Craig and Rowlands
[2013] FamCAFC 45
FAMILY COURT OF AUSTRALIA
| CRAIG & ROWLANDS | [2013] FamCAFC 45 |
FAMILY LAW – APPEAL – PROPERTY – DFRDB – Appeal from a discretionary decision of Federal Magistrate in property proceedings involving a Defence Force Retirement and Deaths Benefit (“DFRDB”) entitlement – Whether the Federal Magistrate erred in treating the appellant husband’s DFRDB entitlement as if it were a capital sum capable of actual distribution – Where the Federal Magistrate adopted a two pool approach when identifying the property for distribution however ultimately had recourse to a global approach in the division of the property – Where the Federal Magistrate failed to demonstrate an appreciation of the “different character” or “real nature” of the DFRDB in the final stage, together with the necessary assessment of whether the orders were just and equitable – Appealable error demonstrated – Whether the Federal Magistrate’s approach had the effect of double dipping on the DFRDB asset – Where the Federal Magistrate double counted the asset by determining the parties’ entitlements to it in one separate pool, then having regard to it again as a s 75(2) factor in the division of the other pool – Appealable error demonstrated – Whether the Federal Magistrate erred in the assessment of the wife’s contribution to the parties’ non-DFRDB superannuation assets – Where there is no assessment of contributions to the non-DFRDB superannuation assets which were largely accrued during the course of the relationship – Where the reasons in this respect are so deficient that the ground must succeed – Appealable error demonstrated – Appeal allowed and matter remitted for rehearing.
| Defence Forces Retirement and Death Benefits Act 1973 (Cth) ss 49, 125 |
Bennett and Bennett (1991) FLC 92-191
Cahill and Cahill (2006) FLC 93-253
Coghlan and Coghlan (2005) FLC 93-220
House v The King (1936) 55 CLR 499
McKinnon and McKinnon (2005) FLC 93-242
Norbis v Norbis (1986) 161 CLR 513
Robertson & Robertson [2012] FamCAFC 60
Semperton & Semperton [2012] FamCAFC 132
Stanford v Stanford [2012] HCA 52
Sun Alliance Insurance Ltd v Massoud [1989] VR 8
| APPELLANT: | Mr Craig |
| RESPONDENT: | Ms Rowlands |
| FILE NUMBER: | BRC 6874 of 2010 |
| APPEAL NUMBER: | NA 102 of 2011 |
| DATE DELIVERED: | 22 March 2013 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | May, Strickland and Forrest JJ |
| HEARING DATE: | 10 August 2012 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court |
| LOWER COURT JUDGMENT DATE: | 29 November 2011 |
| LOWER COURT MNC: | [2011] FMCAfam 1274 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Page SC with Mr Cameron |
| SOLICITOR FOR THE APPELLANT: | Hillhouse Burrough McKeown |
| COUNSEL FOR THE RESPONDENT: | Mr Burridge |
| SOLICITOR FOR THE RESPONDENT: | Biggs Fitzgerald Pike |
Orders
The appeal be allowed.
The orders made by Federal Magistrate Purdon-Sully on 22 February 2012 be set aside save and except for orders 1, 2 and 3.
The applications of the parties for property settlement be remitted to the Federal Magistrates Court for rehearing by a Federal Magistrate other than Federal Magistrate Purdon-Sully.
The Court grants to the appellant husband a costs certificate pursuant to s 9 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant husband in respect of the costs incurred by him in relation to the appeal.
The Court grants to the respondent wife a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent wife in respect of the costs incurred by her in relation to the appeal.
The Court grants to each of the parties a costs certificate pursuant to the provisions of s 8 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to each of the parties in respect of such part as the Attorney-General considers appropriate of any costs incurred by each of these parties in relation to the new trial.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Craig & Rowlands has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT BRISBANE |
Appeal Number: NA 102 of 2011
File Number: BRC 6874 of 2010
| Mr Craig |
Appellant
And
| Ms Rowlands |
Respondent
REASONS FOR JUDGMENT
May & Forrest JJ
Introduction
This is an appeal from final property orders made by Federal Magistrate Purdon-Sully on 22 February 2012 after proceedings between Mr Craig (“the husband”) and Ms Rowlands (“the wife”). By amended notice of appeal filed 30 April 2012, the husband appeals against the orders he seeks be set aside.
The effect of the orders, as described by her Honour, was that the parties’ net asset worth including superannuation and the capitalised value of the husband’s Defence Force Retirement and Deaths Benefits (“DFRDB”) entitlement be divided 40.5 per cent to the wife and 59.5 per cent to the husband. Her Honour adopted a two pool approach in listing the assets and liabilities, separating the DFRDB from the other assets, but ultimately had recourse to a global approach in the division of the property.
The orders from which the husband appeals provided for the percentage split as determined by the Federal Magistrate to be achieved by the distribution of some property, and the allocation of proceeds of sale of other property. The parties were each to retain certain motor vehicles, investments, chattels, superannuation, the husband his DFRDB and all other property otherwise in their respective possession at the time of the trial.
No superannuation splitting orders were made (nor were they requested by the parties). In making orders for distribution, the Federal Magistrate treated a DFRDB entitlement of the husband as having a capital value available for distribution between the parties, although it is received by him in a fortnightly sum. The Federal Magistrate’s treatment of the DFRDB is the husband’s primary complaint on appeal.
In essence, it is submitted that her Honour erred in both the assessment of the wife’s contribution to the DFRDB entitlement, and in treating the entitlement as if it were a capital sum capable of actual distribution. The husband also submits that her Honour’s approach had the effect of double dipping, and wrongly distorted the outcome in favour of the wife such that the orders can not be said to have been just and equitable.
Background
The parties commenced living together in or about January 1996. They married in July 1999 and separated in June 2009. The relationship was approximately 13 years in duration. At the time of trial the wife was aged 49 and the husband aged 50. The wife was in full-time employment with the Public Service and the husband was unemployed.
When they began living together each party had interests in real property, furniture and motor vehicles. The Federal Magistrate estimated, based on the evidence, that the husband’s net interests were then valued at about $16,000 and the wife’s $28,000. Thus, it is the parties’ respective superannuation interests and the husband’s DFRDB, together with their respective contributions to property acquired during their relationship, which were the focus of the property proceedings.
At the commencement of cohabitation in 1996, both parties were serving military officers. The husband had joined the military in January 1979, approximately 17 years before cohabitation. By 1996, the husband was promoted to a senior commissioned officer rank. The wife was an officer in the military having commenced in August 1994, 18 months before cohabitation. She retired in October 1999 after approximately five years service. The husband retired in June 2001 after 22 years of service.
The twentieth anniversary of the husband’s service for the purposes of entitlement to the DFRDB scheme occurred in January 1999, three years into the relationship.
In June 2001, five years into cohabitation and 22 years after he commenced contributions to the fund, the husband retired. At this time he commuted the maximum amount possible to a lump sum (approximately $108,200), and has since received the balance by way of indexed fortnightly pension at approximately $523 per fortnight. The Federal Magistrate accepted that the husband contributed the lump sum to renovations of a house described as “A”, the purchase of a boat and investments.
The parties engaged a single expert for the purpose of valuing the wife’s military superannuation and the husband’s DFRDB. The accepted evidence of the expert was that the wife’s military superannuation interest was worth $78,321. The husband’s DFRDB was valued, in accordance with the Family Law (Superannuation) Regulations 2001 (Cth) (“the Superannuation Regulations”), at $509,734.
The wife sought a 60 per cent division in her favour of the non-superannuation assets. The husband sought a 70 per cent division in his favour. Neither party sought adjustments to the superannuation entitlements, which at the time of trial stood at $381,843 for the wife and $173,192 for the husband, nor the husband’s DFRDB entitlement valued at $509,734. The wife wished to retain a house property at P and the husband a house at M.
The Appeal
The husband’s amended notice of appeal contains seven grounds.
Ground 1 asserted a mathematical error however was abandoned at the appeal hearing.
Grounds 3, 4 and 5 together constitute the complaints about the treatment of the DFRDB entitlement, that the Federal Magistrate erred in the assessment of the wife’s contribution to the pension, and in treating the entitlement as both an “income stream” for the purposes of s 75(2), and a capital sum capable of actual division, thereby double counting.
Ground 2 complains that the overall adjustment to the parties’ property interests fell outside the range of judicial discretion available to the Federal Magistrate on the facts as found by her Honour in relation to the husband’s contribution.
Ground 6 asserts inadequacy of reasons in relation to the parties’ contributions to superannuation assets.
Ground 7 alleges that the Federal Magistrate erred in treating an amount of $10,000 as a debt of the parties owed to the estate of the wife’s late mother, and failed to afford the husband procedural fairness in so doing. Though the submissions of the husband addressed this ground, at the hearing of the appeal Senior Counsel did not press those arguments.
As will be seen, we consider that appealable error is demonstrated in the grounds related to the DFRDB and that there is an absence of reasons in relation to the parties’ superannuation. In those circumstances and where not pressed by Senior Counsel, we are satisfied ground 7 need not be considered further.
