base amount and there be a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for this order;
(c)Paragraph 3(a) has effect from the operative time;
(d)The operative time for the purpose of paragraph 3(a) of this order is 28 April 2020; and
(e)The applicant is to serve a copy of the sealed orders upon the Trustee of the H Super Fund within 7 days of receipt of the sealed copy of the orders.
4.These proceedings are adjourned for mention on a date and time to be advised with respect to the wife’s Application in a Case for costs of the first trial and her application that the costs of the expert evidence of Mr Bourke be paid by the husband.
* Pursuant to Paragraph 16.05(2)(e) of the Federal Circuit Court Rules 2001 (Cth), this Order is amended on 12 April 2021.
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment under the pseudonym Bulow & Bulow (No 3) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE HEFFERNAN
This matter proceeded before me on 13 August 2020 by way of a limited rehearing following an appeal to the Full Court. On 21 November 2017, I made orders and delivered reasons in this matter after trial.[1] That decision was subject to a successful appeal by the respondent, Mr Bulow, and the matter was returned to me for rehearing on a limited basis.[2] In particular, the Full Court identified that I had failed to consider evidence with respect to the effect of a superannuation splitting order on the superannuation interests of the husband and the nature of the husband’s interests in his fund.[3] Evidence of that nature was not tendered by either party during the trial and for that reason before my reconsideration could take place, further evidence had to be obtained. The orders I have now made and these reasons are to be read in conjunction with my earlier judgment, the findings of fact and credit previously made by me not having been disturbed on the appeal.
[1] Bulow & Bulow [2017] FCCA 2657.
[2] Bulow & Bulow [2019] FamCAFC 3.
[3] Ibid.
Procedural history
For reasons which will become apparent, it is necessary to traverse some aspects of the procedural history of this matter since it was remitted.
Before the rehearing, this matter came before for me on an interim basis on numerous occasions. There is an extant Application in a Case made by the wife for her costs of the first trial. No substantive submissions or orders have been made on that matter. I quarantined the materials relating to that application to guard against seeing any materials which may have been annexed to the affidavits of the parties which might possibly impact on my future consideration of the rehearing.
On 11 April 2019, the wife filed an Application in a Case seeking orders to clarify the scope of the rehearing, appointing Mr Stephen Bourke as a joint expert on the question of superannuation matters, and other matters. The husband filed a Response to that Application seeking that the wife’s application be dismissed, that I recuse myself, and that the matter be transferred to another judge of this Court.
On 31 May 2019, the wife filed another Application in a Case, this time seeking orders that the husband be required to pay costs awarded to her by Strickland J on 8 August 2018 on an application in an appeal. The husband filed a Response seeking that that Application be dismissed. On 20 June 2019, it having been explained to the husband that the order for costs had not been disturbed by the appeal judgment, I adjourned the matter for further consideration and when the application was resumed on 27 June 2019, I was advised that the husband had paid the costs as previously ordered.
On 28 June 2019, the husband filed an Application in a Case. He sought that I recuse myself; that this matter be transferred to another judge of this Court, or in the alternative, transferred to the Family Court of Australia; that the matter be listed for a full rehearing; that these proceedings be dismissed in their entirety; that no further orders be made altering the property interests of the parties; and that the husband have liberty to apply for orders to compensate him for financial loss. On 2 July 2019, I heard argument on that application and adjourned the matter to 29 July 2019 for the delivery of reasons on the recusal application.
On 28 July 2019, the husband filed a further Application in a Case. He sought orders for disclosure in relation to certain matters which were the subject of my judgment in the first trial and which had not been disturbed on appeal. He once again sought an order that no further orders be made in this Court altering the property interests of the parties; an order that this matter be transferred to another judge or to the Family Court of Australia; and orders permitting him to make a claim for financial losses.
I dealt with the June Application in a Case on 29 July 2019 by way of oral reasons and published those reasons on 20 August 2019.[4] The husband appealed that interim judgment essentially on the basis of my failure to recuse myself for apprehended and or actual bias. That appeal was unsuccessful.[5]
[4] Bulow & Bulow (No 2) [2019] FCCA 2251.
[5] Bulow & Bulow [2020] FamCAFC 120.
Other interim steps occurred. As I discussed at some length in my recusal judgment, the husband has, since the judgment of the Full Court was delivered, laboured under a fundamental misunderstanding as to its’ implications. He very firmly holds the mistaken view that given the orders made, this matter must have been remitted on the basis that a full rehearing was required. That this view was a misreading of the judgment of the Full Court was made clear in the recusal appeal judgment of Strickland J.[6] That clear explanation has apparently not altered the view of the husband.
[6] Ibid [13], [69].
