CHAIR —Welcome. Thank you for your submission and for appearing before the committee today. We invite you to make a statement. Maybe you could even comment on the issues raised in other evidence. If you have solutions, we are here about getting the best possible law that we can. Professor Dewar, do you have any comments to make on the capacity in which you appear?

Prof. Dewar —For these purposes, I am also a consultant to the Institute of Family Studies on the Australian Divorce Transition Project in so far as it relates to superannuation and divorce.

CHAIR —Thank you. I invite you to commence.

Dr Sheehan —What we would like to do here today for the inquiry is reiterate the points that we made in our submission. The submission was based on research that was undertaken by Professor John Dewar, Jodie Hughes and me looking at the way in which superannuation is handled when people divide their property on divorce. This research actually comes out of a large-scale project which is called the Australian Divorce Transition Project, which was a national random survey of 650 Australian men and women who have experienced divorce. It was conducted in 1997. One of the important things about this particular project is that it enables us to get nationally representative estimates of what people are doing with superannuation on separation and divorce. It also covers people who have divided their property in court or who have had formalised agreements, as well as people who divide their property privately; for example, those people who just sit down around the kitchen table and decide who will take what. So it is a very important study in the sense that it probably gives the only glimpse available today of what people are doing across the board with their superannuation on divorce. What we would like to do is take those findings and give you some sort of broad contextual understanding of how people currently are dealing with their superannuation on divorce. We hope to highlight how important we think these particular reforms are, but also bring to your attention some issues about how these reforms may be translated in practice.

As you probably know, one of the important things is that superannuation is increasing in importance for people who have married, separated and divorced. Not only is it increasing in terms of its absolute value; it also is increasing in terms of its relative importance as an asset of the marriage. In fact, our findings indicate that in 82 per cent of cases at least one party had superannuation assets at the time of separation. This an increase from 55 per cent in the 1980s, so we are seeing quite a steady increase in the number of people who will be facing this issue of how to divide superannuation on divorce. While it is increasing in importance, there remains a significant gender disparity with respect to access to these entitlements. Our findings showed that 76 per cent of men had superannuation at the time of separation but only 34 per cent of women had their own superannuation. So it is not simply who has these entitlements; it also differs with respect to the value of these entitlements. The median value of superannuation at separation for women was about $5,500 dollars; for men it was around $26,000. So, with respect to our previous speakers, on average people are holding around $30,000 in superannuation wealth at the time of separation.

One of the things about superannuation is that this gender division or disparity is not so much a problem when people are married; rather, it is something that comes to the surface when there is separation and divorce, because in these circumstances women are often left without a very important asset to which, arguably, you could say that they contributed—maybe indirectly—during the marriage, either through their support of the husband in his work, looking after the family, staying out of the work force to look after children or even by forgoing that income for the duration of the marriage to save up for what may happen later on.

We would like to stress that we actually think that the division of superannuation on divorce is not just important in terms of the needs based argument for these women who are left without these benefits and are often facing a very poorly resourced retirement but it is also a question of equity and justice. This is arguably an asset of the marriage that women are missing out on when the property is divided. One of our key findings is that very few people appear to be taking superannuation into consideration on separation and divorce. We found that in around 46 per cent of cases people said they took it into consideration, meaning that they may have spoken about it, but then in only 10 per cent of cases did people actually explicitly do something about dividing that superannuation. That could mean trading it off with other assets or other methods of division such as deferring the division of the superannuation. Our findings suggest that this is not simply because of the difficulties that the courts are facing at the moment in dividing superannuation but it is also a function of people's lack of knowledge about superannuation. Men and women were very ill-informed about their former spouse's entitlements. Women in particular were not very well-informed about their own and their former spouse's entitlement. So you have a position here where you have a reform that is needed in terms of the justice and equity it can deliver, but you also have a situation where people are very ill-informed about superannuation, how they access information and how much superannuation is available.

Even more importantly, it seems there is a very vague understanding in the community about whether or not superannuation should even be considered, whether or not a former spouse is entitled to superannuation if they did not directly contribute to the fund. So we would like to make the point that, if the reforms are to go ahead, they need to be coupled with education and information that will help people to access this information and also educate people that superannuation is property of the marriage to which both parties can have some entitlement.

