Family lawyers in Townsville, being home to Australia’s largest military base, must be adept at navigating legal family law issues peculiar to defence force members and veterans. Often for veterans one such issue is whether an ex-partner is entitled to a portion of a military invalidity pension, and if so, how much.
To navigate those issues, one must have regard to:
- what a veteran’s invalidity benefit actually is;
- what ‘things’ an ex-partner may claim on in a family law property settlement;
- whether a veteran’s invalidity benefit fits any category of ‘thing’ an ex-partner may claim on;
- if a veteran’s invalidity benefit does fit any category of ‘thing’ an ex-partner may claim on, how much of that benefit the ex-partner might be entitled to.
WHAT IS A VETERAN’S INVALIDITY BENEFIT?
Veterans’ Invalidity benefits are administered by the Commonwealth Superannuation Corporation under a number of different schemes, including:
- the Defence Force Retirement and Death Benefits Scheme (DFRDB) (applicable to those who joined the defence force between 1973 and 1 October 1991);
- the Military Superannuation Benefits Scheme (MSBS) (also known as MilitarySuper) (applicable to those who joined the defence force between 1 October 1991 and 1 July 2016, or those who opted, prior to 1 October 1991, to transfer from DFRDB to MSBS); and
- ADF Super/ADF Cover (applicable to those who joined the defence force after 1 July 2016).
Invalidity payments made under those schemes are:
- lifetime pensions paid to veterans medically discharged from the defence force consisting of a component for years the veteran actually served in the defence force, and a component for years the veteran would have served in the defence force if they weren’t medically discharged (usually presuming a retirement age of 60); and
- release of superannuation contributions made by the veteran during years the veteran served in the defence force and investment earnings on those contributions.
Although the term ‘lifetime pension’ is used here, we acknowledge such pensions are often subject to review, and can therefore be reduced and cancelled.
Hereinafter, the lifetime invalidity pension detailed in paragraph 1 above is referred to as a “Military Invalidity Pension”.
The quantum of a Military Invalidity Pension depends on:
- the nature of the injury;
- the Final Average Salary of the veteran at the time of discharge;
- the number of years served; and
- either the age, or the compulsory retiring age for rank of the veteran at the time of discharge (usually 60).
So, a veteran who medically discharges under a Class A incapacity at age 30 after joining the defence force at age 20 might receive:
- a Military Invalidity Pension consisting of CPI adjusted payments made up of $10,000 per annum for the 10 years served in the defence force, and $50,000 per annum for the 30 years the veteran would have served in the defence force if he or she hadn’t suffered the injury (paid in fortnightly instalments); and
- a lump sum payment consisting of $100,000 made up of both superannuation contributed during the years of service and investment earnings on that superannuation.
WHAT ‘THINGS’ CAN BE CLAIMED ON IN A FAMILY LAW PROPERTY SETTLEMENT?
‘Things’ a Family Law Court may order to be transferred between ex-partners, or declare to be a ‘thing’ belonging solely to one ex-partner or the other include ‘property’, superannuation and debts.
IS A MILITARY INVALIDITY PENSION A ‘THING’ AN EX CAN CLAIM ON?
Common sense dictates that a Military Invalidity Pension is not a ‘debt’ as a Military Invalidity Pension involves the receipt of sums of money, rather than the disposal of sums of money as in the case of repayment of debts. Nor, obviously, is a Military Invalidity Pension realty (land) or personal property (like a car). Is it, however, some other type of other asset like superannuation?
In 2016 that exact question was asked of the Federal Court of Australia by defence force veteran Bradley Campbell. Justice John Logan sitting in the Federal Court of Australia at Brisbane ultimately decided that Mr Campbell’s MSBS invalidity Military Invalidity Pension was indeed a type of superannuation as it met the definition of ‘superannuation interest’ contained in section 90MD of the Family Law Act, being “an interest that a person has as a member of an eligible superannuation plan”.
The fact that a Military Invalidity Pension is ‘superannuation’ is important because under section 90MS of the Family Law Act “… the court may… also make orders in relation to superannuation interests...”
So, because a Military Invalidity Pension is ‘superannuation’ as defined in section 90MD of the Family Law Act, and because under section 90MS of the Family Law Act superannuation can be the subject of an order of a Family Law Court, a Family Law Court may order that a veteran’s Military Invalidity Pension be transferred to an ex-partner, either in full or in part.
