Peter Skinner
PGS Superannuation
peter@pgssuperannuation.com.au
PGS Superannuation
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Why I am presenting!!
 Crawford & Crawford [2012] FMCAfam 1315 (4 December 2012) – a
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judgment by Altobelli FM
“Assisted” by a joint expert report, namely - statement prepared by Mr
B of [S] (the wife’s expert) and Mr S of [P] (the husband’s expert) dated
5 November 2012
Para 53.” Ultimately, neither Mr B nor Mr S’s expert evidence directly
assists the court in assessing whether, and if so to what extent, the
husband has made a contribution to the wife’s pension.
I am currently preparing another joint expert report and I would like
your input as to what would assist the court.
Furthermore, I have another 4 similar cases that are likely to proceed to
court
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Why the Fuss?
Invalidity payments from defined benefit schemes
can be very large!
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Invalidity Super Payments
 Police and military traditionally have had generous superannuation
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invalidity payments. Reflects the hazardous nature of their
occupation.
Superannuation preceded compensation payments so at one time in
the past, an injured member might only be compensated through
superannuation.
Most NSW police retire on invalidity grounds – pension is 72.5% to
100% of salary. Average age is 45.
Military schemes have always been generous – eg a 18 year old recruit
could be given a benefit equivalent to serving to 60 years of age but
payable immediately.
FLVs range from $.8m to $1.8m
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The Real Issue
 Invalidity superannuation payments were designed
prior to the family law splitting regime.
 Can result in unintended consequences.
 Invalidity payments have to be unravelled or
deconstructed to fit into the concepts of the Family
Law Act.
 This has posed considerable challenges to
practitioners and the Courts.
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An Unintended Consequence Scenario
 Soldier returns from Afghanistan – suffers PTSD
 Marriage fails
 Discharged on invalidity grounds – pension $60,000
 Family Law Value is $1.2m
 Assets divided equally
 Wife has a CPI life time pension of $30,000
 Soldier’s health improves – pension now $15,000
 Further improvement – pension ceases
 Wife retains her pension irrespective
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Outline
 This presentation will assist practitioners to:
 enhance understanding of invalidity pensions
 provide practical arguments to assist in negotiations
 2 recent cases will illustrate the range of possible
outcome and the disparity in considerations
 Address the issue of how experts can be more helpful
to the Court
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Form and Character of Invalidity Pensions
 Invalidity pension is not all retirement income
 Some compensation, some insurance type payment
 Only awarded by virtue of ill health
 No thought given to the consequences of splitting an
invalidity pension in the FLA or Regulations
 Result is ad hoc approach by practitioners
 Precedent cases now emerging but .....!
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Authority to Look Behind the FLV
 Well-known case of Coghlan and Coghlan [2005] FamCA 429;
(2005)
 67. If this approach is adopted, …, 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.
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Difference in Family Law Values
 Day before discharged invalidity, FLV $165,000
 Day after, FLV $1.2m
 What has changed?
 Military will be the focus but applies to all
occupations, especially police and fireman.
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Current Defence Super Schemes
 A tiered approach
 Class A, - 60% or more incapacity
 Class B, - 30% to 59% or more incapacity
 Class C, - less than 30% incapacity
 Dual purpose of super has been maintained
 Injury does not have to be work related
 Mower example
 Pension only and (mostly) reviewed periodically
 Additional qualifications could allow other employment
kinds to be taken into account - example
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Current Scheme – Military Super
 Introduced actual and prospective service
 Is the prospective service a compensation element?
 Younger the age, the higher the prospective service
and higher the compensation element
 Previous superannuation scheme (DFRDB) based
compensation on 40 years service – even if the joining
age was say 45 years.
 Illustrates the importance of understanding the rules
of the super scheme
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Super & Injury - General
 Most superannuation schemes offer some form of medical
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insurance
Most accumulation schemes only offer insurance on a fee
for service basis
Most defined benefit schemes provides coverage for
sickness or injury
However, only the military have a tiered approach
Other schemes require the person to be totally and
permanently incapacitated
Limited life expectancy and no possibility of ever working
again is the criteria
Consequently, most other schemes pay lump sums
although some defined benefit schemes pay a pension
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Are Splittable Payments Made from an Invalidity
Pension?