On 7 May 2020, I made procedural orders and listed this matter for rehearing on the limited basis on which it was remitted. Out of an abundance of caution, I listed the matter for a further directions hearing on 7 August 2020, to ensure that it was ready to proceed to trial. I indicated on that day that it would be possible for the trial to proceed by way of a face-to-face hearing, with the parties being physically present in Court. In part this seemed prudent given that the expert witness, Mr Bourke, would be giving his evidence from interstate by way of Microsoft Teams. In doing so, I was acting in accordance with recent practices adopted by this Court in light of the COVID-19 pandemic. At that time, the wife had filed materials in readiness for trial. The husband had not filed any materials. When I raised that matter with him he advised the Court that he would be filing a submission regarding superannuation issues and also filing expert evidence. Having said that, he then requested that the trial be adjourned pending him making an application to the Family Court of Australia for a full rehearing of the matter. He told the Court that the application would be made to the Chief Justice. He had not yet filed the application. I declined to adjourn the trial. In doing so, I reminded him that he had on at least one previous occasion informed the Court that he would be filing an application for special leave to the High Court of Australia to appeal the recusal appeal judgment and that my chambers had been advised by the Appeals Registrar of the Family Court that no such application had been served on them. The recusal appeal judgment remained un-appealed. The husband submitted that a limited issue rehearing was in direct contradiction to the appeal judgment and that the observations of Strickland J were an attempt to reinterpret the decision of the Full Court.
A further issue arose at the directions hearing on 7 August. On an earlier occasion I had made an order that the husband file a Notice of Address for Service. He did so. The address was a Post Office box number in Suburb X, in South Australia. The wife raised with the Court that she was concerned about the affidavit of Mr Bourke, filed by her on 1 June 2020, which had been served on the husband by way of Australia Post ‘tracked mail’. It was delivered to the Post Office box of the husband. The document was returned to her by Australia Post with a note saying that it had been refused. The affidavit of Mr Bourke was obviously very significant because it annexed a copy of his first expert report on the superannuation issues which were the subject of the trial. When this matter was raised with Mr Bulow, he confirmed that he had not cancelled the Post Office box, that it was still his valid address for service, but that he had rejected the document and asked Australia Post to return it to the sender. In the circumstances, I took the unusual step of making arrangements for my chambers to email a copy of the affidavit to Mr Bulow together with a copy of the outline of submissions for the wife. The un-wisdom of the husband’s actions was pointed out to him. He had taken deliberate steps to avoid receiving the very expert evidence on which the impending trial depended.
At the conclusion of the directions hearing on 7 August it was abundantly clear that this matter would proceed to trial as listed and that the parties were required to be physically present at Court.
At approximately 4.27pm on the day prior to the trial, the husband emailed to my chambers an application to appear by telephone. The application was made on the grounds of ‘Safety and Medical’. The obvious tardiness of the application to one side, there was nothing in the wording of the application or accompanying it which explained why such a course was necessary or desirable. No medical certificate was presented. The potential difficulties that a telephone appearance might produce given the arrangements made for the expert witness were quite apparent. My chambers responded by indicating the application was refused, that he was required to attend in person and advising him of the protocols adopted and precautions taken by the Court in light of COVID-19.[7] He was also advised by chambers that the hearing will be proceeding and that orders may be made in his absence if he does not attend.
[7] Exhibit B1.
At approximately 9.25am on the morning of trial the husband sent an email to my chambers headed ‘By the way of service’, attaching an Application in a Case. That email was sent as a response to the email sent to him by my chambers the night before, removing any doubt as to whether he had received it. Under the heading ‘Orders Sought’ the application read as follows:
That this Honourable Court takes note of the pending appeal case LOD-002537 in the High Court of Australia appealing case SOA43-2019 heard 25 February 2020 appealing recusal decision case ADC1674-2014 heard 2 July 2019.
That within 7 (seven) days the applicant husband file and serve upon the Family Court of Australia and the respondent the Notice of Appeal case LOD-002537 in the High Court of Australia
That Honourable Judge Heffernan gives no further consideration to the matter and issues no further orders to alter property interests of the parties in case ADC1674-2014.
That the Respondent Husband is excused from future hearings before Judge Heffernan.
Any such further and other Orders as this Honourable Court consider appropriate.
The application indicated that it was supported by an affidavit of the husband dated 12 August 2020, which it claimed had been filed some time that morning.
At approximately 9.26am, the husband emailed my chambers again, attaching a copy of an affidavit which indicated it had been affirmed the day before. Beyond making reference to the Application in a Case, that affidavit did not refer to the substance of the application. There was no affirmation of the apparent existence of an application for special leave to the High Court. The affidavit referred to matters apparently pertaining to the issues at trial.
At approximately 9.33am the husband sent an email to my chambers attaching a Financial Statement which had apparently been affirmed on 22 July 2020.
I caused certain urgent enquiries to be made with respect to the matters referred to in the Application in a Case before commencing my morning directions hearings list. Those enquiries confirmed that the Appeals Registry of the Family Court had no notice of the asserted application for special leave to appeal in the High Court and that it did not recognise the asserted action number as one which had emanated from the High Court.