We would like to highlight that there is a particularly vulnerable group with respect to considering superannuation on divorce, and that is those people with modest to low levels of asset wealth. For this particular group of people, superannuation is of its greatest relative importance. I do not mean it is important in terms of its absolute value but rather it is one of the most important assets to the marriage. For almost a third of these people, it is similar to the net value of the family home. This is an extremely important asset that is often left out of the equation when people are dividing property. What is more a concern with respect to these people is that this group to which superannuation is of the greatest relative importance is also the group that is most likely to settle their property matters privately. By privately I mean they are least likely to access legal advice or to have representation. So what you have here is a group, a sizeable minority of people, who have a very important asset and are not taking it into account. They also do not have a high level of access to information which would inform them how to take it into account. Therefore, one of the things we want to stress about this reform is that we have to make sure that information about superannuation and the law is accessible to people, and to people who do not necessarily have legal representation.

Finally, we would like to caution that, although we support this particular reform, we have to be aware that it may modify or affect the way in which property transfers are currently undertaken. For example, the wife might get a higher percentage of the house or get the family home in lieu of the husband taking the superannuation. If a reform of this nature comes through, it may change the way in which people negotiate those transfers. There is a concern that, in doing this, you may actually reduce the benefits of the reform for women if in fact it jeopardises the resident parent taking the home or the family home staying in one person's name for the sake of the children. While these reforms are very positive, we have to keep an eye on how people are actually going to translate this legislation in practice for that reason. But it by no means negates the importance of a reform whereby the court can now divide superannuation directly on separation and divorce. That is a summary of our submission.

CHAIR —Do you wish to comment separately?

Prof. Dewar —No, I think Grania has summarised the contents of the research very accurately.

CHAIR —Given that the legislation does focus on property—because superannuation was not considered previously to be property and it is now is, which is subject to the separation—that addresses some of your major concerns. The other issue is whether the legislation is going to result in an equitable distribution, given the nature of the types of assets that might be held. I put it to you: isn't that the role of the judge rather than trying to anticipate every combination and permutation and building it into the superannuation legislation?

Prof. Dewar —I think that the legislation in its current form does exactly that. It does give the court the power, without specifying how it is to be used—

CHAIR —To disregard it if need be?

Prof. Dewar —Indeed, if that were considered appropriate in the light of the statutory guidelines and principles that are already in place under the Family Law Act.

CHAIR —Apart from the need for all parties to be thoroughly educated about their rights, perhaps you might like to articulate how that education should take place and who should pay for it. Is this another cost for the fund to bear, that they have to spell that out in their brochures or in their deeds?

Dr Sheehan —I do not know whether I would argue that it is a cost for the funds to bear. Already the Family Court and Centrelink provide information about how people deal with property on divorce. When you go to the Family Court to file for divorce, you get leaflets already on how you consider property and what you should be thinking about. I think it is something that can be incorporated at that sort of level because we have to remember that there is quite a high proportion of people who settle outside the court and who do not have a judge determine these factors for them. We are looking at around 33 per cent in the Australian Divorce Transition Project who settled their property matters privately. You need to have that information accessible at that sort of level, where people are going into Centrelink or to the Family Court and saying, `We are divorcing. We have got some property—a house, a car and a little bit of super. How do we go about doing this?' It should actually specify that you must take superannuation into account, that both parties are entitled to it on these particular grounds and that this is who you need to call or who you need to contact to assist you with doing that.

Senator HOGG —There is just one issue that has come to mind. Is this likely to open up a whole new area of litigation in terms of the non-member spouse claiming that the member spouse has poorly invested the superannuation in the first instance and that they are not getting an equitable share because of the way in which the member spouse has invested the superannuation or the fund or whatever it might be? Is that a likely outcome of this sort of legislation?

Prof. Dewar —It would take a very resourceful lawyer to run those sorts of arguments.

Senator HOGG —There are a lot of them out there; that is my problem.

Prof. Dewar —Under the Family Law Act the court is required to look at the state of the party's assets at the time of the separation or divorce. It is conceivable that, if there were strong evidence of a wilful strategy of investment that ran down the value of the superannuation, that might be taken into account as a factor. But it would not of itself lead to a separate cause of action by the non-member spouse against the member spouse. I would be very surprised if that were the case. There are other ways in which behaviour can be dealt with; and, in fact, it is already dealt with where there is similar behaviour in relation to the dissipation of other assets owned by the parties. I would say that that could easily be accommodated within existing principles.

CHAIR —So, summing up, you are in favour of the legislation—

Prof. Dewar —Yes.

