|
Until recently, a person's superannuation could not be divided between a couple upon divorce. Instead, the Family Court would take into consideration a person's superannuation assets by adjusting their other property in a settlement.
This position changed on 28 December 2002 with the introduction of the Family Law Amendment (Superannuation) Act 2001 (the "Act").
Superannuation can now be divided on a marriage breakdown in the same way as other assets.
Upon marriage breakdown a superannuation benefit may be split between a separating couple either by the two of them entering into a financial agreement or pursuant to a court order.
|
DOES THE ACT APPLY TO ALL MARRIAGE BREAKDOWNS? |
|
The Act applies only to married couples. The Act will not apply in the following circumstances:
|
 |
The Commonwealth does not have the power under the Constitution to make laws that deal with de facto relationships. The state and territory Attorneys-General have agreed to refer their powers to make laws with regard to de facto couples to the Commonwealth, but this is not yet law. |
|
The Act will not apply to a property settlement that was concluded prior to 28 December 2002. |
|
The Act will not apply if the couple have made a valid Binding Financial (Pre-nuptial) Agreement. |
|
|
With assent given to the Superannuation Legislation Amendment Family Law and Other matters) Act 2004 on 4 May 2004, the Act will be applied to marriage breakdowns of members in :
|
|
the Defence Forces Retirement and Death Benefit Scheme, |
|
the Military Forces Scheme, |
|
the Commonwealth Superannuation Scheme, |
|
the Public Service Scheme, and |
|
the Parliamentary Contribution Scheme. |
|
|
The Act will generally apply to members of these schemes with effect from 19 May 2004.
|
SPLITTING AN INTEREST |
|
If a superannuation benefit is split then the balance in the spouse member's account will be reduced with the splittable amount transferred to a newly created account in favour of the non-member spouse or rolled over to a fund nominated by the non member spouse.
The consequences of the split are set out below:
|
|
the splittable amount will be taken proportionally from the member spouse's concessional component, CGT exempt amount, post-June 1994 invalidity component, undeducted contributions and pre/post June 1983 components. The components will be the same in the non-member spouse's account except that the non-member spouse will have an eligible service period of 0 days. The non-member spouse will not receive the benefit of any pre '83 service period of the member spouse; |
|
the splittable amount will be taken proportionally from the member spouse's unrestricted non-preserved component, restricted non-preserved component and preserved component. The components will be the same in the non-member spouse's account; |
|
when the non-member spouse withdraws the splittable superannuation benefit as either a lump sum or a pension it will be measured against that person's reasonable benefit limit; |
|
if the non-member spouse is over 55 then he/she will be able to use the tax free threshold. |
|
SECOND AND SUBSEQUENT MARRIAGES |
|
The legislation acknowledges that some people will marry and divorce more than once. Therefore more than one payment split may take effect on the same superannuation interest. The legislation will operate to prevent a non-member spouse from being disadvantaged by later spouses taking an interest in the same fund.
|
PLANNING OPPORTUNITIES |
|
There is an opportunity for an informed planner to assist his or her clients in the event of their getting divorced by:
|
|
transferring superannuation benefits that would have otherwise been excessive to the spouse; |
|
transferring undeducted contributions and other concessionally taxed components to a separate superannuation fund and ensuring that the superannuation agreement only applies to the balance held within the original fund. |
|
CASE STUDY 1 |
|
After seven years of marriage, Liz and Larry are divorcing. Larry’s eligible service period began on 1 February 1984. Liz’s eligible service period began on 3 July 1971. Larry has $600,000 in his Self Managed Superannuation Fund. It is made up of the following components:
|
Concessional amount |
$50,000 |
CGT exempt amount |
$300,000 |
Undeducted contributions |
$50,000 |
Post-June 83 component |
$200,000 |
|
|
Pursuant to a binding financial agreement, Liz and Larry have agreed that Liz is to receive $350,000 of Larry’s superannuation money.
Liz’s components of the payment split will be made up as follows:
|
Concessional amount |
$29,167 |
CGT exempt amount |
$175,000 |
Undeducted contributions |
$29,167 |
Post-June 83 component |
$116,666 |
|
|
If the splittable amount is rolled over to Liz's existing superannuation fund, then her eligible service period will apply to the rolled over amount.
When Liz withdraws this amount it will be measured against her reasonable benefit limit.
If Larry wishes to keep the concessionally taxed components then he could consider rolling over the concessional component, CGT exempt component and undeducted contributions to another fund. Liz and Larry could then agree to divide the remaining balance pursuant to a superannuation agreement. The entire amount split would come from Larry's post-June 83 component.
|
CASE STUDY 2 |
|
Mickey marries and divorces three times. First he marries and divorces Minnie, then Daisy, and finally Penelope.
When he divorced Minnie, his superannuation assets were worth $500,000. Minnie took half of his superannuation money. When Mickey divorced Daisy, she took half of his superannuation balance, which at that time was $350,000. When Mickey divorced Penelope, she took one third of his superannuation balance, which at that time was worth $250,000.
The amount of Mickey's superannuation each party received is as follows:
|
| |
Entitlement |
Received |
Minnie |
Half of $500,000 |
$250,000 |
Daisy |
Half of $350,000 |
$175,000 |
Penelope |
One third of $250,000 |
$83,333 |
Mickey |
Remainder |
$166,667 |
|