The trial was called on at 10.47am. Mr Bulow was not present. The matter was called three times and he did not answer the call. Ms Bulow confirmed that she had received the above materials by email at about the same time as my chambers. She had not had an opportunity to consider them. For obvious reasons, the matters referred to in the affidavit and attachments had not been made available for the consideration of Mr Bourke who was scheduled to give evidence that morning.
No outline of submissions was received from Mr Bulow.
In the circumstances, I determined that the trial should proceed on an undefended basis.[8] I was comfortably satisfied that the actions of the husband, at least in the months leading to trial and at the time of trial, were calculated to frustrate the ability of this Court to hear the matter on the basis on which it had been remitted. I declined to receive into evidence the emailed affidavit and Financial Statement. There was no basis on which to entertain the Application in a Case, it had not been filed in the usual course and there was no one to prosecute it. There was no case for the respondent husband on the rehearing.
[8] Federal Circuit Court Rules 2001 (Cth), r 13.03C(1)(e).
My chambers has subsequently been advised that an application for special leave to appeal the non-recusal appeal judgment was filed in the High Court by Mr Bulow on 21 August 2020.[9] This was just over a week after the date of the rehearing before me. That application was refused by the High Court on 5 November 2020.
[9] A18/2020.
I will return now to the matters arising on the rehearing before me on 13 August 2020. The reasons below must obviously be read in conjunction with my judgment of 21 November 2017.[10] I will repeat the evidence and findings I made on that occasion only so far as is necessary for the purpose of this limited rehearing.
[10] Bulow & Bulow [2017] FCCA 2657.
Materials relied on
The wife relied on the affidavits of Mr Stephen Bourke filed on 1 May and 7 August 2020, together with her affidavit affirmed on 8 August 2020.
Contentions of Applicant Wife
The wife seeks an order binding on the H Super Fund (‘the fund’) for the allocation of $225,262 as the base amount and $236,360 as the separation amount to establish an associate preserved benefit for the applicant as non-member spouse. She contends that the valuation date of the parties superannuation assets be 28 April 2020, as any earlier date would disadvantage her because it would result in a decrease to the separation factor and loss of interest earnings. She seeks an order which would achieve a 50/50 superannuation equalization.
Section 79 orders and the assessment of section 75(2) factors
In making the orders setting aside orders 1(a) and 2 of the final orders made by me, the Full Court observed that it was necessary to set aside order 1(a) because evidence of the nature, form and characteristics of the husbands’ superannuation interest had ramifications for the totality of the s 79[11] orders. This was so because “A consideration of the same impacts potentially upon any splitting order but also, by reason of the scheme specific provisions in respect of any splitting order, upon an assessment of the relevant s 75(2) factors.”[12] Accordingly, I turn to the question of the s 79 orders and the matters referred to in s 75(2).[13]
[11] Section 79 of the Family Law Act 1975 (Cth).
[12] Op cit [107].
[13] Section 75(2) of the Family Law Act 1975 (Cth).
With respect to contributions, I previously found that they should be assessed at 60% in favour of the wife and 40% in favour of the husband with respect to non-superannuation assets. I maintain the view I took of the evidence with respect to the factors in s 79(4) (a), (b) and (c), at the time of the first trial.[14] No further evidence has been put before me which would cause me to alter that assessment of contributions.
[14] Bulow & Bulow [2017] FCCA 2657, [45]-[89].
With respect to the considerations in s 79(4) (d), (f) and (g), I remain satisfied of those matters to which I referred in my first judgment.[15] I am satisfied that no adjustment to the above assessment of contributions is required on account of those factors.
[15] Ibid [90].
As for s 79(4)(e), namely, the s 75(2) factors, there is no evidence before me which causes me to alter the view I took of the factors in s 75(2) (a), (c), (d), (e), (g), (h), (k), (l), (m) and (o).[16]
[16] Ibid [91]-[101].
The matters referred to in s 75(2), (ha), (naa), (p) and (q) are not relevant to these proceedings.
With respect to the factors in s 75(2)(b), I maintain the view I took with respect to income, property, and the physical and mental capacity of the parties, there being no further evidence tendered which would cause me to alter that view. With respect to the factor of financial resources referred to in s 75(2)(b), I take into account the nature, form and characteristics of the husband’s superannuation interest and the difference it has in that respect to the superannuation interests of the wife. I discuss those matters below.
The evidence as to superannuation
Mr Stephen Bourke gave oral evidence in amplification of his written reports.
Mr Bourke is a legal practitioner and a specialist practitioner for the Self-Managed Superannuation Practitioners Association. He was admitted to practise in 1989. He has undertaken specialist studies in superannuation law. He has also completed a Diploma in Taxation with the Australian Taxation Institute which encompassed studies with respect to the taxation of superannuation. He is the former head of the Family Law and Legal Assistance Division of the Commonwealth Attorney Generals Department in which role he led a task force on the government’s proposed superannuation and family law reforms at the time Parliament passed amendments in the form of the Family Law Legislation Amendments (Superannuation) Act 2001 which provided for splitting of superannuation benefits. He is the author of the text Super Splitting for Family Lawyers which was published in 2011. He has given expert evidence on superannuation matters on numerous occasions.