CHAIR —and you want some leaflets to be available to the Family Court. Would you like there to be any refinements to the legislation? Obviously, from what you have said, you are very much in favour of it. Can it be improved, or is it just ideal as you see it from the perspective of the family law court at the present time?

Prof. Dewar —There is a general point I would like to make about family law legislation as a whole.

CHAIR —If you would not mind, could you just keep it to the superannuation aspects because we are not competent, like you two, to assess family law across the spectrum. We are interested in trying to make sure that the amendment to the superannuation legislation is going to work efficiently and in the best interests of everybody. So, if you would not mind, could you keep it to that? Otherwise, we could go on all day about family law problems.

Prof. Dewar —Grania made the point that one possible impact of this legislation would be to alter the current distribution of assets that is commonly agreed or ordered between the parties. One particular concern has been that it is common in agreements or court orders for the wife's—let us assume it is the wife's—loss of superannuation to be compensated by a transfer of the family home. There is a worry now that, if she is to get a share of the superannuation, that may reduce the likelihood of her getting the house in addition. The revised legislation reduces that risk because it gives the court greater discretion than the original version of the legislation. But there may be a case for prioritising, particularly the needs of children for proper housing after divorce or separation, as a general principle under the Family Law Act in order to avoid that consequence occurring. That is a concern we have based on the evidence that we gathered from our research, although I think our concerns would be slightly lessened by the less prescriptive nature of the division as now proposed.

CHAIR —Perhaps we might ask the Attorney-General's Department to take that on notice. When they come back they might like to address that issue just in case we do not cover it.

Senator CONROY —Could you explain how you see that working in practice?

Prof. Dewar —It would be nice if we could predict how this is going to work in practice. One of the interesting features of this legislation is that it will be superimposed on an existing body of law and practice in the division of matrimonial assets. No-one can really say for sure what the impact of bringing superannuation into the pool of assets for distribution is going to be on the distribution of other assets. I am just making an educated guess that one consequence could be that it might be more difficult to preserve the family home intact for the children if the husband has to, at the same, give up some of his super. These are things which, as researchers, we would say need to be kept under close monitoring to see how it pans out. It is difficult to predict in practice. You have some practitioners coming in later on who might be in a better position to make those predictions.

Senator CHAPMAN —Just following on from that, will that actually make settlements more difficult, given that there is necessarily an element of complexity in the sorts of actuarial calculations that would have to go on in relation to superannuation? Is it actually going to make it more difficult to achieve a reasonable settlement and increase the likelihood of extended disputes in achieving settlements?

Prof. Dewar —The complexities of valuation really only arise in relation to defined benefits schemes, and there is a prescribed formula under the legislation for arriving at a valuation. People will roughly know what is standing to their name in their super accounts, so they will know what the value is. There could be a short period of time in which there is a degree of uncertainty amongst the practitioners about what the rules are. It will need the Family Court to lay down some pretty clear guidelines pretty quickly on how the new powers of the court interact with existing practices of property division. So there might be a period of short-term turbulence but, in the longer term, I imagine it would settle down again and the profession and the courts would quickly arrive at a set of settled understandings about how all of this should work.

CHAIR —So you will be putting recommendations to the court to lay down these guidelines, because really it is up to the court. The asset has now become available. In terms of the equity in distribution, there should be some guidelines, not by us but by the courts and you—people who have particular experience in the division of assets.

Prof. Dewar —I think the legislation makes the role of the court very important, but they have to apply existing statutory principles to a new type of asset. That is going to be the interesting development here.

Senator CHAPMAN —Senator Watson raised the issue earlier of education. To what extent in your research have you found that people are aware of superannuation and its importance in the longer term and therefore its importance in a separation settlement?

Dr Sheehan —We have found that people are very ill informed about superannuation, not only about how much their own and their former spouse's superannuation is worth but also about the principle that superannuation may be an asset of the marriage not simply a financial resource of a particular party. We need to educate people not just on how they get access to how much is there but also that this is an asset of the marriage and that this needs to be divided between two parties and both parties may have some sort of entitlement to that even though one party has not contributed directly to that superannuation.

Senator HOGG —Did your survey cover how many people were involved in previous marriage break-ups and whether superannuation was divided in those break-ups?

Dr Sheehan —That is a good question. In our survey we were not able to tease out the proportion of superannuation that might have been accumulated prior to that particular marriage. That is only a very small number of the marriages in our sample so we do not think that that has distorted the conclusions, but that is certainly an issue that we were not able to further clarify. I think it is a good question. I think we need to monitor this as well as what is going to happen with people who have accumulated superannuation in other marriages.