It is our view that the appeal must be allowed. The husband asks that the Court re-exercise the Federal Magistrate’s discretion. In the event of a re-exercise he seeks orders that the net property of the parties identified as “Pool 1” by the Federal Magistrate be divided 60 per cent to the husband and 40 per cent to the wife, and that the husband otherwise retain his DFRDB pension. At the hearing before us, counsel for the husband submitted no further evidence would be adduced and the trial submissions could be relied on. The parties agreed however, that should the appeal be successful and the Court be minded to
re-exercise, an opportunity ought be afforded to them to consider settlement options and make further submissions.
By reference first to the reasons of the Federal Magistrate we will explain why the appeal is to be allowed.
Reasons of the Federal Magistrate
The Federal Magistrate commenced the reasons for judgment by correctly identifying the legislation and legal principles relevant to the determination of property proceedings. Her Honour did not in this section refer specifically to any legislation or principles in relation to the treatment of DFRDB entitlements.
A brief history of the parties’ relationship was given, then some description of the evidence and findings as to credit were made. The Federal Magistrate, for good reasons, preferred the evidence of the husband. These findings were not an issue in the appeal.
The Federal Magistrate began the property division inquiry by identifying the net pool of assets and liabilities. In formulating the constitution of the property pool, her Honour considered how the parties’ superannuation interests, and the DFRDB entitlement, should be taken into account. Three interests were identified:
·the wife’s collective future superannuation entitlements (four interests, combined value of $381,843);
·the husband’s collective future superannuation entitlements (three interests, combined value of $173,192); and
·the husband’s DFRDB pension received as $523 per fortnight and valued under the Superannuation Regulations at $509,734.84.
Her Honour noted the submissions of each party’s counsel in relation to the DFRDB entitlement. The husband’s counsel contended it should be treated as a financial resource. The wife’s counsel suggested it should be included in a pool together with the other superannuation entitlements, but separate from the pool of non-superannuation assets. The Federal Magistrate took a different course and included the entitlement, referred to by her Honour as “the husband’s DFRDB income stream” in one pool, called Pool 2. All other non-superannuation and superannuation assets were listed together in a separate pool, called Pool 1.
In support of this course her Honour acknowledged the approach outlined in Coghlan and Coghlan (2005) FLC 93-220, that is to separate items of property and superannuation. Her Honour emphasised, correctly, that trial judges still retain a discretion as to how superannuation interests will be treated and that it is their nature, value or circumstances of the accrual and/or acquisition of the asset which are relevant considerations.
Her Honour appears to have found that differences in accrual times of the parties’ military superannuation entitlements justified treating those assets differently to the husband’s DFRDB interest. Further it was said at paragraph 40:
c)Where there is predominately, although not exclusively, assets that have been acquired or significantly built upon during a relationship of this duration, in my discretion to achieve a just and equitable outcome, I am satisfied that the [sic] all other assets, excluding the DFRDB, are able to be considered together. There are no particular factors that would make it difficult to assess and give proper recognition to the contributions by either party and the s.75(2) factors with respect to those assets, including the fact that the parties superannuation interests will not be accessed until a future time.
The DFRDB entitlement was included at its capital value in a separate pool, and the remainder of the non-superannuation and superannuation assets and liabilities together in another pool. The final table of assets as found by her Honour in paragraph 46 of the reasons is reproduced below:
Asset Ownership $ Value POOL 1 [Property M] Joint 800,000.00 [Property P] Wife 375,000.00 Sale proceeds [Property B] Joint 225,000.00 Sale proceeds [Property W] Joint 61,395.00 IAG Shares Husband 36.00 BT Share Fund Joint 731.00 Share Portfolio Wife 29,938.00 DVA payout Wife 47,214.00 Compensation Claim Husband 139,011.00 Nissan [vehicle] Husband 25,950.00 Holden [vehicle] Husband 8,350.00 Suzuki motorcycle Husband 5,900.00 Sportfish boat and trailer Husband 34,000.00 VW [vehicle] Wife 31,300.00 Colonial First State Investment Wife 8,448.00 Furniture Wife 12,222.00 Furniture Husband 20,534.00 Gross $1,825,029.00 Less Liabilities Westpac A/c …28 Joint (515,116.00) Westpac A/c 27 (157,921.00) Westpac A/c …92 & …84 (83,515.00) Westpac A/c No …53 (18,315.00) Debt to mother’s estate Wife (10,000.00) Defcredit personal loan Wife (39,754.00) Superannuation surcharge liability Husband (7,797.00) Gross Liabilities $832,418.00 Net $992,611.00 Superannuation PSS Wife 279,185.00 Colonial First Choice Wife 16,418.00 AGEST Wife 7,919.00 MSBS Wife 78,321.00 PSS Husband 61,253.00 AMP Husband 33,440.00 QSuper Husband 78,499.00 Total Superannuation $555,035.00 Total Pool 1 : $1,547,646.00 POOL 2 DFRDB (capitalised value) Husband 509,734.00 Total Pool 2 $509,734.00 Total Pools 1 and 2 $2,057,380.00
(footnotes omitted, emphasis added)
The Federal Magistrate then considered contributions by each of the parties. For reasons which are not apparent, her Honour chose to first consider the parties’ contributions to the DFRDB (Pool 2). It is as well to set out the relevant parts of the reasons dealing with the DFRDB. There are no objections taken to the findings of fact by her Honour:
48.At the time of commencement of cohabitation the husband had entitlements to military superannuation in a DFRDB scheme. The husband had joined the [military in] January 1979. The twentieth anniversary of his service for the purpose of receipt of the scheme occurred [in] January 1999, some three years after the parties commenced to cohabit.
49.He resigned from the military in June 2001, five years after the parties commenced to cohabit, twenty-two years after he commenced his contributions to the fund, having already reached in his career the upper echelons of rank and income by the time the parties commenced to cohabit in January 1996.
50.At the time of his retirement he commuted the majority of his military superannuation to a lump sum taking the balance by way of indexed annual pension. At trial he was receiving the weekly sum of $523 by way of pension.
51.I was not provided with evidence as to the rate the husband’s interest may have increased during the period from cohabitation to his retirement. Nor was any formulaic or other analysis undertaken with respect to the capitalised value of the husband’s pension and the years of contributions made by him. Having said that, I do not view such an approach as necessarily helpful, given the complex nature of a defined benefit scheme.[]
52.The husband’s final salary was at a [senior commissioned officer] level having joined as cadet […] and having been promoted on five occasions over the period of his service, all of those, save for the rank of [senior commissioned officer] which he achieved in July 1996 [], having occurred prior to the commencement of cohabitation.
53.The husband’s initial contribution [] in the form of his DFRDB benefit was a significant contribution representing a potential to earn or receive a pension income, which potential was then realised during the course of the relationship as a result of his years of service and retirement, a significant proportion of those years having accrued before cohabitation in respect of which the wife made no contribution at all, direct or indirect.
54.Whilst I must have regard to the wife’s contributions to the relationship after the commencement of cohabitation and the fact that the husband’s income more than doubled [] during the period from 1996 to 2001 when his benefits continued to accumulate until he was able to access his pension entitlement on retirement, I also have regard to the fact that his income also increased from the date of entry into the scheme to the date of cohabitation [] and that there appeared to be no evidence that following cohabitation he was making additional voluntary contributions into the fund or that he needed to do something “extra” to receive his entitlements other than meet the required years of service. To emphasis the last five years of service and the income derived at that time and ignore the requirement of 20 years of service to access the entitlement, would do an injustice to the husband.
55.I place weight on the “time served” by the husband prior to the commencement of cohabitation as a factor which requires a significant weighting in his favour in my assessment of the parties’ contributions to the DFRDB benefit. []
56.Doing the best I can on the evidence, I assess the parties contribution based entitlements to the DFRDB benefit as 70% to the husband and 30% to the wife, a disparity in favour of the husband of $203,893.
[Footnotes:]
26.See Kann (supra) (at paras 42 and 44) where Baumann FM referred to the “artificiality of applying strict mathematical calculations”. See also the dicta of Coleman J in Cahill & Cahill (2006) FLC 93-253 (at paras 71 and 73.)
27.Albeit paid as a [senior commissioned officer]from December 1997.
28.See obiter dicta of Warnick J in Doolan and Doolan [2003] FamCA 1356 at 54, as follows:“Another analogy that may be of some assistance, but which is also subject to differentiation, is that in which a person spends a period in the Armed Forces sufficient to be entitled to a retirement pension and all or most of that period occurs prior to the relevant period of cohabitation. The pension is then received throughout the cohabitation. It cannot be said that the other spouse makes any contribution to its receipt. It seems strongly arguable that that contribution ought receive a particular weighting and has something of the character of an “initial contribution”.
29. Para 10 Affidavit of husband filed 14 February 2011
30. Whilst he could not be precise his evidence at trial was that his annual income increased with each promotion and at the commencement of cohabitation in January 1996, his DFRDB fund was worth about $40,000 to $50,000 consisting of his contributions only, without interest, as he had not then served 20 years military service.