I accept that this witness has expertise to give expert evidence on matters relating to superannuation law and the nature, form and characteristics of superannuation funds.
Mr Bourke was asked to provide a report and evidence in relation to the following:
(a)Evidence in relation to the amount to be taken as the value of the husband’s H Super Fund superannuation interest at:
(i)21 November 2017; and
(ii)28 April 2020;
(b)Evidence about the nature, form and characteristics of the husband’s H Super Fund superannuation interest and how any splitting order might impact upon the interest;
(c)Evidence about the effect of a proposed splitting order upon the interest that would be created for the wife; and
(d)Evidence about the increase in the value of the fund and the source of the increase post separation.
With respect to the amount to be taken as the value of Mr Bulow’s superannuation interest in the H Super Fund, Mr Bourke has calculated this to be $688,764.81 as at 21 November 2017. He calculates the value as at 28 April 2020 as $849,498.70.
He noted that the wife had two superannuation interests. Firstly an interest in P Fund, being an accumulation superannuation interest. She also has a superannuation interest in the K Fund superannuation plan which is a state government scheme. The K Fund superannuation interest is also an accumulation interest but in a constitutionally protected superannuation scheme.
The total superannuation pool, based on the evidence available for the years 2017 and 2020, is as follows:
21 Nov 2017 30 April 2020 P Fund $60,396.33 $63,979.00 K Fund $279,635.41 $334,995.56 H Fund $688,764.81 $849,498.70 TOTAL $1.028,796.55 $1,248,473.26
Mr Bourke had regard to the H Fund scheme Deed when preparing his evidence. With reference to subs 90XT(2A) and the requirement that the court determine an amount which is to be taken as the value, he notes that the value is a value derived by statutory means for the purposes of the determination of an application under s 79.
Mr Bulow’s interest in the H Fund is a defined benefit superannuation interest in the growth phase of a contributory member. To demonstrate the characteristics of the scheme, Mr Bourke used the H Fund amount as at 21 November 2017 for illustrative purposes. The members benefit is to be distinguished from the valuation for family law purposes. By reference to the H Fund Deed, Mr Bourke gave evidence, which I accept, of the equation used to calculate the members H Fund benefit. Multiplying the accrued benefit multiple (ABM) by Mr Bulow’s average salary results in the benefit amount of $640,426.41 as at 21 November 2017. There are three amounts of actual financial contributions in Mr Bulow’s interest. These comprise the funded component of his interest. As at 21 November 2017, the funded component was comprised as follows:
Mr Bulow (21 November 2017) Member contributions (AMC) $22,474.80 Productivity contributions (APC) $78,834.25 Accumulated Transfer Amount (ATA) $7,664.73 Total Funded Component $307,973.78
It is the first two components which are used to fund the defined benefit entitlements including the life pension amount. The transfer amount is invested by the trustee and ultimately paid as a lump sum. It cannot be used towards funding the life pension. The shortfall between the funded component and the benefit amount is referred to as the unfunded component. The governing rules for the H Fund provide for payment of both the funded component and the unfunded component.
As its name suggests, the unfunded component is an amount which has not yet been contributed by the employer. By virtue of the governing rules of the H Fund it will be available at the point in time at which the members benefit entitlement crystallises on satisfying a condition of release such as retirement and meeting preservation age. At the time of Mr Bulow’s retirement, the trustee of the H Fund will pay an amount to the Commonwealth equal to his accumulated funded contributions. The Commonwealth will then be responsible for payment of the total benefit amount being the funded and unfunded components.
Mr Bulow’s total benefit does not suffer any reduction as a result of any investment losses, for example as a result of the recent macroeconomic crisis caused by COVID-19. The members total benefit entitlement is calculated by reference to the benefit multiple and his salary. Those factors are not negatively affected by investment losses. The H Fund is designed to ensure that the unfunded component is increased where necessary to make up for any further shortfall due to investment losses from the investment of the funded component.
There is a difference between the entitlement amount on 21 November 2017 ($640,426.41) and the amount calculated in accordance with the approved method on that date ($688,764.81). If the entitlement was payable on 21 November 2017, the amount of $640,426 would be payable as a lump sum. Given that there is a pension option any trustee would nonetheless need to be in a position to fund the pension.
In Mr Bourke’s opinion, the amount of $688,764.91 represents the trustee’s liability on 21 November 2017 in relation to a person of the age and gender of Mr Bulow. That is the amount which an ordinarily prudent trustee ought to have under its supervision at the relevant date in a fully funded superannuation plan with respect to a member of the respondent’s age and gender having regard to the nature, form and characteristics of the superannuation benefit as set out in the governing rules of the superannuation plan. In the event of a splitting order, the trustee’s liability would not increase above the approved amount.
For that reason, the family law provisions for the splitting of superannuation with respect to an interest in the H Fund, will result in a splitting of the trustee’s liability not a splitting of the member’s entitlement. The same observation applies to the wife’s interest in the P Fund and K Fund schemes although they are fully funded plans.