Senator HOGG —So we have got no real idea how this legislation will impact further down the track when people go through two or maybe three separations?

Dr Sheehan —No, we cannot extract that from our data. I do not know of any other data that is available where that could be teased out.

Senator HOGG —What is the likelihood of a second or third marriage relationship break-up?

Dr Sheehan —I could get back to you with the exact likelihood.

Senator HOGG —Could you get back to us because I have got no idea how many people have been through one marriage break-up and go through a second, third or even fourth break-up.

Dr Sheehan —If you are talking about the percentage of people in the population in general, it is a very small percentage. I could get back to you with that.

Prof. Dewar —There is always the possibility that making superannuation an asset available for division could act as a disincentive to divorcing behaviour.

Senator CONROY —I am interested in your reference to the home and the kids angle. Superannuation is an asset essentially being preserved for retirement and by definition `retirement' is after the kids have moved on. Do you see a conflict there between using an asset that essentially was not going to be in any way used for the children because it is going to mature, if I can use that word, down the track then being apportioned in connection with the children and the children's welfare?

Prof. Dewar —You are right; they are quite different in nature. The house is something that is available for immediate use and serves an obvious function and value, whereas superannuation is deferred and serves a quite different purpose. What is happening at the moment, it seems, is that one is being traded for the other, with potentially desirable social outcomes in the short term, in that children and their carers are more likely to be housed in familiar surroundings, which all the research suggests is desirable. But at the same time—and this I think was one of the reasons that motivated the government's original proposals—it leaves women vulnerable in the longer term to poorly resourced retirement. It is difficult to predict, but our concern is that what may happen is that you will be swapping one resource for the other. You will be swapping the short-term beneficial resource for another beneficial but longer-term resource in the shape of superannuation. It would be nice if there were a way of ensuring that both the short-term and the long-term needs were satisfied so that women who cared for children, and the children themselves, were assured of priority when it came to the allocation of the house but were not left in the longer term to fend entirely on their own in a poorly resourced retirement.

Senator CONROY —I can understand people thinking, `Oh, God, it is just too hard to work out', particularly in defined benefit but equally in accumulation—they will accept it is easier with an accumulation—but do you see a problem in that, by making that trade-off, the proportion which was being set aside, if you like, for the non-contributing spouse's retirement is being brought forward and pushed into what you described as the short-term benefit? How do you see that balance weighing up under the legislation?

Prof. Dewar —It is very hard to predict, except that it is highly likely that it would become very difficult, in the absence of any other legislative change to general family law principles, for a woman to say, `I want a share of his super and I want to keep the house.' It becomes much harder for her to argue that.

Senator CONROY —I got the impression, when you used the word `prioritise', that that was what you were actually advocating. When you said `prioritise', that was actually the practical outcome. You said `the kids', `having to sell the house off'—that is the practical outcome.

Prof. Dewar —I think I was describing what has been happening in practice, without trying to identify—

Senator CONROY —I am not passing judgment, I am just trying to get an understanding in my head of what the practical outcomes are likely to be.

Prof. Dewar —Given that the court has not had jurisdiction to make orders in respect of superannuation assets but instead has simply taken them into account as a financial resource available to the member's spouse, they have been able, in recognition of that resource, to transfer to the wife a present benefit in the shape of the house—which obviously serves other beneficial purposes. That is what has actually happened. All we are saying is that it is possible under this legislation that, in the absence of changes elsewhere, she may find it harder to make a claim to both the super and the house and that that could have adverse consequences in the short term but not necessarily in the long term.

Dr Sheehan —To contextualise that, the people who we expect are going to be having that sort of conflict are those with low levels of asset wealth. This is not an issue for people who have high asset wealth and who are the ones who tend to go to court, because they have this wealth that they can juggle and trade. But when you go to the lower levels of asset wealth, which is maybe 46 per cent of people who divorce, you have superannuation and the net value of the family home very close in value. You can see, by the fact that they are very close in value, that if there is pressure to divide the superannuation, somebody cannot take the home in its entirety anymore. This is the conflict that we expect, if it arises, is going to arise with people who have less asset wealth and who are less likely to be legally represented than those with high levels of wealth.

Prof. Dewar —But that is something that could be dealt with by changes elsewhere in the family law legislative framework.

CHAIR —Thank you very much for appearing before the committee.