When an order for transfer of a portion of a Military Invalidity Pension is made and served on the Commonwealth Superannuation Corporation, the veteran’s ex-partner receives for his or her lifetime a pension proportionate to the portion of the Military Invalidity Pension transferred to him or her under the Court Order. This pension continues irrespective of any reduction to, or cessation of, the remaining pension being received by the veteran due to the death, return to military service, or injury reclassification of the veteran.
HOW MUCH CAN AN EX GET?
Whilst technically a Family Law Court has the power to order the transfer of 100% of a Military Invalidity Pension, such orders would undoubtedly be extremely rare; they would in fact probably be reserved for cases where the veteran has, for example, engaged in conduct like financially devastating wastage of other non-superannuation assets via gambling or similar activities. Fortunately, typically only an order for transfer of part of a Military Invalidity Pension is made and sometimes an order is not made at all on the ground that it is simply not just to do so.
So how does the Court determine how much (if any) of a Military Invalidity Pension to transfer? That’s a tricky question, and one which requires an explanation of how the Family Law Courts decide who, in a separating couple, gets what assets, debts and superannuation interests.
Usually, the Court applies a four-step process. The steps are:
- identify the current assets, debts and superannuation interests and assign a ‘market value’/balance to each (this is commonly called ‘the property pool’);
- consider the parties’ financial, non-financial and homemaker/parent contributions to the property pool/welfare of the family and assign a percentage of that pool to each party based on those contributions;
- consider the parties’ future needs (e.g. state of health and income earning capacity) and possibly adjust the percentage assigned at step 2 to take those future needs into account; and
- ensure that the proposed division is just and equitable (for example, don’t order the transfer of a $500,000 mortgage to a party surviving on a Centrelink pension, ensure the proposed percentage split is ‘fair’ in all the circumstances).
That process is often applied via a ‘global approach’ which involves the Court grouping the assets, debts and superannuation interests of the parties in the one pool, and considering the parties’ contributions to same in an overall (or ‘global’) way. It’s a pretty difficult concept to understand when considered without reference to specific facts, so it will assist to consider an example.
Mary and Max separate after being in a de facto relationship for 8 years. They had no substantial assets or debts when they commenced their relationship. They have 2 children together, aged 4 and 7. Max earnt an average of $75,000 per annum throughout the 8 year relationship, and now earns $80,000, whereas during the relationship Mary did not derive an income, and now receives social security and child support payments totalling $35,000 per annum. During the relationship Mary was a stay-at-home mum; although she did not work, she carried out the significant majority of the parenting and domestic duties. Moving forward the children will live ‘week-about’ with Mary and Max.
The matter comes before a Family Law Court Judge via trial.
Applying step 1, the Judge determines the property pool to be divided between Mary and Max is:
|House at 2 Ball Drive, Townsville||$600,000|
|2015 Mazda BT-50 driven by Max||$15,000|
|2015 Kia Carnival driven by Mary||$15,000|
|Mortgage secured over 2 Ball Drive||-$200,000|
|NET VALUE (Assets + Super – Debts)||$480,000|
Applying step 2, the Judge says that because Max and Mary both worked equally hard in their respective roles they contributed equally to the above property pool and neither should be assigned more of the pool than the other.
Applying step 3, the Judge takes into account the income earning disparity of $45,000 which exists at the date of trial. The Judge finds that this income earning disparity owes in part to the fact that Mary sacrificed career progression to undertake the majority of homemaker and parent duties. The Judge says it is desirable that Mary be provided for by the Court’s Orders for a period sufficient to enable her to gain qualifications or experience which will help her progress her career to the extent Max was able to progress his career during the relationship. As such, the Judge adjusts the 50/50 apportionment arrived at via step 2 by 10% in Mary’s favour, such that the total apportionment of the property pool be 60/40% in Mary’s favour.