31. PJM & STM (supra)
32. See PJM & STM (supra) at para 30
(emphasis added)
Before proceeding to make an assessment of contributions to the other assets the Federal Magistrate said she had decided not to make any s 75(2) adjustments to the DFRDB contribution entitlements. Her Honour explained:
57.I make no adjustments under s.75(2) of the Act. I am conscious of the provisions of s.75(2)(f). Given my approach and given my findings as to the wife’s contribution based entitlements to Pool 2, to avoid the potential for double counting, I have concluded that I should consider the receipt by the husband of his entitlement to an income stream under the s.75(2) factors relevant to Pool 1.
(footnote omitted, emphasis added)
Paragraph 30 of Coleman J’s reasons for judgment in PJM & STM, reported as McKinnon and McKinnon (2005) FLC 93-242, was cited, incorrectly as we will explain, as authority for this course.
The Federal Magistrate then turned to Pool 1, which contained the entirety of the parties’ non-superannuation and superannuation assets. Her Honour considered in detail the contributions of the parties at the commencement of the relationship and throughout the course of the marriage. Her Honour recounted at length and no doubt accurately the employment/salary, superannuation and property/investments acquisition history of the parties.
However, the reasons addressing the parties’ contributions to their superannuation interests are brief. As the husband’s appeal makes specific complaint about absence of reasons in this regard, it is as well to set out the entirety of those reasons:
97.During the relationship the parties also acquired investments. They also contributed to a number of superannuation funds. Both made contributions to that part of the other’s fund which was built up and/or accumulated during their relationship.
98.From the commencement of cohabitation to 1999 when the wife retired from the [military] she continued to contribute to her Military Superannuation Scheme. The balance of her MSBS, not taken in the form of a lump sum, was then preserved. It thereafter remained in a growth phase.
99.On taking up employment in the public sector she made contributions to a number of other superannuation funds, conceding that she made voluntary contributions to her Commonwealth Government PSS scheme at the maximum rate, which contributions at 30 June 2009 totalled $222,236.
100.On leaving the [military] the husband also contributed to a number of superannuation funds through his employment although there is no evidence that during the period of cohabitation he made additional contributions to his various funds over and above the contributions that he was legally required to make.
(emphasis added)
The Federal Magistrate also acknowledged the parties’ post separation contributions to superannuation assets:
106.At the date of separation the parties were in full-time employment. Both were earning a good income and they continued making contributions to superannuation, the wife engaging in salary sacrifice by making additional contributions of superannuation.
…
114.…As a result of her ability to salary sacrifice her PSS fund was valued at $279,185 at trial.
(emphasis added)
In ground 2, it is complained that the Federal Magistrate erred in the exercise of discretion with respect to the overall adjustment of the parties’ property, having regard to the findings made regarding the husband’s contribution. The Federal Magistrate assessed the contribution based entitlements of the parties to Pool 1 as 56 per cent to the husband and 44 per cent to the wife. The following are excerpts from the reasons in this regard:
119.The wife seeks an adjustment in her favour for [P] which had increased in value at trial and which had been used as security in the acquisition of other real property. Whilst I am conscious of decisions such as Pierce & Pierce (1999) FLC 92-844, Kardos & Sarbutt (2006) 34 FamLR 550, Williams & Williams [2007] FamCA 313 and Cabbell & Cabbell ([2009] FamCAFC 205 and whilst the wife’s contribution calls for some weighting in her favour, I am unable to conclude that it calls for a significant differential as asserted by her, when the husband’s own weighty contributions over the duration of a thirteen year relationship are considered. As the Full Court observed in Williams (supra) at 26 in the context of an assessment of the value of particular property to the parties at trial, it is equally important “to give due recognition to the myriad of other contributions that each of the parties have made during the relationship.”
120.In reaching this conclusion, I am unable to ignore the relatively modest value of the parties’ initial tangible property including the equity in [P], the husband’s contribution of the net sale proceeds of [W] to the acquisition of the parties’ first home (and in this regard I am able to infer from the evidence that the timing of that sale was connected to the purchase of [R]), that the acquisition by the parties of [R] and later properties did not appear on the evidence to be exclusively dependent on [P] in light of their secure employment and level of income generation, that the mortgage on [P] was not significantly reduced over the course of the relationship, and the wife’s concessions with respect to the extent of the improvements made to [P] during the relationship, namely the construction of a carport, pergola and large shed.
…
122.In light of the husband’s weighty contributions under a number of guises to the relationship, contributions which may or may not have been specifically referable to [P], I am unable to conclude that he should not share in the increase in the value of [P]. Further, the facts of this case are very different from the facts, for example, that presented in Cabbell (supra).
…
124.On the husband’s side of the ledger, his financial contributions to separation both in terms of income generation and capital injections exceeded those of the wife by some margin and call for significant recognition. This is notwithstanding the wife’s own weighty financial contributions, direct and indirect, including her contributions to household and every day living expenses which enabled the husband to make greater contributions to the parties’ mortgages. In reaching this view I have had regard to the detailed submissions made by Counsel for the wife in relation to income differential.
125.Counsel for the wife seeks no adjustment for post-separation contributions. However I do not accept that submission. Whilst both parties made post-separation contributions in various forms and whilst the husband had occupation of [M] to the exclusion of the wife for some fifteen months to trial, the wife having to meet her costs of occupation, and whilst the wife’s additional contributions to superannuation and her other contributions must be recognised, there should be some adjustment for the husband’s post-separation financial contributions, inclusive of his compensation payout, which favour him. This is notwithstanding the receipt by him of his income from [S] until March 2010, his redundancy payment and pension and his access to some cashed in assets.
…
127.Acknowledging that the assessment of and weight to be attributed to contributions made over a relationship of this duration is not an exact science, I assess the parties’ contribution based entitlements as being 56% to the husband and 44% to the wife, a differential of about $185,717 in favour of the husband.
(emphasis added)
While there does not appear to be a specific complaint in the appeal about the Federal Magistrate’s decision not to make any s 75(2) adjustments, the reasons for that decision are relevant to the complaint about her Honour’s overall treatment of the DFRDB pension (ground 4), in particular that there has been an error of double counting. The following paragraphs appear under the heading “Section s.75(2)” in the reasons:
132.In addition to any income he may receive from paid employment the husband has his indexed life pension entitlement which provides a significant buffer, continuing as it will, for life, irrespective of his circumstances. That pension entitlement, however, whilst valued and included in the pool as a capitalised income stream is not capital in his hands and cannot be converted to a lump sum.
…
144.Neither party seeks a splitting order with respect to superannuation. The wife does not seek a splitting of the husband’s pension entitlement. The husband’s two superannuation funds incorporate a surcharge debt which is reflected in the pool.
…
148.I have had regard to the split of the parties contribution based entitlements. I am not persuaded that the contribution adjustments in favour of the husband require a further adjustment in favour of the wife given the quantum and nature of such entitlements and her ability to generate a good income from her employment.
…
152.Counsel for the husband submits that husband should receive a significant adjustment in his favour based on his ongoing support for his son and income earning disparity. However I have determined that there should be no adjustments under s.75(2).
153.Notwithstanding the husband’s outstanding child support obligations and some future obligations to [B], I am not satisfied, on balance, that his responsibilities to [B] call for an adjustment in his favour given the existence of the trust fund and [B]’s age. Further, the periods of time he may live with his father and any financial impact of that on the husband are largely unknown and speculative.
154.In relation to the issue of disparity of income, I am unable to conclude that the present disparity based on the parties’ income levels is so significant that it calls for an adjustment in favour of the husband given that both parties are of a similar age, both are highly qualified and the husband will continue to access an income stream in the form of his pension entitlement, which entitlement is not to be split. Whilst the husband had made real attempts to obtain work, and whilst he had been unemployed at trial for some twelve months, he remained upbeat. He impressed me as a man of intelligence and determination. In all probability he should be able to obtain employment. If history is a guide, even in the current economic climate, he may secure work at an income level greater than that of the wife. If however he secures employment at [Airport A] at about $80,000 per annum, as hoped, then taking into account his pension, there will be a minimal income differential with the income earned by the wife at trial.
(footnote omitted, emphasis added)
The Federal Magistrate concluded by considering the just and equitable effect of the division proposed by her. How this is described by her Honour reveals that the mathematics applied divided the capital sum attributed to the DFRDB between the parties. The division proposed was that the wife receive 44 per cent ($680,964) of Pool 1 and 30 per cent ($152,920) of Pool 2, and the husband would receive therefore 56 per cent ($866,681) of Pool 1 and 70 per cent ($356,813) of Pool 2. Her Honour noted that this equated to the husband receiving 59.5 per cent and the wife 40.5 per cent of the combined pools.
It is clear then that despite describing the husband’s DFRDB entitlement as an “income stream” and treating it as a separate pool, the Federal Magistrate combined it with the other assets and treated the entitlement as though it had a capital value capable of distribution. Though the entitlement itself was not split (this was not sought by either party), the value ascribed to it under the Superannuation Regulations was in effect split, by way of adjustment to the property to be received by each party within Pool 1.
