Many people are surprised to learn that pensions can count as property in a divorce, even when they are already being distributed, which can feel counterintuitive. Pensions often serve as both a current income stream and a future financial resource, and this dual nature can make it challenging to understand how they fit into property settlements. The recent appellate decision in Cherokee & Cherokee [2025] FedCFamC1A 191 provides clarity on how courts treat defined-benefit pensions in the payment phase and illustrates the practical approach taken to achieve fairness.
Property settlements involve more than adding up asset values. Courts look at the total property pool and consider how to balance long-term security, access to funds, and practical challenges when some assets cannot be divided without causing hardship. Cherokee shows how defined-benefit pensions are treated in this broader context.
When a Pension Becomes Property in a Pensions and Divorce Property Settlement
Cherokee & Cherokee involved a six-year relationship between a 51-year-old wife and a 59-year-old husband, who had one child. At separation, the husband had a Defence Force Retirement and Death Benefits (DFRDB) pension valued at about $2.87 million in the payment phase. The wife had a defined-benefit superannuation interest of $576,800 still in accumulation.
The trial judge treated the husband’s pension as a financial resource and excluded it from the property pool. The wife sought a split order of about 25 per cent. This approach treated her pension as property but not his, creating inconsistency and a risk of double counting pension income.
On appeal, the court found the trial judge’s approach was incorrect in principle but did not split the husband’s pension. The case clarifies that all superannuation interests, including defined benefit pensions, are property even after payments start, but any split depends on fairness and practical circumstances.
Balancing Property, Income, and Fairness in a Pensions and Divorce Property Settlement
Under the Family Law Act, superannuation is property, whether it is still growing or already paying income. However, the law does not automatically require every asset to be divided. Courts must aim for a just and equitable outcome. This involves considering contributions, the length of the relationship, and how dividing an asset, such as a pension, may affect living standards.
Cherokee highlights that pensions serve multiple roles simultaneously. They are property, but they also function as an ongoing income and a financial resource. Courts must treat them consistently to avoid inflating a spouse’s entitlement. For example, a $500,000 pension that pays $30,000 per year should not be counted as both capital and income. Avoiding this double-counting ensures the final property adjustment is fair.
Courts also consider liquidity and accessibility. Defined-benefit pensions are often non-transferable and may be essential for ongoing expenses, so splitting them can be impractical. In Cherokee, fairness was achieved by adjusting the division of other assets rather than splitting the DFRDB pension.
Lessons for Clients
Cherokee provides a blueprint for practical decision-making in property settlements. Pensions in the payment phase are property, but splitting them is not automatic. Clients should be aware of the following:
- Even if a pension cannot be split, its value must be considered in the overall property calculation.
- A pension’s capitalised value and its income stream may require careful actuarial assessment to guide equitable adjustments.
- Military and public sector pensions may be more complicated to divide because of regulatory limits, but they are still included as property.
- Where one spouse cannot access their super, the other may be compensated from other assets to maintain fairness.
Judicial discretion, consistent asset treatment, and attention to the functional value of pensions are central to achieving equity. Cherokee shows the court looks beyond classification and focuses on practical outcomes reflecting both capital value and income realities.
Final Takeaway
Defined-benefit pensions, including military and public service pensions, are property in family law. Whether they are divided depends on what is just and equitable, not simply on their classification. With expert legal and financial advice, clients can ensure that even complex or illiquid assets are properly considered to protect long-term security and achieve fairness. Cherokee & Cherokee confirms that the law provides flexibility to reach balanced outcomes, even when pensions are already in payment.
Jake McKinley notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry.
By Isabelle Knight