 For schemes that have scheme specific factors, the
invalidity pension is splittable in the same way as a
retirement pension
 For the rest, the Regulations provide an amnesty for
the first 2 years where total and permanent incapacity
has not been established
 Caters for the period where payments are made during
an assessment process
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What Happens to the Non-Member Spouse if
Member’s Health Improves?
 2004 Orders provide provide for a clean break between the
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parties as a consequence of a split
Neither party influences the other’s holdings
An improvement in the health of the member will not
result in a diminished benefit for the non-member spouse
On the other hand, if member health improves, he/she will
only have 25% of the pension in the first review (50%
reduction due to split, 50% reduction due to health
improvement)
Second review could result in no pension – only fully
preserved lump sum
Non-member spouse enjoys CPI indexed pension for life
without any reviews
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Double Counting – Asset and Income
 Is it double counting to count the invalidity pension as both an asset and an
income stream
 This appeal case DJ & AJ [2006] FamCA 961 involved a husband who was on an
invalidity pension of $52,146 pa. The husband objected to his super being
included in his income asserting that it was double counting to include it as an
asset and as income. The wife’s income was $40,000. The family law value
(FLV) of the husband’s superannuation in the growth phase was $407,000 and
$865,000 in the payment phase
 Outcome: - The Full Court of Bryant Finn & Coleman dismissed the appeal.
The Court ruled that the nature of the “income” is different. The wife earned
her income by her own labour whereas his income was through
superannuation. The husband does not have to work for his income – the wife
does!
 Importantly, there was no argument presented in this case that sought to
identify the compensation component of the invalidity pension.
Compensation for personal injuries has rarely been shared equally between the
parties.
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What Do the Trustees Provide?
 For an invalidity pension, the superannuation
information form provides no information
 Pension is noted as an invalidity pension
 Practitioners must look elsewhere for useful
information in relation to the invalidity pension
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Family Law Valuations
 No useful information except for the FLV
 If scheme specific factors are used, the FLV reflects the
actuarial longevity of invalid pensioners
 FLV is 15 to 20% lower – reflecting lower life
expectancy
 If no scheme specific factors, FLV uses default factors
which do not differentiate between invalids and
retirees
 Above can be used to argue the case for a discount off
the FLV
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Peeling Back the Onion
 The increase in the FLV relative to the day before receipt of
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the invalidity pension is due to a sole event – an injury or
sickness preventing continuation of employment
The question arises as to how can practitioners isolate the
compensation or insurance part of the FLV
Examine 2 cases – both delivered in Dec 2012
Crawford - [2012]FMCAfam1315 – most recent and best
argued, and
Doran and Doran SYC 6943 of 6 Dec 12
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Crawford & Crawford
[2012]FMCAfam1315
 Judgment of Altobelli, 4 Dec 2012, Sydney
 Both age 46, both joined Police Force in 1986
 Wife – hurt on duty pension from 2006 – FLV $1m
 Husband – Police Officer – FLV, $.6m
 2/3 asset pool is super
 Separated in 2009 after 20 year relationship – 3.5 years
before hearing
 3 children – 17, 14 & 12.
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Contributions until Separation
 Each of the husband and wife contributed diligently,
and faithfully, albeit in slightly different ways
 There is no evidence before the court that warrants a
finding of greater contribution as the end of a long and
productive relationship
 There is an issue about assessment of contribution in
the 3.5 years post separation – discussed next
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The Issues + How Many Pools
 Most complex issue in this case is how the wife’s
pension should be considered within the section 79
adjustment process.
 Also section 75(2) considerations
 What approach for the section 79 –process??