Mr Bourke’s reasoning with respect to the amount payable on 21 November 2017 applies equally to his calculation of the amount payable as at 30 April 2020.
In making an order under s 90XT(1) of the Act the superannuation interest must be valued in accordance with the method prescribed under the Family Law (Superannuation) Regulations 2001 (Cth). The method prescribed involves three steps:
(a)Determine the gross value;
(b)Deduct any earlier payment splits; and
(c)Deduct any surcharge debt.
The calculation of the amount to be taken as the value of the H Fund is calculated in accordance with the Family Law (Superannuation) (Methods and Factors for Valuing Particular Superannuation Interests) Approval 2003 (Cth), a copy of which was annexed to Mr Bourke’s report.
With respect to the nature, form and characteristics of Mr Bulow’s superannuation and how a splitting order might impact upon that interest, Mr Bourke gave detailed evidence. It is convenient to reproduce some passages of his written report verbatim:
The Nature of the H Fund superannuation interest
27.The nature of a superannuation interest of a contributory member in the H Fund is that it is an interest in a trust as set out in the H Fund Trust Deed and Rules. The superannuation interest of the Husband is a defined benefit interest (see the definition at r.5 of the Family law (Superannuation) Regulations 2001). In a similar scheme that was before the High Court in 2015, defined benefit superannuation interest was referred to as “inchoate”, meaning the entitlement at the relevant date was not fully formed but was in the process of becoming fully formed as a vested and indefeasible entitlement (see Macoun v Commission of Taxation [2015] HCA 44 (2 December 2015) at para 55).
28.A member’s interest in any superannuation plan has been described as an “equitable proprietary interest” being an interest contingent upon meeting certain conditions under the Trust Deed and Rules (see Caboche v Ramsay [1993] FCA 611 and Benson v Cook [2001] FCA 1684). The H Fund Trust Deed and Rules provides for benefits (see Part 5 of the H Fund Trust Deed and Rules). In Commissioner of Taxation v ElecNet (Aust) Pty Ltd (Trustee) [2015] FCAFC 178, it was said that the term “beneficial right” does not contrast with a right that is owned, held on trust or held as security.
“Instead, as Gleeson CJ1 Gummow, Hayne, Callinan and Heyden JJ explained, the term “beneficial” is usually employed in the law of trusts merely as a cognate of “beneficiary” to identify those person for whose benefit the trustee administers the trust property: Commissioner of Taxation v Linter Textiles Australian (In liquidation) [2005] HCA 20” (per Pagone and Edelman JJ at para 94).
29.In summary, the nature of the H Fund superannuation interest is a defined benefit superannuation interest that at the relevant date was inchoate and contingent upon meeting the conditions for release of the superannuation entitlement.
30.The form and characteristics of the H Fund superannuation interest are found in the terms of the trust, primarily the H Fund Trust Deed and Rules. The form of a superannuation interest of a contributory member in the H Fund is that it is paid on entitlement in either lump sum form or the form of a pension. Noting that the H Fund is a complex defined benefit superannuation scheme with a multitude of characteristics, the important characteristics of a superannuation interest in the H Fund are:
a.Members are able to contribute up to 10% from after tax earnings. The higher the contributions, the higher the rate of accrual of the benefit multiple.
b.The loss on investment earnings of the funded component does not affect the end benefit;
c.The member has a choice of the form of payment of the benefit:
i.Payment of the entire benefit as a lump sum;
ii.Payment of the entire benefit as a life pension; or
iii.Payment of pension and lump sum provided that 50% is taken in the form of life pension.
(see Rule 6.2.1 of the H Fund Rules)
d.The life pension (if payable) is indexed to movements in the CPI;
e.The life pension is a non-commutable pension after commencement;
f.The pension carries a reversionary interest in which a spouse (as defined) who survives a deceased pensioner receives a pension for life indexed to CPI and set a 67% of the amount payable to the deceased pensioner; and
g.The superannuation interest is susceptible to a splitting order made in accordance with Part VIIB of the Family Law Act 1975 and the trustee has additional obligations under Part 16 of the H Fund Trust Rules.[17]
[17] Exhibit A2, 35-36.
As to the effect of a proposed splitting order on the interest that would be created for Ms Bulow, a clean financial break would be achieved by the operation of Part 16 of the H Fund Trust rules which provide the mechanism to calculate the split for each party.[18] This results in an associate preserved benefit being created for Ms Bulow as a non-member spouse and a reduced member benefit continuing for Mr Bulow. Once this has occurred, any future payments made to Mr Bulow would not be splittable payments for the purposes of applying Part VIIIB of the Act to the splitting order. In the event that the orders proposed by Ms Bulow are made by the Court in the terms in which she seeks them, the following updated amounts would apply:
[18] Mr Bourke’s report, Exhibit A2, 36-37, [32].