To give practical effect to the 59.5 / 40.5 per cent assessment, the wife was to receive $452,041 in non-superannuation assets and $381,843 in superannuation assets. The husband was to receive $540,990 in non-superannuation assets, $173,222 in superannuation assets, and his DFRDB (referred to at this point in the reasons as “capitalised pension”) of $509,734.
The Federal Magistrate concluded this was just and equitable in the circumstances for the following reasons:
163.I view this as a just and equitable split. Whilst there is an imbalance between the parties with respect to the mix of superannuation and non-superannuation assets, the husband’s focus was to retain [M]. He was not seeking to increase his superannuation portfolio by way of a split. The wife sought to retain all of her superannuation.
164.Both parties will receive property to sell and/or retire debt and/or use for the purpose of securing accommodation and/or as a capital buffer. Both will have superannuation to access on retirement…
165.The husband was unemployed at trial. However he has a lifetime pension benefit and a buffer of about twelve months to secure remunerative employment if he is to retain [M]. If he secures employment then this income will supplement his pension income.
At the appeal hearing the lawyers for the parties handed up an agreed document titled “Outcome of Orders of 22 February 2012”. The document demonstrated that, after factoring capital gains tax liabilities into the cash adjustment from sale proceeds of property, the value of non-superannuation assets retained by the husband was ultimately $514,652 and by the wife $433,315. Of the total net assets excluding the DFRDB, the husband therefore received 55 per cent and the wife 45 per cent, rather than then 59.5 per cent and 40.5 per cent entitlements determined by the Federal Magistrate. The reason for the difference primarily being that the DFRDB was not then included as a capital sum available for distribution.
Relevant Principles
We emphasise at the outset of this section that it is important to remember what the provisions of s 79 require with respect to property proceedings, and in this context to appreciate the recent High Court decision in Stanford v Stanford [2012] HCA 52, especially the following paragraphs:
37.First, it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property. So much follows from the text of s 79(1)(a) itself, which refers to “altering the interests of the parties to the marriage in the property” (emphasis added). The question posed by s 79(2) is thus whether, having regard to those existing interests, the court is satisfied that it is just and equitable to make a property settlement order.
38.Second, although s 79 confers a broad power on a court exercising jurisdiction under the Act to make a property settlement order, it is not a power that is to be exercised according to an unguided judicial discretion. In Wirth v Wirth, Dixon CJ observed that a power to make such order with respect to property and costs “as [the judge] thinks fit”, in any question between husband and wife as to the title to or possession of property, is a power which “rests upon the law and not upon judicial discretion”. And as four members of this Court observed about proceedings for maintenance and property settlement orders in R v Watson; Ex parte Armstrong:
“The judge called upon to decide proceedings of that kind is not entitled to do what has been described as 'palm tree justice'. No doubt he is given a wide discretion, but he must exercise it in accordance with legal principles, including the principles which the Act itself lays down”.
…
40.Third, whether making a property settlement order is just and equitable” is not to be answered by beginning from the assumption that one or other party has the right to have the property of the parties divided between them or has the right to an interest in marital property which is fixed by reference to the various matters (including financial and other contributions) set out in s 79(4). The power to make a property settlement order must be exercised “in accordance with legal principles, including the principles which the Act itself lays down. To conclude that making an order is “just and equitable” only because of and by reference to various matters in s 79(4), without a separate consideration of s 79(2), would be to conflate the statutory requirements and ignore the principles laid down by the Act.
(footnotes omitted)
Of course, any consideration of the principles applicable should also recall the majority decision in Coghlan and Coghlan (2005) FLC 93-220 in particular the following:
·There is no mandate to include the value of the superannuation interests of the parties in the pool of assets to be divided in proceedings under s 79. The preferred approach is to prepare a list of any superannuation interests separate to any items of property. The trial judge has a discretion as to how superannuation interests will be treated; and
·Consideration must be had to the overall justice and equity of any proposed order, including the “real nature” of the superannuation interests i.e. whether the superannuation represents for example a present sum or a future periodic sum.
Applicable principles where one of the parties has a DFRDB interest
The treatment of DFRDB entitlements has been considered by the Full Court on several occasions. It is clear there is a discretion as to how to treat such interests, however the application of specific legislative provisions providing for the alteration of property interests, together with the general provisions and principles to be applied in property proceedings under the Act, has proved somewhat problematic.
The comprehensive discussion of the authorities in the recent case of Semperton & Semperton [2012] FamCAFC 132 (a decision given on
23 August 2012 after the hearing of this matter) in the reasons of May J and also Thackray and Ryan JJ, should be read in conjunction with these reasons.
The difficulty in balancing specific and general requirements in taking DFRDB entitlements taken into account in property proceedings was summarised by May J in Semperton:
3.Amendments to the Family Law Act 1975 (Cth) (“the Act”) and the introduction of the Family Law (Superannuation) Regulations 2001 (Cth) (“the Superannuation Regulations”) had the effect that a DFRDB pension in its payment phase, though incapable of being capitalised, must be valued in accordance with the Superannuation Regulations.
…
76.Certain questions about such entitlements have been considered and answered by the Full Court. It is clear from those authorities, which are set out below, that it is a matter of discretion for the judicial officer. That discretion is guided, however, by some qualification and statements of principle by the Full Court.
77.Notwithstanding a clear requirement that such interests must be taken into account in the determination of property proceedings, and that a specific dollar value is to be assigned to the interest under the Superannuation Regulations, careful consideration must be given to the nature and characteristics of the interest. A recurring theme in both the appellate authorities and first instance decisions is the primacy of the s 79 requirement for just and equitable orders over provisions in the Superannuation Regulations and Part VIIIB of the Act.
In addressing DFRDB cases the Full Court has provided some guiding principles and considerations, emphasising the requirements to consider the nature of the asset and to step back and consider the just and equitable effect of the overall orders. In numerous cases, the Court has also cautioned against the risk of double-dipping on DFRDB entitlements, and found appealable error where this has occurred.
It is first important to understand in each case what is the nature of the interest. In Semperton the features of the husband’s DFRDB entitlement in that case, which are generally common characteristics to DFRDB, were explained. In Semperton, as commonly appears in these cases, the husband had already commuted the maximum sum possible upon his earlier retirement from the Defence Force. May J explained the main features of the entitlement at the relevant time of the trial:
48.The husband’s DFRDB pension was characterised by his counsel as a guaranteed “income stream indexed for life”; a benefit which could never be commuted to a capital sum, was in its payment phase, and was received by the husband as a fortnightly pension payment. It was submitted that in practical terms, the benefit was an income stream or a financial resource, made splittable only because the Superannuation Regulations make it so, and in any event, only capable of being split to the wife in the form of a fortnightly payment not a lump sum.
May J also explained the affect a splitting order of the entitlement would have on the wife, who in that case was in receipt of a pension:
57.It is also important to note that at the hearing before the Federal Magistrate, neither party sought a splitting order of the husband’s DFRDB pension, although it was acknowledged that such an order could be made. For her part, the wife did not seek such an order because it would have negatively affected her weekly Centrelink pension entitlement.
In the reasons of Thackray and Ryan JJ another significant feature of DFRDB, that of taxation, was explained:
159.The DFRDB was valued by reference to a formula that pays no regard to the fact that the payments are taxable in the hands of the veteran. In some circumstances, the pension will be taxed at the highest marginal rate, while in other circumstances it will be tax-free. No formula can determine the real value to an individual recipient because of the myriad factors that would impact on the tax treatment of the benefit. But the fact remains that for so long as the husband continues to enjoy a high income, a proportion of his DFRDB will be lost to tax, albeit the burden should be reduced when he turns 60.
Their Honours also canvassed a range of views expressed by trial judges about the characterisation of DFRDB valuations under the Superannuation Regulations, and claims of “artificiality”:
170.Whilst examination of these decisions will show that Coleman J places much emphasis on the fact that a DFRDB pension “is not and never will be capital”, and considers valuations of them to have an “air of artificiality”, it must also be recognised that other judges have emphasised that guaranteed income streams are of considerable value.
171.Thus, in HRDW & HSJL [2005] FamCA 676 at [46] Warnick J said:
… counsel for the husband suggested that the value of the husband’s [pension] entitlement had been “plucked from the air” and he referred to terms such as “an air of artificiality”, used by his Honour Justice Coleman in Cahill v Cahill…These terms seem to involve the assumption that a lump sum is inherently a more valuable form of property than an entitlement to a pension. I would not make any such assumption…
172.In Trott and Trott (2006) FLC 93-263, Watts J agreed with the approach of Warnick J. In doing so, his Honour said:
109.I also would not make the assumption that the calculation as to the value of the income streams to which the husband is entitled has an “air of artificiality”. The lump sum values are reached after applying an actuarial formula which capitalises the income streams. That is, it would be reasonable to conclude that any company prepared to sell an annuity which gave the income streams to which the husband is entitled, would require a payment of about $1,800,000. Just because this large figure is paid overtime [sic] and not as a lump sum, does not mean its value has an air of artificiality. Any discounting for the fact that the husband will not immediately receive the whole of the value of the amount in one lump sum is taken into account in the formula used to calculate the amount in the first place. Income streams of this nature are a valuable asset. The introduction of Part VIIIB into the Family Law Act was, in part, motivated by the notion that overall, it was likely that the value of a spouse’s superannuation had been undervalued by the Court, by practitioners and by the parties.