Applying step 4, the Judge takes into account Max and Mary’s evidence that they both desire that Max retain 2 Ball Drive as Max has an ability to service the repayments for the loan secured over the property, whereas Mary does not. The Judge ultimately makes Orders which cause the property pool to be split as follows:
|House at 2 Ball Drive, Townsville||$600,000||Payment from Max||$273,000|
|2015 Mazda BT-50 driven by Max||$15,000||2015 Kia Carnival driven by Mary||$15,000|
|Mortgage secured over 2 Ball Drive||-$200,000|
|Payment to Mary (via extension of mortgage)||-$273,000|
The above example outlines the Court’s approach to a family law property settlement involving a fairly common factual matrix (the property pool is simple, one party is the ‘breadwinner’ and the other is largely responsible for the welfare of the family). For certain types of matters however, the Court can approach a family law property settlement in a different way, including by adopting what is known as the ‘asset by asset approach’, or a ‘two pools approach’.
The asset by asset approach still involves the application of the 4-step process identified above, but step 2 is applied to certain assets separately. That is, the parties’ contributions to certain assets are considered separately to other assets. This approach is commonly adopted in matters with a peculiar factual matrix, such as matters involving a short relationship where the parties kept the bulk of their assets separate.
The ‘two pools approach’ is really an offshoot of the asset by asset approach in that it involves the Court grouping certain types of assets in one pool, and other types of assets in another pool, and assessing the parties’ contributions to each of those different ‘species’ of assets separately.
When a Military Invalidity Pension is involved, to take into account the special nature of such ‘species of asset’, the Family Law Courts typically seem to adopt one of two approaches.
The first is the ‘two pools approach’. This involves:
- step 1 – valuing assets, including giving the pension a capital sum arrived at by expert actuarial valuation (e.g. $800,000);
- step 2 – cordoning the pension into its own pool and considering the parties’ contributions to same, and then cordoning all other assets into a separate pool and considering the parties’ contributions to same;
- at step 3 – taking into account ‘future needs factors’ but being cautious not to give too much weight to the pension as income to the detriment of the pensioner where the non-pensioner’s indirect efforts toward the pension have been taken into account as a contribution by them at step 2 (to do so would be to ‘double-count’ the impact of the pension in a way which would cause injustice to the pensioner);
- at step 4 – applying the usual ‘just and equitable’ considerations.
The second approach involves adopting just the one pool, but excluding the pension from it altogether, and giving full weight to the pension under step 3 as income.
The Full Court of the Family Court has approved both approaches.
The cases which follow illustrate the different approaches insofar as they have been applied to invalidity pensions.
T & T  FamCA 207
- the husband was in receipt of a police invalidity pension of $91,414.51 per annum;
- the pension contained two components; one for the years the husband had served in the police force, and one for the years the husband would have served had he not been hurt; 
- when given a capital value, the pension totalled approximately $1.8 million, with component one making up $400,000 and component two making up $1.4 million;
- the other assets, debts and superannuation interests of the parties had a net value of around $540,000.
Adopting a two-pools approach, the Court cordoned the pension into one pool, and the other assets into another and considered the parties’ contributions to each pool separately. The Court also considered the parties’ contributions to component one of the pension separately to the parties’ contributions to component two of the pension. The Court found that the wife made contributions to component one of the pension of 40%, and to component two of the pension of 15%. As to the latter, the Court noted that the wife made homemaker and parent contributions including supporting the husband in applying for promotions, and twice relocating the family to facilitate promotions, with one such relocation requiring her to leave employment. The Court categorised those contributions as indirect contributions to the pension that were “…relevant to the amount of the husband’s salary at the date of discharge.”
The Court ultimately ordered that the wife receive 40% of component one of the pension ($160,000), and 15% of component two of the pension ($210,000) (equating to approximately 20% of the pension overall).
Perrin & Perrin (No. 2)  FamCAFC 122
This was an appeal from the Federal Circuit Court of Australia to the Full Court of the Family Court of Australia. Here:
- the husband was in receipt of a police invalidity pension;
- the pension contained two components; one for the years the husband had served in the police force, and one for the years the husband would have served had he not been hurt;
- when given a capital value, the pension totalled approximately $730,000, with component one making up $110,000 and component two making up $620,000;
- the other assets, debts and superannuation interests of the parties had a net value of around $430,000.