28 April 2020 P Fund $63,979.00 K Fund $334,995.56 H Fund $849,498.70 Total $1,248,473.26 50% $624,236.63 Base Amount $225,262.07
The allocation of the base amount of $225,262 in relation the amount at 28 April 2020 would be as follows:
Family Law Value $849,498.70 Scheme Value $891,351.56 Base Amount $225,262.00 Separation Amount $236,360.15 Separation Factor 26.52%
The result would be that Ms Bulow would be entitled to an associate preserved benefit in the amount of $236,360 on the April 2020 figures.
Post separation contributions by the husband to superannuation
The husband’s H Fund has obviously increased in value since separation. At the time of the first trial, the husband’s H Fund had increased significantly as a result of his having increased his after-tax employee contributions to 10% of his salary, whereas they had previously been made at a rate of 2%. In the years between separation and the first trial, between 20 November 2012 and 20 November 2015, this had resulted in an increase in the Family Law value of his superannuation of $66,100.[19] There is no evidence before me as to the amount in which the husband’s superannuation has increased by virtue of direct voluntary contributions made by him since that time. The husband’s position at the first trial was that his post separation contributions should be disregarded for the purpose of the superannuation pool. Given his failure to attend at the present trial, no submission was made on that matter. I have proceeded on the basis that this remains his position, noting that it also formed the basis of one of his successful grounds of appeal.
[19] Joint Statement of Experts ‘ 47’, [12].
The husband’s position is essentially that the wife made no direct financial contribution to his ability to make an increased amount of voluntary contributions towards superannuation. That is correct. It is in the implications arising from that fact that the husband’s submission is misconceived. In other words, he asserts that the increased contributions came from his post separation salary and they should by virtue of that fact alone, be regarded as entirely his own. This ignores the non-financial contributions made by the wife post separation, which were significant. I must assess contributions of all types, including post separation contributions.[20] The Joint Statement of Experts calculates that the amount of increase that can be attributable to the increased contribution of the husband over the relevant period, being the payment of contributions at 10% of salary rather than 2% of salary, is $44,437.[21] Applying the valuation formula for the Family Law Value of the H Fund interest to the portion of accumulated member contributions relating to the higher contribution rate of 10% of salary as opposed to 2% of salary and factoring in the additional accrued benefit multiple which related to the higher contribution establishes a resulting value of $66,100. The experts agreed that $66,100 is the portion of the Family Law Value of the husband’s H Fund superannuation that is attributable to his having made contributions at a rate of 10% rather than 2% during the relevant period.[22]
[20] Bulow and Bulow [2019] FamCAFC 3 [47].
[21] Joint Statement of Experts ‘ 47’ [7].
[22] Ibid [11]-[12].
As can be seen from the above, the nature, form and characteristics of the husband’s H Fund superannuation interest resulted in a significant amplification of the effect of the husband’s contributions by virtue of the additional accrued benefit multiple. That is a feature of his H Fund interest from which he will continue to benefit in the event that he elects to continue to make increased voluntary contributions in the future.
That is the effect of the husband’s increased contributions over the identified period. In terms of the post separation contributions made by the wife, these were identified by me in my earlier reasons. I will consider them again in light of this aspect of the evidence. The wife took it upon herself to make significant contributions towards the welfare of the children post separation, including extra-curricular and health expenses for them. I accepted the wife’s evidence at [34] of my earlier reasons:
The applicant says that since separation she has met the vast majority of the extra-curricular and co-curricular and health expenses of the children. This is, she says, in addition to contributing to their living expenses and paying health insurance for them from the date of separation. In total, minus health insurance, to the date of swearing her trial affidavit of April 2016, her evidence is that she has paid $66,986.24 towards the expenses for all four children, excluding health insurance but including some amounts expended for the children after they have attained the age of 18 years. During the corresponding period, she asserts that the respondent has made only one payment of $491 towards the children’s needs and this related to dental expenses.
The contributions made by the wife post separation are made more significant by virtue of the fact that the husband paid almost $4,000 less than the required minimum child support payments between February 2013 and October 2105. Further, the husband salary sacrificed towards vehicle leases in the post separation period. The husband’s income decreased by an amount of approximately $20,000 in the post separation period by virtue of salary sacrifice and that inevitably had an effect of the relevant assessment of his obligations to pay child support.[23] The significance of the post separation contributions of the wife must also be considered in this context.
[23]The husband’s income for child support assessment purposes decreased from $120,915 to $99,005 between March 2013 and October 2015.
In addition to the above, during the post separation period and the date of the first trial, the wife met telephone expenses for all four children in the amount of $33.75 per week, she incurred significant rental expenses as a result of leaving the former matrimonial home, and at the time of the first trial was still paying an amount of $275 toward the rental and living expenses of an adult child living in Sydney. That the wife met these considerable expenses towards the welfare of the family without assistance from the husband represents a very significant post separation contribution on her part. I am satisfied that in doing so, she made not merely a contribution to the welfare of the family but also an indirect contribution towards the husband’s ability to make voluntary after tax contributions towards his H Fund superannuation. I regard the wife’s indirect contribution towards the ability of the husband to accrue additional superannuation in the post separation period up to the time of the first trial as being at least equal to that of the husband’s direct contributions. It is appropriate to include the husband’s post separation contributions until the time of the first trial in the pool.
