SUPERANNUATION AND DIVORCE IN AUSTRALIA

June 27, 2017

 

 

We assisted a student to understand the law regarding the effect of divorce of married couples or separation of de facto couples on superannuation interests in Australia, the rights of spouses with undefined interests, the duties of trustees to give effect to Family Court orders or voluntary agreements regarding superannuation entitlements, and the right to have benefits transferred once they are identified.

 

 (A)       STEP ONE – BUSINESS AS USUAL

 

The first issue to acknowledge is that divorce usually has no automatic effect on the rights or liabilities of trustees or members. Under the Superannuation Industry (Supervision) Act (1993), trustees and members must continue to act in accordance with the super laws and the trust deed of the fund after divorce. This includes where the spouses are both members and trustees of a self managed superannuation fund.

A divorce of married couple or separation of a de facto couple will not automatically entitle a spouse to take their portion of the fund elsewhere. This will make for interesting trustee meetings.

 

 (B)      STEP TWO – DETERMINING YOUR ENTITLEMENT TO YOUR SPOUSE’S SUPERANNUATION

 

If a spouse thinks they are entitled to a portion of another spouse’s super, Part VIIIB of the Family Law Act (1975) enables divorced or permanently separated married couples to allocate certain payments (splittable payments) in respect of a superannuation interest between them, either by agreement or by court order: Family Law Act 1975, Section 90MA.

 

Under section 90MH, “A financial agreement under Part VIIIA may include an agreement that deals with superannuation interests of either or both of the spouse parties to the agreement as if those interests were property”.

“Superannuation Interests” are defined to mean an interest that a person has as a member of an eligible superannuation plan. An “Interest” includes a prospective or contingent interest: s 90MD.

 

A spouse can, if no agreement is reached, apply to the Court in relation to the whole of the property of the relationship under section 79 and the Court can then make an order that includes a payment splitting provision: section 90MS.

 

The effect of section 90MJ is that the entitlement determined by agreement or by the Court must thereafter be payed by the trustee to the relevant person entitled under the agreement rather than entirely to the spouse that owns the interest. This will not otherwise affect the duty of a trustee. Most importantly, it does not mean that the spouse that is now entitled to a share of payments can ask to withdraw a portion of the principal. This would be the end of the road if all a spouse wanted was an order about their entitlement to the other spouse’s superannuation payments. Ordinarily, a spouse will want much more than that – they will want a defined interest in the principal amount, payed out immediately in the form of cash. So far, the interest would still be in the other spouse’s name and subject to the normal limitations of the trust deed and superannuation law.

 

 (C)       STEP THREE – CREATING A SEPARATE SUPERANNUATION INTEREST UPON AGREEMENT OR COURT ORDER

 

Part 7A of the Superannuation Industry (Supervision) Regulation (1994) assists spouses to get separately defined withdrawal benefits once the Family Court has determined, or it has been agreed, that a spouse has an interest in the other spouse’s superannuation.

 

The purpose of part 7A of SISR is:

“(a)    to facilitate the payment splitting arrangements established under Part VIIIB of the Family Law Act 1975 ; and

(b)    to provide for additional options that may be exercised in relation to superannuation interests that are subject to a payment split under that Act.”

(Regulation 7A.01)

 

The Regulations then provide that:

  • “The non-member spouse may request the trustee to create a new interest for the non-member spouse in the regulated superannuation fund or approved deposit fund in which the original interest is held” – i.e. separate the interests but keep them in the same fund: Regulation 7A.05.

  • “If the original interest is in a self managed superannuation fund, the non-member spouse, or the member spouse, may request the trustee to roll over or transfer the transferable benefits to another regulated superannuation fund”: Regulation 7A.06.

  • The non-member spouse may request a lump sum payment if they satisfy a condition of release: Regulation 7A.07.

The trustee must give effect to the request: Regulation 7A.09.

Therefore the Superannuation Industry (Supervision) Regulations give you extra rights once the Family Court has determined that you have an interest in your spouse’s superannuation.  In those circumstances you can:

  • can create a new interest in the SMSF;

  • transfer the benefits to a different super fund; or

  • withdraw the amount if they have satisfied a condition of release.

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