Focus: Superannuation – December 2002
FAQs about superannuation under new Family Law amendments
In brief: Amendments to the Family Law Act and related legislation that superannuation be treated as communal property, means that superannuation funds must play a formal part in the process of splitting superannuation benefits on the breakdown of a member's marriage, as Senior Associate Lois Dannecker explains.
Under the Family Law Act 1975 (FLA) amendments (which commenced on 28 December 2002) trustees will be required to provide information to members' spouses and implement superannuation agreements between spouses and Family Court orders relating to superannuation.
The following FAQs may assist trustees in fulfilling their new obligations.
Q. What are the main aims of the FLA changes?
A. These changes have been made:
- to enable superannuation interests to be treated as property that can be divided when a marriage breaks down; and
to bind third party trustees of superannuation funds to carry out these new FLA obligations.
Q. Do the changes apply on breakdown of defacto relationships?
A. No. The operation of these changes is constrained by the constitutional limits on the Commonwealth to deal only with marriages which are the subject of the Family Law Act.
At present, the changes do not operate in respect of the breakdown of defacto relationships or same sex relationships (in respect of which the power to regulate lies with the states). The Commonwealth Government has asked the states to refer their power to legislate about this issue. In November 2002, some states agreed to refer power to the Commonwealth and when that happens the superannuation splitting laws will apply in those states. At this stage it is not known when this will occur - but it is thought likely to be before the middle of 2003.
Q. Do the changes apply to Family Court orders or superannuation agreements made before 28 December 2002?
A. No. The changes do not operate retrospectively. Property settlements entered into by way of Family Court order or superannuation agreement before 28 December 2002 will not benefit from the new legislation.
Q. Which funds are affected by these changes?
A. The funds affected are known as Eligible Superannuation Plans. They are:
- Superannuation Funds (both regulated and non-regulated);
- Approved Deposit Funds;
- Retirement Savings Accounts; and
SHAR (Superannuation Holding Accounts Reserve).
Q. What are trustees' duties and tasks?
A. The main duties and tasks of trustees under the FLA are to:
- provide information;
- implement superannuation agreements and Family Court orders relating to superannuation interests
- review trust deeds and administration arrangements;
- set fees and charges for implementing Family Court orders and superannuation agreements, and providing information;
- keep records, including keeping track of payment splits and payment flags (which are explained in detail below); and
consider whether accounts can and will be opened for non-member spouses in the fund.
Q. Who can apply to a trustee for information about the superannuation interest of a member?
A. To be eligible to apply for the information the person must be:
- the member's spouse; or
a person who intends to enter into a superannuation agreement with the member (in contemplation of marriage).
Q. What must trustees do when an application for information is received?
A. The trustee must give information if the application is accompanied by:
- a declaration on the prescribed form stating that the applicant requires the information to assist the applicant to properly negotiate a superannuation agreement and/or assist the applicant to apply to the Family Court for a splitting or flagging order; and
the prescribed (and reasonable) trustee's fee (if applicable).
Note: The information about the member's superannuation interest that must be provided to the applicant is set out in the Family Law (Superannuation) Regulations.
Amendments to the Superannuation Industry (Supervision) Regulations also now require trustees to provide specified information to non-member spouses if a member's superannuation interest becomes subject to a payment split.
Q. Is there any information trustees are prohibited from giving to an applicant?
A. A trustee must not:
- give a spouse a member's address; or
tell the member an application for information has been received.
Q. What is a splitting order?
A. A splitting order made by the Family Court is an order that when a splittable payment (see below for an explanation) becomes payable:
- the non-member spouse is entitled to be paid the amount calculated in accordance with the regulations or a specified percentage of the splitable payment; and
the member spouse's entitlement is reduced accordingly.
Note: Up to 100% of a member spouse's entitlement can be subject to a
splitting order. The Family Court must determine the value of the relevant
superannuation interest in accordance with the regulations (or such method as
the Court considers appropriate if the regulations don't apply).