Although the trial Judge cordoned the pension into a separate pool, it was clear that he did not consider the wife’s indirect contributions to the pension. That was one of the bases on which the Full Court upheld the appeal. Deputy Chief Justice Alstergren and Justice Aldridge said:
“27. As is apparent from the primary judge’s reasons at –, the primary judge reasoned or adopted the following syllogism:
(1) A hurt on duty pension is tantamount to an award for damages for a personal injury claim;
(2) The wife cannot be said to have made any contribution to the husband’s injury whilst on duty;
(3) It therefore must follow that the wife has made no contribution to the husband’s superannuation entitlement for the hurt on duty pension and the contribution is entirely that of the husband.
- With respect, that reasoning is incorrect. In the context of the evidence available in this case, the primary judge was required to at least consider indirect contributions to the husband’s superannuation…
- An examination of the nature, form and characteristics of the husband’s superannuation interest reveals that a component of his entitlement under the PSS was the amount of his salary at the date of discharge… The wife’s contributions as a parent to the husband’s children and as a homemaker allowed the husband to maintain his employment as a police officer, and earn that amount of salary.”
Arguably giving some guidance in relation to when a two-pools approach to a property settlement encompassing an invalidity pension might be appropriate, as opposed to the alternative approach of excluding the interest from the pool and giving it weight under future needs considerations as an income stream, Justice Murphy said:
“90. Both s 79(4)(b) of the Act and authorities of long standing make it clear that any such indirect contributions are a relevant consideration in the exercise of the relevant s 79 discretion. Here, those contributions were particularly important because of the dramatic imbalance between the amount of the superannuation interests the subject of the proceedings and the nature and value of the property otherwise the subject of the proceedings. ”
This is suggestive of a principle that where the capital value of the pension is substantial in comparison to the remainder of the pool, a two-pools approach is appropriate because it facilitates a full appreciation of the parties’ contributions to the pension.
Perrin & Perrin (No. 2) (supra) is currently awaiting rehearing in the Federal Circuit Court.
Pension Excluded from Pool:
Surridge & Surridge  FamCAFC 10
This was an appeal from the Family Court of Australia to the Full Court of the Family Court of Australia. Here:
- the wife was in receipt of a police invalidity pension of approximately $50,000 per annum;
- when given a capital value, the pension totalled approximately $1 million;
- the other assets, debts and superannuation interests of the parties had a net value of around $3 million;
- the husband chose not to work, despite representing to a finance company that he could earn $340,000 per annum;
- the husband deliberately concealed evidence, gave vague evidence, admitted some of his evidence was false, and the Court found he had failed to explain how he had dispersed $800,000.
The trial Judge cordoned the wife’s pension into a separate pool, and found that the husband made contributions to that pension of 5%, which in dollar figures represented $50,000. Even so, the Judge did not order a split of 5% of the wife’s pension to the husband, but rather sought to allocate to the husband from the other property pool an amount equal to 5% of the wife’s pension as a lump sum. The Full Court concluded this constituted a miscarriage of the trial judge’s discretion because:
- it gave the husband a lump sum from a species of asset the wife could never receive as a lump sum (the pension was not commutable, nor would a lump sum be paid to the wife at retirement age as in the case of some pensions);
- it indicated the trial Judge failed to take into account that the $1 million capital value of the pension was a gross (before-tax) value, and therefore that the true value received by the wife would be diminished via taxation, whereas the proportion the trial Judge proposed to allocate to the husband would not be subject to tax as it would be allocated to the husband in the form of non-pension assets; and
- it indicated that the trial Judge failed to holistically assess the parties’ contributions to the pension.
So that those factors were taken into account, the Full Court, re-exercising the Court’s discretion to make property settlement orders, excluded the wife’s pension from the pool, but considered it at step 3 as income in the hands of the wife.
Some other real-life outcomes involving an invalidity pension are:
|Case Name||% Split to ‘Non-pensioner’||Important Facts and Findings|
|C & F  FMCAfam 64||
· Two-pools approach not necessary as the only asset was the husband’s MSBS interest. Nonetheless, that interest was assigned a capital value and considered as a contribution.
· Step 1 – Property was the husband’s MSBS unreleased superannuation of $154,195, and MSBS invalidity pension of $416,237 ($31,891 p/a).
· Step 2 – Parties’ direct and indirect contributions to both taken into account. Traditional family roles (husband primary income earner, wife primary homemaker/parent of 4 children). Contributions of the husband totalled 65% and indirect contributions of the wife totalled 35%.
