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You can tell it is an election year – Prime Minister John Howard was prominent in the media last weekend with his promise to legislate to allow women access to their husbandï¿½s superannuation upon divorce.
I’m not sure where Mr Howard has been spending his time, but this “revelation” is 23 years late.
The right to a spouse’s superannuation was made law when the Family Law Act was introduced in 1975, but it was not until 1979 that the landmark court decision in Crapp v Crapp was handed down. Mrs Crapp was the ex-wife of a Qantas pilot and she became the first Australian to have the value of a spouse’s superannuation taken into account when their divorce settlement was being worked out.
His superannuation benefit was one of the couple’s biggest financial resources after a long marriage. The fact that his lump sum payout was not due for 11 years from the time of the court hearing gives an indication of the problems that arise when trying to place a figure on its worth.
It may be fine for the Prime Minister to say he will let couples divide up superannuation but the reality is that superannuation is a unique asset.
Although the Family Law Act has been in force since 1975, the problems of accounting for superannuation in a property settlement still baffle the courts. The major reason is the difficulty of arriving at a fair value for it.
Think about someone aged 40 with a career job in a big institution such as the government. If they keep their nose clean and stay until age 60 they may get a superannuation payout of hundreds of thousands of dollars. However, 20 years will pass between now and then. During that time they may die, lose their job, change jobs or retire early on medical grounds. In each case the payout will differ, yet divorce may occur many years before any of these possibilities eventuate.
Then there are the twin problems of preservation and unequal future earning capacity.
CASE STUDY: Harry and Helen are aged 40. He is an executive earning $90,000 a year – she was a secretary before they got married.
Their main assets, apart from three young children, are a house worth $250,000 with a $150,000 mortgage and his superannuation of $100,000. Should they divorce she cannot keep the house as she could not afford the repayments. Therefore it is sold and the equity divided.
Her share of the equity is not sufficient to put another deposit on another home; but, even if she is awarded half the superannuation, it is tied up until at least age 55 under the preservation laws. The only way she would be able to buy another home is to be able to cash in the superannuation. If this were possible it would defeat the whole purpose of the superannuation system, which is to provide retirement incomes.
To try to overcome these difficulties courts tend to regard superannuation as a resource of the marriage, not an asset that can be divided. Thus they have preferred to take the presence of superannuation into account when splitting up the other assets.
For example, if an investment property owned by the couple was worth $150,000 and the superannuation benefit was worth $150,000, the spouse without superannuation may be awarded the investment property to balance things up.
If a couple have their own self-managed superannuation fund, it is likely they are the only members of it. When one has a much higher balance in their member’s account than the other, superannuation regulations provide a mechanism whereby the balances in the members’ accounts can be re-allocated. This may enable part of the property settlement to be met from the superannuation fund and avoids the problem of the wife having to wait until the husband retires before her share of the superannuation can be paid to her. But it does not solve the preservation problem. Superannuation and divorce will become more important as superannuation grows and as women start to earn as much as their husbands.
Some men are now applying to the courts for a slice of their ex-partner’s superannuation. This is not something John Howard mentioned on International Women’s Day.
Noel Whittacker is a proper authority holder for Whittacker McNaught Pty. Ltd., licensed dealer in securities.