That of course does not deal with the issue of how to treat any voluntary contributions, if any, made by the husband in the period since the first trial. By virtue of his failure to participate in these proceedings, the husband has failed to provide me with any evidence of the extent, if any, of his voluntary contributions since that time or what his intentions are in that regard into the future. He has not provided any updated evidence that might suggest he will not work in his present employment until at least the usual retirement age. With regard to the nature of the H Fund scheme, he has not provided me with any evidence of the form in which he will elect to take his superannuation entitlement.
The husband joined the H Fund in 1995.[24] A significant component of his entitlement in the fund was accrued during the course of the marriage. The wife made contributions both financial and non-financial during the course of the marriage. As I found in my first judgment, the level of entitlement accumulated by the husband during the course of the marriage was as a result of his ability to work full time at a time when the wife was the primary care-giver and otherwise engaged in homemaking.[25] In addition, the wife made the indirect contribution to the husband’s post superannuation accumulation that I have identified above. As I have noted, the wife seeks an equalisation of superannuation entitlements based on the valuations performed in April 2020. Since the reversal of the splitting order I made at the first trial by the effect of the orders of the Full Court on the appeal, the superannuation entitlements of the wife have also increased significantly. A properly informed consideration of the financial resources of the parties into the future cannot be made without using the 2020 valuations. I am satisfied that it is appropriate to use the valuation made in accordance with the prescribed method in April 2020. If I were to do otherwise, any portion of what I found to be the wife’s entitlement in the husband’s superannuation would not have the benefit of investment earnings in the five years which have elapsed since the valuation relied on at the time of the first trial in the Joint Valuation of the experts. There would be a similar disadvantage to the wife as that identified below, where I discuss the significance of the operative time. To the extent that the wife contributed indirectly to the ability of the husband to accumulate superannuation during and after the marriage as identified, if I were to use the valuation from the first trial, the husband would solely receive the benefit of that contribution for the period since the first trial.
[24] Affidavit, Stephen Bourke, dated 29 May 20, 8.
[25] Bulow & Bulow [2017] FCCA 2657, [89].
It is relevant to consider the comparative future growth of the associate preserved benefit and the future growth of the member entitlement. In the event that I make a splitting order, Ms Bulow’s associate preserved benefit will be comprised of a funded component and an unfunded component. The funded component would be allocated interest earnings by the scheme which would reflect the performance of the scheme.[26] The unfunded component would be allocated interest at the long term bond rate for Treasury bonds having a ten year term. Her total entitlement would be the combined value of the funded and unfunded components. As Mr Bourke has observed in his report, the superannuation interest of the husband would continue to increase after a splitting order with benefit multiple and salary. I take into account that any splitting order I make will have a corresponding effect on the husband’s entitlements and to that extent he will suffer a detriment. Mr Bourke gave oral evidence on this matter:
The advantage of this scheme to the member is that while there is a reduction in his end benefit because of the allocation of the associate benefit, it still accrues at a very handsome rate …[27]
[26] Mr Bourke’s first report 39, [44].
[27] Transcript (‘TX’), 16, lines 1-3.
Mr Bourke said that in practical terms that could be demonstrated by reference to the splitting order made by me at the time of the first trial. Had that order not been overturned on appeal, then during the period between the order and the 2020 valuation obtained for the purpose of this trial, the wife’s associate preserved benefit would have increased by approximately $26,000 and the husband’s member entitlement would have increased by $213,000.
The impact of any splitting order on the husband’s superannuation entitlement is also reflected in the fact that the H Fund is a defined benefit scheme. The husband has the option to access his superannuation entirely as a lump sum or entirely as a life pension or partly as a life pension and partly as a lump sum. There is no evidence before me as to which of these options the husband intends to avail himself of on his retirement. Nonetheless, a splitting order will have an impact on each of those options. In practical terms, if his benefit is reduced by the creation of an associate preserved benefit for the wife, this would inevitably have some impact on the amount of a pension he could draw on retirement if that was the option he chose.[28] As I have observed, I have no evidence of the husband’s intentions in that regard.
[28] TX, 18.
As observed by the Full Court, the question of contributions is a matter of judgment and not computation.[29] Not only is there no particular science in assessing contributions, a holistic approach being required.[30] I am satisfied that contributions towards superannuation interests should be assessed as being equal. I am satisfied that a just and equitable division of the parties’ entitlements requires an equalisation of their respective interests. I remain satisfied that it is appropriate to make a splitting order with the respect to the superannuation on the basis of a 50:50 division. Such a split would produce the result on the April 2020 figures referred to in paragraph [52] above.