173.Watts J went on to say:
117.The introduction of Section 90MT(2) was designed, at least, to provide some reality check in relation to the types of adjustment the Court was making in respect of superannuation. This is particularly so, in respect of income streams, that might appear at first blush to have a relatively low value as a periodic payment. In my view the valuation calculated by using the formulae in the Regulations is not an artificial and arbitrary exercise.
Notwithstanding debate about the real or artificial results of the valuation process of DFRDB entitlements, we do not consider valuation itself to be problematic in DFRDB cases. Valuation is clearly required, and conclusively provided for, under the Superannuation Regulations.
Instead, it is the treatment and use made of that value at the later stages of the process, which may more likely lead to error. However, whether or not error arises can only be determined on a case by case basis. The requirements that regard be had to the nature of the entitlement, and the just and equitable effect of the proposed orders, clearly require consideration of the specific DFRDB entitlement at hand, and the practical consequences of orders in the context of the parties’ other assets, liabilities and financial circumstances.
In Semperton, the Court agreed that the Federal Magistrate in that case had erred by treating the DFRDB as though it was a capital sum available for distribution at the later stages of the process, thereby failing to have proper regard to its nature (May J at paragraph 97 and Thackray and Ryan JJ at paragraph 197). May J also concluded that the orders were not just and equitable when the practical consequences of the orders were considered (paragraph 97).
As mentioned, the Federal Magistrate relied on PJM & STM reported as McKinnon and McKinnon (2005) FLC 93-242. That case in instructive on two bases. First in relation to the general approach, Coleman J sitting as a single judge exercising appellate jurisdiction, considered the then recent decision of Coghlan and found that as the DFRDB entitlement was in its payment phase and could not be commuted, it was preferable to adopt an asset by asset approach and isolate the pension in its own pool. His Honour said:
4. Where this Court differs from the learned Federal Magistrate, albeit this Court has had the benefit of the decision of the Full Court in [Coghlan and Coghlan] (2005) FLC 93-220 which the learned Federal Magistrate did not have, is that this Court prefers an asset by asset approach to the evaluation of contributions rather than the global approach adopted by the learned Federal Magistrate. This Court prefers to consider “two pools” of property, they being the net assets referred to by the learned Federal Magistrate and totalling $844,000.00 less the sum of $248,774.00 referrable to the husband's “DFRDB pension”, which the Court prefers to consider in a second “pool”.
5. The reasons the Court prefers this approach are essentially that the evidence establishes that the husband’s DFRDB pension is and will in future continue to be a fortnightly pension benefit which can never be commuted or otherwise converted to a lump sum, either of $248,774.00 or any other amount. Thus, whilst undoubtedly, in accordance with the regulations, the value of the superannuation interest is as found by the learned Federal Magistrate, consistent with the judgment of the majority in [Coghlan and Coghlan], this Court considers the preferable approach in terms of achieving a just and equitable resolution of the proceedings between the parties to be to consider the superannuation interest separately from the remaining assets of the parties.
(emphasis added)
Coleman J’s reasons in McKinnon are also instructive in the danger of double-dipping on DFRDB entitlements. His Honour referred to the error of the Federal Magistrate by making a s 75(2) factor adjustment by reason of the DFRDB pension (which was in its payment phase and non-commutable), having already included it in the pool at its valuation as determined under the Superannuation Regulations.
Though the Federal Magistrate in this matter sought to rely on Coleman J’s reasons in McKinnon as authority for considering the entitlement at the s 75(2) adjustment phase, proper consideration of the factual scenario of that case as explained by his Honour demonstrates why the approach of the Federal Magistrate was incorrect.
Coleman J acknowledged the error at first instance, in which the Federal Magistrate had “double-dipped” by awarding a contribution based entitlement to the pension to the wife and by also considering the pension to make a s 75(2) adjustment. In re-exercising the discretion of the trial judge on a rehearing, Coleman J explained that the circumstances as found by him would not lead to error:
30. As a number of the superannuation appeals decided by benches of five judges in 2005 confirm, very careful care needs to be exercised to ensure that superannuation interests are not double counted. It will be remembered in this case that the Court has earlier considered contribution based entitlements to the husband’s DFRDB superannuation interest. Having concluded the contribution based entitlement to be entirely that of the husband’s and for reasons earlier given, the value of the interest in accordance with the Regulations has not been added to the pool of other assets for the purpose of determining contribution entitlements. In those circumstances, to revisit superannuation in the context of s 75(2), a permissible approach in itself, does not entail any double counting in ways which would potentially arise had the wife been found to have a contribution based entitlement to the superannuation interest.
(emphasis added)
In this case, as in Semperton and the decision in McKinnon, the wife had been found to have a contribution based entitlement to the DFRDB interest. Therefore, as we will explain, the Federal Magistrate fell into error also by having regard to the interest at the s 75(2) adjustment phase when considering the other assets. The better course would be to have commenced with the other assets.
General appellate principles
This is an appeal from a discretionary judgment. The principles enunciated by the High Court highlighting the limitations on appellate interference with such judgments need not be repeated here (see House v The King (1936) 55 CLR 499 at 504-5).
However, as complaint is made about the decision being outside the reasonable range of discretion, it is instructive to recall the observations of Brennan J in Norbis v Norbis (1986) 161 CLR 513 at 539‑540:
The difficulties in the way of developing guidelines beset an appellate review of the exercise of a discretion under [the property settlement provisions of the Family Law Act 1975]. Unless the primary judge reveals an error in his reasoning, the Full Court can intervene only if the order made is not just and equitable. How does the Full Court arrive at that conclusion? In Bellenden (formerly Satterthwaite) v. Satterthwaite [[1948] 1 All ER 343 at p 345], Asquith L.J. stated the rationale of an appellate court’s approach:
“It is, of course, not enough for the wife to establish that this court might, or would, have made a different order. We are here concerned with a judicial discretion, and it is of the essence of such a discretion that on the same evidence two different minds might reach widely different decisions without either being appealable. It is only where the decision exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong, that an appellate body is entitled to interfere.”
As mentioned, the grounds of appeal also raise other complaints, including inadequacy of reasons. The principles relating to adequacy of reasons were summarised by the Full Court in Bennett and Bennett (1991) FLC 92-191 at 78,267, “the appellate court must be placed in the position of being able to follow the trial Judge’s line of reasoning, as must the parties, if they are to be satisfied that justice has been done” (following Gray J in Sun Alliance Insurance Ltd v Massoud [1989] VR 8).
Discussion
Grounds 3, 4, and 5 can be considered together.
According to the written submissions for the husband, “it is the treatment of the Husband’s DFRDB pension coupled with the failure to consider the parties’ respective contributions to their other superannuation interests that underpins the real matters of complaint made by the Husband”. Senior Counsel for the husband, while conceding that it was not an error in itself to create a separate pool containing the DFRDB entitlement, suggested that in so doing it led the Federal Magistrate to the errors alleged. We do not accept the second proposition.
The written submissions for the husband succinctly summarise the complaints about the DFRDB treatment reflecting the grounds of appeal and bear repeating here:
52.On the one hand it appears clear, or at the very least it may reasonably be inferred, that her Honour did not intend to treat the Husband’s receipt of the DFRDB pension other than as income stream in his hands.
…
54.Then in determining the question of the Husband and Wife’s contributions to Pool 1, and specifically when dealing with the issue of the disparity of income between the parties, her Honour again treated the DFRDB pension as an “income stream” sufficient to disentitle the Husband to any adjustment under s. 75(2). The learned Federal Magistrate determined that she would not make any adjustment under s. 75(2) in the Husband’s favour because of the receipt by him of the indexed pension…
Her Honour is said to have further erred by treating the entitlement as a capital sum or of capital value and thereby failing to have sufficient regard to the “real nature” of the interest.
58.To have received a 56% division of the Pool 1, the Husband was in truth required to have received a cash adjustment of $200,205.76. Her Honour of course only ordered a cash adjustment of $47,286 (para 159). The balance of the “cash adjustment” ($152,919.76) was sourced from the Husband’s DFRDB pension. That sum represented a 30% division ($152,920) of the capitalised value of the DFRDB pension ($509,734). In doing so the learned Federal Magistrate treated the DFRDB pension as if it were a “cash” sum. There was no discounting to take account of the fact that the DFRDB pension could never be converted to a further lump sum.
59.Though not intended to treat the Husband’s DFRDB pension as if it were a present-day capital sum capable of immediate division as a cash sum, her Honour nonetheless did just that by treating the DFRDB pension as a liquid or cash asset….It is contended this had the effect of distorting the outcome heavily in favour of the Wife in a way that was not open to her Honour when she had earlier regarded the weekly pension as in truth having no capital value at all…
In response for the wife it is suggested that in having regard to the interest as a capital sum, whether the Federal Magistrate was treating it as property even though it is not, or viewing it as another species of asset, her Honour properly had regard to the interest as part of the s 79 exercise.