Q. What payments can be spilt?
A. Payments that can be split are:
- A payment to the member, such as a resignation benefit, a retirement benefit or a total and permanent disablement benefit.
- A payment to another person for the benefit of the member, for example, a benefit rolled over to another fund.
- A payment to the member's legal personal representative after their death.
A payment to a reversionary beneficiary after the member's death (or to the reversionary beneficiary's legal personal representative after their death).
Q. What payments cannot be split?
A. Payments that cannot be split are:
- A withdrawal benefit of less than $5,000.
- A payment made to a member under early release provisions of the SIS Regulations, that is, a payment made to a member on compassionate grounds or because of severe financial hardship.
- Temporary incapacity payments paid before retirement age where these do not reduce the member's retirement benefit.
Certain payments under the Commonwealth Superannuation Scheme and the Small Superannuation Accounts Act.
- Death benefits paid to or for a child beneficiary.
- Death benefits paid to a member's children over the age of 18 to enable them to complete their education or to meet their special needs, for example, a physical or intellectual disability.
- Payments made after the trustee has paid into a spouse account (opened for the member's spouse) or to another fund, an amount for the benefit of the member's spouse equal to the amount that would have been the subject of the split.
Payment made after the member's spouse has received an amount from the member in satisfaction of the spouse's entitlement under a payment split and the trustee receives a signed confirmation by the member and their spouse.
Q. Can defined benefits be split?
A. The FLA changes are intended to permit the splitting of defined benefit interests in the growth phase but on a strict reading of the legislation, a split of this type of benefit is not permitted. The FLA will need to be further amended to achieve the intended result.
Q. What happens when a member's interest becomes subject to a payment split?
A. The trustee must:
- notify the member and the non-member spouse within 28 days after the operative time specified in the Family Court order, or from when the trustee receives a copy of the order; and
give the specified information to the non-member spouse with the payment split notice.
Q. Can the non-member spouse take their payment in the form of a new account in the fund?
A payment split can be dealt with by opening an account in the fund for the non-member spouse, or by transferring the non-member spouse's share of the superannuation interest to another fund.
- In the case of an employer-sponsored fund, the employer may have a view on how a non-member spouse's share should be dealt with.
On a strict reading of the changes it seems that if an account is opened for a non-member spouse in relation to the splitting of a defined benefit interest in the growth phase in an employer-sponsored fund, the status of the fund changes to a public offer fund. The FLA will need to be amended further to avoid this outcome.
Q. What is a flagging order?
- If the Family Court makes a flagging order then the trustee cannot make a splittable payment without leave of the Court.
- The trustee must notify the Family Court within the period specified in the order, of the next occasion when a splittable payment becomes payable in respect of the superannuation interest.
In making a flagging order, the Family Court can take relevant matters into account, including the likelihood that a splittable payment will soon become payable in respect of the superannuation interest.
Q. What interests can be flagged?
A. Any superannuation interest except those prescribed by the regulations as an unflaggable interest. None are currently prescribed.
Q. Can trustees charge a fee to cover the extra costs?
- Trustees can charge parties for reasonable administrative costs in implementing Family Court orders and superannuation agreements.
- Trustees can charge a reasonable fee to provide information about superannuation interests.
Trustees can deduct unpaid fees from payments made from the fund to the person liable to pay the fee.
Q. Should fund Trust Deeds be amended?
- The changes apply regardless of anything in the Trust Deed.
- Trustees do not breach the Trust Deed or any law if they comply with the changes.
- Trustees are not liable if they act in good faith in reliance on a Family Court order or a document served on them under the FLA.
- Trust Deeds should be amended to give trustees power to charge reasonable administrative costs and fees for implementing orders and agreements and providing information.
Amendments will be required if a non-member spouse is to have an account in the fund.
If you are involved in managing these changes and want more information please feel free to contact our Superannuation specialists.
For further information, please contact:
- Mark CerchéPartner,
Ph: +61 3 9613 8872
- Erin FerosPartner, Sector Leader - Mining,
Ph: +61 7 3334 3313