 Husband contends for a global approach – a single
pool
 Wife – 3 pools. Non-super assets, wife’s pension & the
remaining super assets with assessment of
contribution & future needs differentiated for each
pool
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Orders Sought
 Wife – husband to pay her $50,000
 Husband – wife to pay him $257,244
 Common ground
 Each to retain one property + assoc mortgage
 Each to retain their respective superannuation
 Neither sought orders for super to be split
 Polarity – direct results of how the wife’s pension is to
be treated
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Applicable Law
 Preferred approach Hickey & Hickey
 4 interrelated steps
 Identify property & financial resources
 Identify contributions
 Identify other factors under s.79(4)(d) inc s.75(2) and
determine any adjustment to step 2, and
 Consider whether above is just and equitable
 Acknowledged that the High Court’s recent decision in Stanford
v Stanford (14 November 2012) [2012] HCA 52 may signal a
departure from the approach described above. To the extent that
this may be the case it has no bearing on the outcome of this
case.
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Applicable Law - cont
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Global or asset by asset approach to contributions?
Authority is the High Court’s decision in Norbis v
Norbis [1986] HCA 17; (1986) 161 CLR 51
Either is available – in part or in whole
Discretion should be exercised having regard to the facts
In relation to add-backs, the applicable law can be found in
decisions such as the Full Court's
 Decision in AJO v GRO [2005] FamCA 195; (2005) FLC 93-218 three clear categories of cases have emerged where it is
appropriate to notionally add assets that no longer exist. After
discussion, no add backs allowed
 “The parties have already separated. It is just and equitable to
alter the parties’ interests: s.79(2); Stanford (op. cit.)”
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Assessment of Contributions –
excluding wife’s pension
 Up to date of separation, assessed to be equal
 Wife contends greater contribution due to parenting
post separation.
 By declining to make the add-backs contended on the
husband’s behalf, the effect was to equalise financial
burdens in the post-separation period.
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Contribution – the wife’s pension
 2 competing expert witnesses – both giving competing
evidence in favour of their client
 Wife – contends separate pool and contributions
should be assessed in her favour at 82%
 Husband contends – global and equal contributions
 Weight of authority favours separate pool approach,
particularly when the benefit cannot be commuted to
a lump sum
 Real issue for wife’s pension is how to assess
contributions to it.
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The wife’s pension
 Periodical, indexed, and only became payable because wife was
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hurt on duty
Designed to replace lost income and is not compensatory in
nature
Continues until death
Experts – whether is was possible to break down the pension into
components to facilitate a contributions based assessment
That part that is not lost income could be viewed as a
contribution by the husband
Experts – not directly helpful. Indirectly, however, their evidence
confirms that in reality the wife’s pension does have some
component to it that is not exclusively referable to her injury.
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Assessing the husband’s contribution to
the pension is more art than science.
 A fact conceded by the wife who submits his contribution should
be assessed at 18 per cent.
 Other cases might provide some guidance, but ultimately each
case is different, and thus different judicial approaches might be
warranted:
 In T & T [2006] FamCA 207 the non-beneficiary spouse was
awarded 15 per cent. In Schmidt & Schmidt [2009] FamCA 1386 (2
April 2009), it was 10 per cent. In Wheeldon & Wheeldon [2011]
FamCA 40 it was 15 per cent, Treloar & Treloar (No 2) [2007]
FamCA 1127, 15 per cent, and in Hayton & Bendle [2010] FamCA
592 it was also 15 per cent.
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Compensation= no contribution
 “Once it is accepted that a sizeable component of the value of the
pension merely compensates the wife for the income she is no
longer earning, there can be no logical basis for claiming to have
contributed to this.” para55
 “If the husband’s case is that he did make significant
contribution to the compensation component of the wife’s
pension, it is a poorly articulated case. The court accepts,
however, that over a long marriage he did make a contribution to
what Mr S described as the retirement component.” para56
 “Doing the best the court can do under the circumstances, the
court would have in fact assessed the husband’s contribution to
the wife’s pension at 15 per cent. As the wife herself proposes 18
per cent, a figure which is well within the reasonable range..”.
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Section 75(2) considerations
 Court accepts 3 pools – 2 super + non-super
 82%, 37% (husband’s super would have accepted
higher but that is what wife contends) and 50%
 S 75(2) considerations
 Husband double the income, wife’s care of the
children 12, 14 & 17
 Acknowledged potential for double counting between
s79 and s75(2). Excluded super from s75(2)
 10% adjustment on non-super pool. Result 60% to
wife.