It is submitted that the Federal Magistrate’s course, of both assessing the wife’s contributions to the DFRDB and satisfying the final adjustment by using both pools, was neither a double counting nor treated the DFRDB as if it were a cash sum. Furthermore, it is said that such an approach is contemplated by
subs-s 90MO(2). That subsection provides that the Court is not prevented from taking superannuation interests into account when making an order with respect to other property of the parties.
The other complaint in relation to the DFRDB is the assessment of contributions:
42.It is difficult to understand how her Honour, when having determined that she should place weight upon the notion of “time served” necessarily arrived at a notional 70%-30% division or why such a result was justified having regard to the accepted evidence. This necessarily follows because it is uncontroversial that the husband had contributed to the Scheme for in excess of 22 years, being the length of his service. For only five of those years could the Wife be said to have made any indirect contribution. On one view the Wife’s contribution was about 18% (5 of 27 years, being the aggregate) or 22% (5 of 22 years). The assessment was undertaken against the background of an acceptance by her Honour that the Husband has “already reached in his career the upper echelons of rank and income by the time the parties commenced to cohabit in January 1996”. Reading the judgment as a whole it is impossible to determine how her Honour arrived at the ultimate conclusion that the Wife made a 30% contribution to the Husband’s DFRDB pension.
In response it is said for the wife that the time-served basis would not have been the only consideration in the assessment of contributions to the DFRDB entitlement. In oral submissions, counsel for the wife suggested that “those factors seem to come from the judgment as a whole which are relevant to the assessment of the contributions. …Clearly, the wife is making some direct or, more likely, indirect contribution to the maintenance of the husband’s career in the [military]. And that, again, is a factor, in my submission, that tells in part of the contribution of assessment of the DFRDB pool” (Transcript, 20 August 2012, p 19, lines 4-31).
Other considerations are suggested in the written submissions for the wife in the appeal. For example, that the value of the husband’s DFRDB contributions increased during the years of marriage commensurate with his salary increases, that the interest was in payment mode and could not be commuted to a lump sum, and that the wife might eventually take her military and PSS entitlements as non-commutable pensions although contained in the pool as lump sums.
Conclusion – Grounds 3, 4, 5
This appeal is not unlike Semperton in many respects. The Federal Magistrate correctly used the capital “value” of the DFRDB fund and then discretely decided the entitlement to it by each party and the s 75(2) impact of such a finding in isolation. The Federal Magistrate then took the husband’s DFRDB into account in deciding the s 75(2) considerations which might apply flowing from the property division of the other pool. There was a double count. As importantly, the Federal Magistrate failed to demonstrate an appreciation of the “different character” of the DFRDB in the final stage, together with the necessary assessment of whether the orders were just and equitable.
Ground 6
It is also complained that the Federal Magistrate made no separate assessment of the husband’s and wife’s contributions to the other superannuation interests. The recent Full Court case of Robertson & Robertson [2012] FamCAFC 60 (at paragraph 42) was referred to in support of this argument. Their Honours (Finn, Strickland and Ryan JJ) said:
42.As to the complaint that his Honour failed to make findings as to the respective contributions of the parties it is apparent that his Honour did no more than identify the relevant sections of the Act. It was submitted that his Honour was required to do more, namely to identify and assess the parties’ contributions in the context of findings in relation to the net value of the property of the parties. Reliance was placed upon authorities such as In the Marriage of Lee Steere (1985) FLC 91-626 and Ferraro and Ferraro (1993) FLC 92-335. We agree that the authorities referred to provide support for the submission. We also agree that his Honour’s reasons do not, even briefly, identify and assess the parties’ contributions or reveal how those contributions established entitlements to the assets of the parties. Thus, again his Honour was in error.
It was submitted that in circumstances where the wife accumulated much of her superannuation during the marriage, and the husband’s greater income contributions enabled her to make voluntary contributions to her government PSS scheme at the maximum rate, the husband must be taken to have made a contribution to the wife’s superannuation.
The response for the wife was that the Federal Magistrate undertook a global assessment of contributions to superannuation as part of the non-DFRDB pool of assets. Accordingly, it is said, the husband’s indirect contributions to the wife’s superannuation formed part of the overall assessment in his favour. With respect, such an approach is neither apparent from the reasons, nor permissible in light of the requirements accepted in Robertson (supra).
In respect of contributions to both pools, it was generally submitted for the wife that “absent a conclusion that her Honour was required to make an assessment of contributions based on some arithmetic or accounting principle, the appellant has not identified in what respects her Honour’s Reasons have failed to provide a pathway to the conclusions she reached”.
The extent of the Federal Magistrate’s assessment of the parties’ contributions to each other’s superannuation funds (leaving aside the DFRDB) is limited to paragraphs 97 to 100. Her Honour states, “[d]uring the relationship the parties also acquired investments. They also contributed to a number of superannuation funds. Both made contributions to that part of the other’s fund which was built up and/or accumulated during their relationship”.
At paragraph 99 her Honour finds that the wife made voluntary contributions to her Government PSS scheme at the maximum rate, however does not specify the value of those additional contributions or comment on the effect of those contributions in the context of the relationship. It is the husband’s submission that the husband’s greater income contributions during the marriage enabled the wife to make those voluntary contributions at the maximum rate, and the value of those additional contributions would have otherwise been available during the marriage. At paragraph 100 her Honour finds that there was no evidence that during cohabitation the husband made any additional contributions to his other superannuation funds.
Conclusion – Ground 6
While the reasons do very briefly identify the parties’ contributions to the non-DFRDB superannuation, synonymous with the requirements affirmed in Robertson (supra), there is no assessment of those contributions or connection between contributions and entitlements to those assets which were largely accrued during the course of the relationship.
While recognising that the Federal Magistrate otherwise provided comprehensive reasons, particularly in relation to fact finding, the reasons in this respect are so deficient that the ground must succeed.
Conclusion
For reasons we have explained the appeal should be allowed. As appealable error has been established and a rehearing or re-exercise of discretion is required, it is unnecessary to consider further the remaining ground of appeal which complain of discretionary error in the overall property adjustment result.
We would note however, the comments of the Full Court in Robertson (supra) in relation to a complaint about the just and equitable effect of orders in circumstances where error had been made out in the second and third stages:
43.In relation to the third complaint identified above, that can be readily dealt with. Without his Honour making appropriate findings as to the asset pool and in particular the value of the husband’s superannuation, and without his Honour making appropriate findings as to the respective contributions of the parties (and as to the relevant s 75(2) factors) we agree that it was not open to his Honour to find that the orders that he proposed were just and equitable under s 79(2) of the Act. Thus, his Honour erred in this regard as well.
We will set aside the orders sought in the notice of appeal. Inevitably, although unfortunately there must be a rehearing. The parties’ current and future financial circumstances must be evaluated and, although they may not be controversial, up to date valuations obtained.
costs
As the error is one of law, neither party should pay the costs of the other. Accordingly we will make no order as to costs. The parties are entitled to a costs certificate in both the appeal and the rehearing, which we will order pursuant to the provisions of the Federal Proceedings (Costs) Act 1981 (Cth).
Strickland J
Introduction
By Amended Notice of Appeal filed on 30 April 2012 the husband appeals against financial orders made by Purdon-Sully FM on 29 November 2011 and 22 February 2012. The wife opposes the appeal.
In summary, the orders of 29 November 2011 required the husband’s solicitors to prepare a draft minute of order to reflect the reasons for judgment delivered by her Honour on the same day and required the wife to make available specified furniture and chattels for collection by the husband. The orders of
22 February 2012 provided for a 59.5 per cent/40.5 per cent division in favour of the husband of the parties’ total net property pool comprising non-superannuation assets, superannuation entitlements and the capitalised value of the husband’s DFRDB entitlement. To achieve that outcome, the money held in trust was to be divided between the parties after payment out of CGT liabilities, the husband was to make a payment to the wife, there was to be the transfer by the wife to the husband of her interest in the former matrimonial home subject to the husband refinancing two loans, the retention by the wife of real property, the retention by each party of motor vehicles, shareholdings, superannuation and chattels, and for the other party to relinquish his or her right, title or interest in such property.
On appeal the husband seeks orders that this Court re-exercise the Federal Magistrate’s discretion to achieve a division of 60 per cent/40 per cent in favour of the husband of the net property in Pool 1 identified by her Honour, i.e., excluding the capital value of the husband’s DFRDB pension entitlement.
Background
The husband was born in 1960 and was aged 50 years at the time of trial.
The wife was born in 1962 and was aged 49 years at the time of trial.
The parties commenced cohabitation in January 1996, married in July 1999 and separated in June 2009.
There are no children of the relationship, however, the wife has two adult children from a previous marriage and the husband has a 17 year old son from a previous relationship.
At the time of trial the husband was unemployed and the wife was in full-time employment with the Public Service.
At the time of trial the husband was living in the former matrimonial home at M (“the M property”) and the wife was living in shared rented accommodation in K.
