How Defined Benefit Superannuation is valued.
In Australia, the family law rules for valuing defined benefit superannuation interests are complex and governed by the Family Law Act 1975 and the Family Law (Superannuation) Regulations 2025 (which replaced the 2001 regulations on April 1, 2025).
Unlike an accumulation fund, where the value is simply the account balance shown on a statement, a defined benefit interest is more complicated to value because it is a promise of a future income stream (a pension) rather than a lump sum of money in an account. The value is not simply the contributions made plus earnings; it’s based on a formula that typically takes into account factors such as the member’s salary, length of service, age, and other scheme-specific rules.
Here’s a breakdown of the key rules and process:
1. The Need for an Expert Valuation with Defined Benefit Superannuation
A member statement from a defined benefit superannuation fund will not provide the “family law value.” For this, a qualified expert, such as an actuary, must be engaged to provide a formal valuation. The court will not accept a simple member statement as a valuation for this type of superannuation.
2. The Process to Obtain a Valuation
- Request Information: The first step is to obtain the necessary information from the superannuation fund trustee. This is done by submitting a Superannuation Information Request Form and a Form 6 Declaration. The forms are available from the Federal Circuit and Family Court of Australia website.
- Fund’s Response: The superannuation fund is required to provide information in response to the request, which may include the data needed to perform a valuation. The fund may charge a fee for providing this information.
- Expert Valuation: Once the information is received from the fund, the actuary will use the data and specific methodologies and factors outlined in the Family Law (Superannuation) Regulations 2025 to calculate the “family law value” of the interest.
3. Valuation Methods and Factors
These regulations prescribe a specific formulas for valuing defined benefit interests, depending on whether the interest is in the “growth phase” (when the member is still contributing) or the “payment phase” (when the member is receiving a pension). The valuation is based on various factors, including:
- Age and sex of the member: These factors are used in actuarial calculations of life expectancy.
- Length of service: This is a key factor in many defined benefit formulas.
- The member’s average salary: The promised pension is often a percentage of the member’s salary over a specific period.
- Scheme-specific factors: The valuation must take into account the specific rules of the fund, such as whether a pension can be commuted to a lump sum, and any other unique benefits.
4. Splitting the Interest
Once the value is determined, the superannuation can be split in a few ways:
- Base Amount Split: A specific dollar amount (“base amount”) is allocated to the non-member spouse.
- Percentage Payment Split: A percentage of the future payments (pension) is allocated to the non-member spouse.
The method of splitting will depend on the terms of the agreement or court order and the rules of the particular superannuation fund. In many cases, if the superannuation is in the growth phase, a new superannuation interest is created for the non-member spouse in the same fund, or the amount can be rolled over to another fund. If the superannuation is already being paid as a pension, the member’s pension is reduced, and the non-member spouse may receive their share as a lump sum or a pension, depending on the fund’s rules.
Important Considerations:
- Complexity: Valuing and splitting defined benefit superannuation is a highly complex area of family law. It is crucial to seek legal advice from a family law professional and consider engaging a superannuation valuation expert to ensure the valuation is correct and that the split is fair and equitable.
- Taxation: There may be taxation consequences for both parties when a superannuation interest is split, and this should be considered with professional financial advice.
- Binding Financial Agreements and Consent Orders: The superannuation split can be formalised through a Binding Financial Agreement or by a court-made Consent Order.