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Just and Equitable
 “If orders are made to reflect the above, would this be just
and equitable? The answer is that it is as just and equitable
as the circumstances permit.
 Both parties end up with homes that are encumbered by
manageable mortgages, especially if the husband uses the
payment to him to reduce his mortgage. Both have an
income: for the wife it is for life, for the husband it is till
retirement at which time his superannuation will be
available to him.
 The particular challenge of dealing equitably with the wife’s
police pension is also dealt with adequately.”
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Doran and Doran Family Court
 Delivered 6 Dec 2012, judgment of Fowler J
 Duffin & Duffin pseudonym but not yet published
 Husband ex NSW police, hurt on duty pension since
2000, suffering PSTD
 His FLV $1,046,350. Her super negligible. Other assets
$2m
 One child age 22 self supporting
 One independent expert – 3 paras (63, 64 &65) –
description only – no analysis
 Husband contends zero value for his super.
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Doran & Doran - continued
 Section 79(4) contributions – para 84 & 85
 “It is the view of the Court that the pension until age of
commutation is an amount designed to replace income which would
normally have been earned by a Police Office but which by reasons of
the consequences of the injury are no longer available to him”
 “It is in effect significant part compensation for loss of income and, to the
extent that it represent lost income, there is no reason why it should not be
treated to that extent as earned income.”
 Dismissed pain and suffering as no case was presented to the Court–
para 86
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Doran & Doran - outcome
 Conclusions based on contributions – 58:42 in favour of the
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wife
S 75(2) considerations – mainly gambling and unexplained
withdrawals. Outcome – 7% in wife’s favour
Wife to receive 65% of real assets and 35% to husband
Super – each party has capacity to work earning equal
amounts. Adjustment to account for pre-marriage super +
...”the wife and her contributions to it have been indirect.”
40% to wife, 60% to husband.
Just and equitable – just stated.
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Lessons
 Must provide evidence
 Need to argue the form, nature and character of the
pension
 Should not assume that receipt of invalidity pension is
sufficient to provide compensation for sickness.
Health and capacity to still needs to be argued.
 Single independent expert did not provide any
arguments and may not be appropriate for such cases
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What Information Source Should
the Practitioner Use?
 Most relevant information has to be requested
 From trustees
 From member
 Is the pension reviewable?
 What are the reasons for granting the invalidity
pensions
 range of incapacity a signal
 Medical reports great value
 will address the likelihood of improvements
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Options to Quantify the Amount of Compensation
 Compare the FLV before the invalidity event (it would
then be in the growth phase) with the FLV of the
invalidity pension,
 This excludes from the FLV of the invalidity pension the
prospective years of service
 What would be shared is the superannuation earned up
to the invalidity event
 Calculate the component of the pension that would be
payable after retirement age
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What Info Would be Useful to the Courts
 Crawford & Crawford
 Mr B (for the wife, the super invalidity member) – divided
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the FLV into pre 65 and post 65 values – 76% compo
Mr S – FLV just before Compo event with FLV just after - &
using normal retirement age of 55 & 60 – 40% to 60%
compo
Doran & Doran
No competing evidence
No analysis
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Case Listed for 11 Dec in Newcastle
 Mr S (for husband – the invalid)
 FLV before invalidity with just after invalidity
 Apportion FLV to retirement age and after retirement age
 Mr G
 Above division depends on whether the pension payment is
replaced by employment income
 If so, whole of pension is superannuation
 If not, pension after retirement age is normal super
 Above shows the importance of “normal” retirement age
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Is it Appropriate to Quantify NMS
Contribution to the Invalidity Pension?
 Skinner is of the view that it may be of assistance to
the Court for him to provide his opinion on the value
of the Wife’s contribution towards the Husband’s
Police Super interest. Skinner has included a
summary of his opinion on this matter at section 3.0 of
this joint statement. Mr G. is of the view that the value
of the Wife’s contribution is a matter for the Court to
determine.
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Conclusion
 Invalidity pensions require special consideration
 Substantive arguments supported by logical
quantification will materially assist
 Expect the matter to be considered further by the
Courts in the future
 END
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