· Step 3 – Wife on disability pension of $238/week. Husband received invalidity pension and a “Veterans Affairs payment” of $59/week. Court refrained from adjusting step 2 percentages on the basis of the greater proposed pension to be paid to the husband given that “it would be in effect double dipping to adjust in the wife’s favour.”
· Step 4 – No further adjustment.
Simpson & Simpson  FamCA 521
· Two-pools approach adopted.
· Step 1 – Assets excluding invalidity pension amounted to $252,259. Invalidity pension of the husband of $1.3 million ($66,825 p/a). Parties agreed on how to divide all assets, except invalidity pension.
· Step 2 – Parties’ different contributions to each superannuation interest taken into account. Found that 70/30 contributions in favour of the wife to her superannuation of $134,129. 50/50 to the husband’s unreleased superannuation. 80/20 in favour of the husband to the husband’s invalidity pension.
· Step 3 – Wife’s income, mainly from gainful employment – $128,000 p/a. Husband’s income, one-third from disability benefit, and two-thirds from invalidity pension – $100,360 p/a. No adjustment for future needs.
· Step 4 – Reduction of the pension split by 2% to take into account that a proposed split of the wife’s superannuation to the husband could not be effected due to a procedural failure (the husband failed to notify the fund of the splitting Order he sought in relation to the wife’s superannuation, and as such the Court was unable to make such Order).
|Mancini & Hodges  FCCA 1392||Nil||
· ‘Exclusion approach’ adopted.
· Step 1 – Non-super assets of -$78,336. Invalidity pension paid to the wife with a capital value of $350,587 ($21,008 p/a). Husband had superannuation of approximately $155,000.
· Step 2 – Invalidity pension excluded from the pool. Parties’ contributions to pool were equal.
· Step 3 – Wife’s gross income, consisting of the invalidity pension and a government disability pension – $33,592 p/a. Husband’s gross income – over $188,000 p/a. Wife would never work again; her modest pensions would always be her only form of income.
· Step 4 – Just and equitable to Order that wife’s invalidity pension not be split. Further, that 87% of the husband’s superannuation be split to the wife.
|Janos & Janos  FamCA 846||29%||
· ‘Exclusion approach’ adopted, although a commutable portion ($220,000) of the pension (totalling $630,000) was included in the pool.
· Step 1 – Non-commutable portion of invalidity pension of $410,000. Remainder of pension and other assets worth $140,000 combined.
· Step 2 – $410,000 portion of invalidity pension excluded from the pool. $220,000 commutable portion of pension included in pool. Contributions to commutable portion of pension equal.
· Step 3 – Wife’s gross income from gainful employment – $60,000 p/a. Husband’s total income – $75,400 p/a ($28,600 from Workers Compensation payments and $46,800 from the invalidity pension). Husband engaged in wastage by failing to pay repayments on a debt. For those reasons, 10% adjustment to wife. 60/40 split of pool (which excluded non-commutable portion of pension).
· Step 4 – Just and equitable to refrain from splitting non-commutable portion of pension. To provide for 60/40 split, husband needed to transfer $181,600 of ‘property’ to wife. Insufficient property outside superannuation to facilitate this. As such, split of $181,600 of commutable portion of pension (82.5%) only appropriate outcome.
|Schmidt & Schmidt  FamCA 1386||20%||
|Jarvis & Seymour  FCCA 1676||35%||
The above cases demonstrate the variance in approaches to splitting invalidity pensions adopted by the Family Law Courts. A common thread running through all cases is that in deciding which approach to adopt, the true characteristics of the pension should be taken into account and all aspects should be considered holistically. This, together with the parties’ contributions to the pension, and applicable ‘future needs’ factors, will all impact on how much of the pension, if any, is to be split. Where a military invalidity pension is involved, failure to fully appraise a Family Law Court of those important features could have lifelong financially crippling consequences. For that reason, it is imperative that those who are in receipt of a military invalidity pension seek legal advice at the earliest possible stage of a relationship breakdown.
 The scope of this article does not extend to other types of payments veterans may receive such as compensation payments from the Department of Veterans’ Affairs under the Military Rehabilitation and Compensation Act 2004, Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 and/or the Veterans’ Entitlements Act 1986. Suffice it to say however that it is the writer’s view that although such payments must be taken into account by a Family Law Court deciding a family law property settlement, the payments cannot be ‘transferred’ to an ex-partner. Also, this article is dealing specifically with invalidity benefits; although some portions of this article apply to other types of retirement pensions, such as those not involving an injured retiree, the purpose of this article is to discuss military invalidity benefits.