Reasons for judgment of the Federal Magistrate delivered 29 November 2011
The Federal Magistrate commenced her reasons for judgment by outlining the orders sought by each party, the relevant law, a brief background of the parties and the evidence relied upon by each party. In essence, the wife sought a
60 per cent division of the non-superannuation assets and to retain her superannuation entitlements valued at $381,843. The husband sought a
70 per cent division of the non-superannuation assets and to retain his superannuation valued at $173,192.
As to credit, the Federal Magistrate noted there were a number of factual disputes between the parties and generally preferred the evidence of the husband over that of the wife. Her Honour found the wife deceitfully failed to disclose a personal injuries payout she received in October 2009 in the amount of $63,164 ($47,214 net of legal fees) until 11 days before the trial.
In identifying the parties’ property pool, the Federal Magistrate recorded the parties’ superannuation entitlements, namely:
·The wife’s future superannuation entitlements under MSBS ($78,321) in the growth phase and under schemes with Colonial First State ($16,418), AGEST ($7,919) and PSS ($279,185), which had a combined value of $381,843.
·The husband’s future superannuation entitlements under schemes with PSS ($61,253), AMP ($33,440) and QSuper ($78,499), which had a combined value of $173,192.
·A DFRDB pension received by the husband at the rate of $523 per fortnight, which was valued in accordance with the Family Law (Superannuation) Regulations 2001 (Cth) at $509,734.84.
It was counsel for the husband’s contention that the husband’s DFRDB pension should be treated as a financial resource of the type referred to in Cahill and Cahill (2006) FLC 93-253, whilst counsel for the wife contended a “two pool” approach should be adopted. The Federal Magistrate proposed to include the husband’s DFRDB income stream in one pool (“Pool 2”) and to consider all other non-superannuation and superannuation property in another separate pool (“Pool 1”). Her Honour did so on the primary basis that the husband contributed to his military superannuation scheme for 17 years prior to the commencement of cohabitation, but that the other assets had been acquired or significantly built upon during the relationship.
After setting out the parties’ assets, liabilities and superannuation in both pools, the total of which was $2,057,380, the Federal Magistrate turned to consider the issue of contributions in relation to Pool 2.
In summary, the husband had joined the military in January 1979 and resigned in June 2001. During that time the husband was promoted on five occasions, four of which he achieved prior to the commencement of cohabitation. At the time of retirement the husband commuted the majority of his military superannuation to a lump sum in the amount of $108,289.83, taking the balance by way of an indexed annual pension, which at the time of trial was $523
per fortnight.
Whilst the Federal Magistrate had regard to the wife’s contributions during the relationship and the fact the husband’s income more than doubled between 1996 and 2001, her Honour ultimately determined that to “emphasis [sic] the last five years of service and the income derived at that time and ignore the requirement of 20 years service to access the entitlement, would do an injustice to the husband”. The Federal Magistrate subsequently assessed the parties’ contributions based entitlements to the DFRDB benefit at 70 per cent/30
per cent in favour of the husband.
As to s 75(2) of the Act, her Honour said this in relation to Pool 2:
57.I make no adjustments under s.75(2) of the Act. I am conscious of the provisions of s.75(2)(f). Given my approach and given my findings as to the wife’s contribution based entitlements to Pool 2, to avoid the potential for double counting, I have concluded that I should consider the receipt by the husband of his entitlement to an income stream under the s.75(2) factors relevant to Pool 1.
As will be seen, this did not avoid the double counting; indeed it promoted it.
The Federal Magistrate then considered contributions in relation to Pool 1.
At the commencement of their relationship both parties were serving military officers, with the husband earning about $47,000 gross per annum and the wife earning $34,000 gross per annum. The husband owned non-superannuation assets with a value unknown (although probably not more than about $16,000), including real property in W, Queensland sold four years later for a net profit of $11,500, a Ford motor vehicle with equity of about $4,500 and furniture and chattels. It was the husband’s evidence that at the commencement of the relationship his DFRDB scheme contributions were $40,000 to $45,000. The wife’s non-superannuation assets had a net value of about $28,000, including real property in P, Queensland, which was tenanted with equity of about $20,000, a Mazda motor vehicle worth about $8,000 and furniture and chattels. The wife also had superannuation interests in MSBS worth $7,188.
During the relationship, the husband continued as a serving officer until 2001 and then from 2001 until March 2010 was employed in various positions in the public and private sectors at an executive or senior level. From 1996 until 1999 the wife continued as a serving officer and on her retirement received a $30,000 payout (being $22,000 superannuation entitlements and $8,000 leave entitlements). These funds were applied for the benefit of the relationship, along with an inheritance of $9,300 the wife received in May 1996 and $10,000 she received in June 1999 from the property settlement of her first marriage. Her Honour noted the various career opportunities the parties pursued during and after the relationship, determining that both parties derived a “reasonable to good income” from their employment during their relationship, but that the husband’s total net income exceeded that of the wife “by some margin”.
Her Honour found both parties applied the income generated from employment for the benefit of the relationship.
The parties acquired property during the relationship and established a mortgage offset account in joint names to which they both contributed monies, although the wife conceded that prior to separation the husband’s contributions exceeded hers and that he used most of his income to pay the expenses in relation to the parties’ real properties.
Whilst both parties asserted their homemaker contributions exceeded the other, on the evidence the Federal Magistrate was unable to conclude either party should receive weighting in their favour. It is also noted that during the relationship the wife undertook university studies for a period of two years securing a Masters in Business, the costs of which were funded from her income and some sponsorship from her employer.
After identifying the post-separation contributions of the parties the Federal Magistrate determined to make an adjustment in the wife’s favour on account of the husband’s compensation payout, former income and redundancy payment, and his access to pension and cashed-in assets. Her Honour assessed the parties’ contributions based entitlements as being 56 per cent/44 per cent in favour of the husband, which amounted to a differential of about $185,717.
Turning to the s 75(2) factors, the Federal Magistrate noted the husband was in “reasonable health” but suffered from diabetes and depression exacerbated by the separation. Whilst the husband had been unemployed since April 2010, the Federal Magistrate found he had made numerous and varied attempts to obtain employment, and would continue to do so as he could secure a one year bridging loan to retain the M property. Her Honour also found that, upon gaining employment, the husband would pay the child support debt to his former wife, which was $11,700 at the time of trial. The Federal Magistrate also noted the husband’s son, who may live with the husband during his future tertiary studies, was a beneficiary under the terms of a trust established by his paternal grandfather in the amount of $30,000.
The Federal Magistrate noted the wife was in reasonable health but also experiencing stress in relation to the proceedings. Her Honour found that at the time of trial the wife was living independently, had no commitments to support any other person, had secure full-time work with an annual income of $112,757, and an expectancy that her salary would increase. Although the wife was unable to immediately access her superannuation, given the quantum and nature of the wife’s entitlements and her ability to generate a good income from her employment, the Federal Magistrate was not persuaded to make a further adjustment in favour of the wife.
The wife also asserted that during the relationship the husband paid a significant amount (which she quantified as $182,000) of child support for his son, who was approximately 14 months old when the parties commenced living together. The Federal Magistrate noted the wife’s child support commitment was a lesser amount for a lesser period of time as her children were older, but found each party made varied contributions to the other’s children which were not “singular or remarkable calling for a weighting in favour of one party over the other”.
In assessing the s 75(2) factors, the Federal Magistrate ultimately determined there should be no adjustment in favour of the husband on the basis of his ongoing support for his son or the parties’ income earning disparity.
Her Honour’s main reasons for that decision were, in relation to the fore mentioned, the age of the husband’s son, the existence of the trust fund and the largely unknown and speculative time the son may live with his father, and in relation to the latter, the parties’ similar ages, high qualifications and the husband’s pension entitlement.
Lastly, the Federal Magistrate considered the division just and equitable as the husband would receive about $1,223,496 and the wife would receive about $833,884, of the total net pool of $2,057,380.
The appeal
Unfortunately, the Amended Notice of Appeal was poorly drawn, and the written submissions filed in support of the appeal were unhelpful. To add to this, the oral submissions made at the hearing before us bore little resemblance to the grounds of appeal or the written submissions.
The grounds of appeal as contained in the Amended Notice of Appeal are as follows:
1. The learned Federal Magistrate committed a mathematical error in determining the amount of the cash payment to be made to the Husband to achieve a 56% division in his favour of the property specified in
Pool 1.2. The learned Federal Magistrate erred in the exercise of her discretion with respect to the overall adjustment of the parties’ property interests to be made in the Husband’s favour having regard to the findings of fact made by her Honour regarding the Husband’s contributions to the parties’ property interests.
3. The learned Federal Magistrate erred in having regard to the DFRDB pension as if it were a capital sum where her Honour had intended to treat the receipt of such pension as an income stream in the Husband’s hands.
4. The learned Federal Magistrate erred in treating the Husband’s DFREB [sic] pension as having a capital value for the purposes of determining the overall adjustment to be made to the parties’ real and personal property and superannuation interests and the valuation of the overall property pool in circumstances where the learned Federal Magistrate had already taken into account the receipt by the Husband of the said pension as one of the reasons for making no adjustment under s. 75(2) of the Family [sic] Act 1975.