[29] Bulow & Bulow [2019] FamCAFC 3 [46] citing Garrett and Garrett (1984) FLC 91-539 at 79,372.
[30] Petruski & Balewa [2013] FamFCA 15.
Operative time
The applicant wife has contended that the operative time for the purpose of any splitting order should be 28 April 2020, which is the date of valuation. Her submission in that regard is predicated on the contention that to use a date earlier than that would be an unfair disadvantage to her because it would result in a decrease to the separation amount (the amount allocated to the non-member spouse) by a loss of interest earnings to her as the non -member spouse. There is support for that submission in the authorities. The Full Court has stated with respect to the date for operative times:
… where a splitting order is made by a court, the order should include an operative date. It appeared to be common ground between the parties’ legal representatives that the operative time specified in the splitting order should in this case be the date of the order and thus we did not have the benefit of full argument on this issue. Having considered the matter we are of the view, at least as presently advised, that the operative date or time should as a general rule be the date of valuation of the interest for the reason that the member’s interest may continue to grow from the date of valuation to the date the orders are made.[31]
[31] W v W (2005) FLC 93-222 [62].
The unfairness identified by Ms Bulow of setting an operative time other than the date of valuation was demonstrated by Mr Bourke with reference to the base amount I used for the purpose of the orders I made in the first trial.[32] I accept the submission of the wife that the appropriate date for the ‘operative time’ is 28 April 2020.
[32] Mr Bourke’s report, 39 [42].
Justice and Equity
In taking into account the above, it will be noted that with the exception of the superannuation splitting orders, the final orders I made in my first judgment were given effect before the hearing of the appeal. Each party has had the benefit of the 60:40 division of non-superannuation assets which was provided for in order 1(a) of the orders, which was one of two orders set aside by the Full Court. The assessment of the s 79 factors has been a necessary exercise because of the nature of the findings on the appeal. Ms Bulow did not make any submission to the effect that the 60:40 division of non-superannuation assets should be disturbed. By virtue of his non participation in these proceedings I was given no assistance by the husband on that matter.
The non-superannuation pool was $450,527. Taking into account an earlier partial property settlement, the wife has received $270,316.20 of the non-superannuation pool. The husband has received an amount of $180,210.80.[33] The parties retained property as follows:
[33] Bulow & Bulow [2017] FCCA 2657, [104].
The wife:
(a)The Motor Vehicle 1 in the possession of the wife and registered in the joint names of the parties;
(b)The Motor Vehicle 2 in the possession of the wife;
(c)The furniture and effects in her possession; and
(d)Her property situated at E Street, Suburb F, in the State of South Australia, purchased with the monies received by her by way of partial property settlement orders made 23 December 2015;
(e)Those funds released to the wife pursuant to the partial property settlement orders made 23 December 2016 and 17 November 2016;
(f)All savings and other investments in the wife’s sole name and/or in her possession or control);
(g)The wife’s superannuation entitlements; and
The husband:
(a)The 200 G shares presently in the joint names of the parties;
(b)The furniture and effects in his possession;
(c)Those funds released to the husband pursuant to the partial property settlement orders made 23 December 2015;
(d)All savings and other investments in the husband’s sole name and/or in his possession or control;
(e)The balance of the husband’s superannuation entitlements, subject to the superannuation splitting orders specified herein; and
(f)All other property (real or personal) in the husband’s sole name, possession or control.
The superannuation pool is $1,248,473.26. An equalisation of superannuation entitlements would see each of the parties with superannuation entitlements of $624,236.63.
This would see the wife with combined non-superannuation assets and superannuation entitlements of $894,552.83 and the husband with combined non-superannuation assets and superannuation entitlements of $804,447.43.
Standing back and as a final check, taking into account the above figures and the nature form and characteristics of the parties respective superannuation entitlements, I am satisfied that the above division of non-superannuation assets and superannuation entitlements is just and equitable and that no further adjustment is necessary. I note that the H Fund has been afforded procedural fairness by the applicant.[34]
[34] Exhibit A4.
Previous costs orders
The orders I made for costs in the first judgment were not disturbed by the Full Court on the appeal. Rather than make a separate order at the time of the first trial I made an adjustment to the figure payable to the wife. On appeal, no criticism was made of that approach. In practical terms, that order has been satisfied for the reasons I have indicated above. For the sake of clarity, given the history of this matter, it is appropriate to make an order specifically dealing with that issue, noting that the amount has already been satisfied by the husband.
Orders
Given the nature of the orders made on the appeal it is appropriate to make orders nunc pro tunc to confirm the division of non-superannuation assets, and the costs to which I have referred above, which has already been effected by the parties by virtue of order 1(a) of the orders in my earlier judgment.
Further application for costs
The application of the wife for costs of the first trial, which has not yet been determined, will be adjourned for further submissions, as will her application that she be awarded the entire costs of the expert evidence of Mr Bourke given the failure of the husband to participate in these proceedings.
I make the orders to be found at the beginning of these reasons.
I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Heffernan. Associate:
Dated: 15 March 2021
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