 Although the term ‘lifetime pension’ is used here, we acknowledge such pensions are often subject to review, and can therefore be reduced and cancelled.
 Depending on the scheme, and date of contributions, sometimes this can be fully released in a lump sum, and sometimes some of this must remain as superannuation.
 A Class A assessment (60% incapacity for civilian employment or more) results in a full pension, a Class B assessment (30-59% incapacity) results in a half pension, and a Class C assessment results in no pension.
 Pursuant to section 90MC of the Family Law Act (inserted in 2002) superannuation is to be ‘treated’ as property. In Coghlan and Coghlan  FamCA 429, the Full Court of the Family Court stated “… superannuation interests are another species of asset…” See also Wunderland & Wunderland (1992) FLC 92-315 and Todd & Todd  FamCA 101.
 Biltoft and Biltoft (1995) FLC 92-614.
 Campbell v Superannuation Complaints Tribunal  FCA 808. In that decision the Court noted that the Military Superannuation and Benefits Scheme is an ‘eligible superannuation plan’; this is also the case with the DFRDB and ADF Super/ADF Cover. Bear in mind that Mr Campbell’s matter was unique in the sense that it was a matter where the only question in dispute was whether Mr Campbell’s MSBS pension was ‘superannuation’; there is a plethora of decisions from higher Courts dealing with similar pensions whereby it is clear the parties and Court accepted that the pension was ‘superannuation’ (see for example Coghlan and Coghlan (supra); Semperton & Semperton  FamCAFC 132).
 Further, under section 90MC of the Act a superannuation interest is to be “…treated as property…” and under section 79 of the Act the Court has power to make Orders in relation to ‘property’.
 Lawyers usually call this ‘transfer’ a ‘split’ or ‘superannuation split’.
 Since the High Court decision of Stanford v Stanford  HCA 52 it has been widely accepted that there is now actually five steps. That is, between steps 1 and 2 cited in the body of this article, the Court must consider whether, having regard to the circumstances of the case, it would be unjust and unfair not to make property settlement orders. This condition is usually satisfied by the mere fact that the parties have separated and have common property, and/or both desire a property settlement. Given many of the decisions referred to in this article pre-date 2012, and because the ‘fifth’ step is rarely integral in invalidity pension cases, to avoid confusion, this article refers to the ‘four-step’ process.
 Norbis v Norbis (1986) FLC 91-712.
 Coghlan and Coghlan (supra).
 See for example McMahon and McMahon (1995) FLC 92-606.
 See for example Semperton (supra) where Justice May supported the trial Judge’s application of the ‘exclusion’ approach, but Justices Thackary and Ryan were supportive of a ‘two-pools’ approach. In Goudarzi & Bagheri (No. 2)  FamCAFC 190, Justices Thackary, Ryan and Forrest noted the differing views in Sempterton v Semperton (supra) and said “[t]hat said the majority acknowledged the wide discretion invested in a judge in the position of primary judge (Norbis v Norbis [supra]).”
 This is not too dissimilar to a military invalidity pension; the quantum of component two of the police pension was based on the recipient being hurt of duty, the circumstances in which the recipient was hurt on duty, and the recipient’s salary at the time of being hurt on duty (something which largely related to the ‘rank’ of the recipient at the time of being hurt). The quantum of a military invalidity pension is based on the recipient being injured, (in a roundabout way) the nature of the injury (Class A or Class B incapacity), the recipient’s final average salary at the time of discharge, and the compulsory retirement age for rank of the recipient.
 The Judge actually made an error here. That is, he sought to allocate 5% of the wife’s $1 million pension which would amount to $50,000, but seemingly erroneously allocated only $20,000.
This article was published on 28/9/2018 by Kyle Barram, a Townsville family lawyer. That which is expressed in this article is Kyle’s opinion only, and is expressed by him at the date of publishing. It should not be considered legal advice. Tailored advice from a family lawyer should be sought by those seeking to effect a family law property settlement. The law changes regularly, so the date of this article should be borne in mind.