5. The learned Federal Magistrate erred in her treatment of the receipt by the Husband of the DFRDB pension.
6. The learned Federal Magistrate erred in falling [sic] to adequately explain her reasoning process for arriving at the overall property adjustment pursuant to s. 79 of the Family Law Act 1975.
7. The learned Federal Magistrate erred in treating the inclusion of the $10,000 alleged by the Wife to be owing to her late mother’s estate in the outline of argument filed on behalf of the Husband as an admission that such debt was in fact due and owing when (a) the existence of the debt was disputed by the Husband in his evidence, (b) was put in issue at the trial and (c) no admission that such debt was owing was ever made by or on behalf of the Husband.
With Ground 1, that was not pursued during the hearing before us, and Ground 7 was not sought to be maintained.
Ground 2 turned out to be not a general complaint, but a specific complaint about the assessment of the respective contributions of the parties to the husband’s DFRDB entitlement. This despite the use of the phrase “property interests” in the ground.
At the hearing before us the husband’s senior counsel also sought to incorporate in this ground a complaint that the Federal Magistrate failed to assess and take into account the husband’s contributions to the wife’s superannuation entitlements, but that clearly was not within the ground, and there was no other ground of appeal that raised that complaint. Accordingly, I do not propose to address this complaint.
Grounds 3, 4 and 5 clearly raise only the one complaint, although in a confused way. That complaint is the central issue in this appeal, and it relates to the treatment by the Federal Magistrate of the husband’s DFRDB pension entitlement.
Ground 6, like Ground 2, turned out not to be a general complaint but a specific complaint that her Honour failed to provide adequate reasons for finding that the respective contributions of the parties to the husband’s DFRDB entitlement should be assessed at 70 per cent/30 per cent in the husband’s favour, as opposed to a higher percentage to the husband. This of course complements Ground 2.
Turning to the orders sought in the Amended Notice of Appeal. There were two orders made by the Federal Magistrate on 29 November 2011, but neither of these orders is challenged, and it is entirely unclear why the appeal is brought against those orders. There were 22 orders made on 22 February 2012, and in the Amended Notice of Appeal the orders sought to be appealed against are described as follows:
Orders 4, 5, 6(a) and 9(d) to the extent made necessary by reason of the appeal against Orders 4 and 5, 11, 12, 13 and 18 of the Orders of 22/02/2012 and See Grounds.
However, what that means was never explained to us, and for my part I still have no idea precisely which orders are the subject of the appeal, save and except by a process of deduction Orders 1, 2 and 3 are obviously not.
Discussion
Grounds 3, 4 and 5
As has been seen the Federal Magistrate placed the capitalised value of the husband’s DFRDB pension in a separate pool from the superannuation and non-superannuation assets of the parties. It is suggested by the husband’s senior counsel that that led the Federal Magistrate into error, however that is not readily apparent to me. It is quite appropriate to place an entitlement such as a DFRDB pension entitlement into a separate pool (see for example McKinnon and McKinnon (2005) FLC 93-242); indeed, in my view in order to properly address the presence of such an entitlement it is at the very least helpful, and sometimes essential, to separate it from the other assets including any other superannuation interests.
That said, the complaint of the husband arises from how the Federal Magistrate treated that entitlement. First, the Federal Magistrate treated the benefit as a capital sum to be distributed between the parties although it is received by the husband in a fortnightly sum; secondly the Federal Magistrate took the pension income into account when addressing the relevant s 75(2) factors (see paragraph 154 of the reasons for judgment); and thirdly, it is said this approach distorted the outcome in favour of the wife such that the orders were unjust and inequitable.
At the very least, having taken the benefit into account at its capitalised value (and allocated a percentage entitlement to the wife), it was double dipping to then take it into account under s 75(2) of the Act. That alone is sufficient to allow the appeal, and I refer to the authorities cited by May and Forrest JJ in that regard.
The husband’s senior counsel in his oral submissions suggests that it was not open to the Federal Magistrate to have any regard to the capital value of the benefit, and that her Honour should have put the benefit to one side when considering the asset pool and the contributions of the parties to that pool, and only taken the benefit into account under s 75(2) of the Act when considering the income of the parties. For my part I do not accept that submission, and I refer to what the Full Court said in Coghlan and Coghlan (2005) FLC 93-220 as to how superannuation interests should be treated. The Full Court said this:
65.In summary, then, the trial Judge has a discretion as to how superannuation interests will be treated in a particular case. If superannuation is not included in the list of property but rather made the subject of a separate pool, it will be necessary where a splitting order is sought, or extremely prudent where no such splitting order is sought (in order to ensure that justice and equity is achieved) to:
(a)value the superannuation interest (according to the Regulations if an order under Part VIIIB is sought or according to the Regulations or otherwise if no order is sought);
(b)consider and make findings about the types of contributions referred to in s 79(4)(a), (b) and (c) which have been made by the parties to the superannuation interests on either a global approach or an asset by asset approach depending on the circumstances;
(c)consider the other factors in s 79(4) being the matters in
s 79(4)(d), (e), (f) and (g); and(d)ensure that pursuant to s 79(2) the orders in relation to the parties’ property, and any order under Part VIIIB in relation to superannuation interests are just and equitable.
66.In the context of a consideration of the matters referred to in sub-paragraphs (b) and (c) of the last paragraph, the following matters may well be relevant: the relationship between years of fund membership and cohabitation; actual contributions made by the fund member at the commencement of the cohabitation (if applicable), at separation and at the date of hearing; preserved and non-preserved resignation entitlements at those times; and any factors peculiar to the fund or to the spouse’s present and/or future entitlements under the fund.
67.If this approach is adopted, whereby superannuation interests are dealt with separately from property as defined in s 4(1), but are subject to the considerations in s 79(4), then not only will any contributions, both direct and indirect, by either party to such superannuation interests be more likely to be given proper recognition, but the real nature of the superannuation interests in question can also be taken into account, both in consideration of the s 75(2) matters and in the final assessment of whether the ultimate order is just and equitable.
68.When we refer to “the real nature” of the relevant superannuation interest, we are referring to the fact that notwithstanding that its value according to the Regulations may well be calculated to be a very significant amount, that superannuation interest may be no more than a present or future periodic sum, or perhaps a future lump sum, the value of which at date of receipt is unknown.
Accordingly, it is essential to take into account the real nature of the benefit, and that is what the Federal Magistrate ultimately failed to do here.
Her Honour in her reasons for judgment (at paragraph 132) correctly identified the real nature of the benefit in making the following observation:
… That pension entitlement, however, whilst valued and included in the pool as a capitalised income stream is not capital in his hands and cannot be converted to a lump sum.
However, despite this, her Honour proceeded to treat the capital value as though it was capable of actual division between the parties. Her Honour assessed the respective contributions of the parties to that pension entitlement at 70 per cent/30 per cent in the husband’s favour, and then when calculating what each party should receive, and in assessing the justice and equity of that division, her Honour commenced with the combined total of the assets, superannuation interests and pension benefit of $2,057,380, then found that the husband should received $1,223,496 of that comprising $866,681.76 from
Pool 1 (56 per cent), and $356,813.80 from Pool 2 (70 per cent), and the wife should receive $833,884 comprising $680,964.24 from Pool 1 (44 per cent) and $152,920.20 from Pool 2 (30 per cent). Next, to achieve that outcome from the husband’s point of view, her Honour found that the husband should retain the capitalised value of his pension benefit at $509,734.
Clearly, in treating what was in reality an income stream, and a benefit that could not be commuted as a capital sum available for distribution between the parties, the Federal Magistrate was in error.
Accordingly there is merit in these grounds of appeal.
Grounds 2 and 6
May and Forrest JJ have set out in full the paragraphs from her Honour’s reasons where the Federal Magistrate addressed the DFRDB benefit and the respective contributions of the parties to it. It can be seen that the only reference by her Honour to any contributions by the wife is in paragraph 54, and not only is it impossible to discern the path by which her Honour reached her conclusion, but it is apparent taking into account the objective evidence including how the benefit arose and the contributions of the husband, that
her Honour’s finding that the wife’s contribution should be assessed at 30 per cent is “unreasonable or plainly unjust”. Thus, there is also merit in these grounds of appeal.
Conclusion
Having found merit in these grounds of appeal the appeal must be allowed. The question then becomes whether the proceedings should be remitted for rehearing or whether this court can re-exercise the discretion. Despite both counsel submitting that this court should re-exercise the discretion, I agree with May and Forrest JJ that there must be a rehearing. The difficulty that remains unresolved from my point of view is which orders should be set aside by this court as a result of the appeal being allowed. Given the unsatisfactory state of the Amended Notice of Appeal in this regard, I propose that all orders made on 22 February 2012, save and except Orders 1, 2 and 3, be set aside.
Costs
As to costs, although the parties sought the opportunity to make further submissions, I agree with May and Forrest JJ that there should be no order for costs and the parties should be issued with costs certificates for both the appeal and the rehearing.
I certify that the preceding one hundred and twenty-nine (129) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court
(May, Strickland and Forrest JJ) delivered on 22 March 2013.
Associate:
Date: 22 March 2013
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