Superannuation often the last thought in a divorce

    September 14, 2016

When husbands and wives are going through the carve-up that comes with separation, superannuation can often play second fiddle to more visible assets such as homes and cars.

Yet the dividing of superannuation entitlements can be an important part of both sides moving forward, particularly in instances where one partner has a significantly lower balance than the other.

A proper and well-considered division of super can be done when parties properly understand the interaction between family law and superannuation law.

At its most basic, family and superannuation law allow it to be treated as property that can be divided between couples when they split. Couples who are separated can enter into a payment split, an interest split, or flag their superannuation, according to an agreement or a court order.

A payment split can be made if a condition of release to access superannuation is legally satisfied. An interest split can be made where the superannuation is divided by specifying an amount that is to be paid to the non-member spouse. A “non-member spouse” is a person who is going to receive a share of their spouse’s superannuation as part of the property settlement. They may also be a member of the same superannuation fund.

Superannuation interests which cannot be split are lifetime pensions or fixed-term pensions that the member is no longer entitled to commute; or, lifetime annuities or fixed-term annuities and the amount of the annual benefit payable to the member is less than $2000. A superannuation interest that is yet to pay a benefit, or that is paying benefits in the form of a commutable pension or an annuity with an underlying capital sum, also continues to be an interest which cannot be split if the benefits payable are less than $5000.

A superannuation agreement is only binding on the parties if it is signed by both parties and includes a statement to the effect each party has had independent legal advice. The agreement must be accompanied by a signed certificate from the legal practitioners who gave the advice. Under a valid agreement, whenever a superannuation payment becomes payable, the non-member spouse is entitled to be paid the relevant split amount.

A superannuation agreement may establish a payment flag rather than an immediate payment split. When a flag is in force, the superannuation trustee must not make any payments from the fund. A flag continues to operate until it is either terminated by a court order or a flag lifting agreement is served on the trustee.

The spouses may make a flag-lifting agreement that either provides the flag is to cease operating without any payment split; or, specifies an amount, method or percentage to enable the trustee to calculate the split amount. A superannuation interest of a member spouse that is in the payment phase cannot be flagged.

Superannuation is often the last thing partners think about in the event of a divorce.

The Family Law allows a court to make a splitting order or a flagging order in relation to superannuation. A splitting order entitles a non-member spouse to be paid an amount as specified in the order whenever a splittable payment becomes payable. A flagging order requires the trustee not to make any splittable payment without the leave of the court. The trustee must notify the member and the non-member spouse, within a period specified in the order, of the next occasion when a splittable payment becomes payable.

Once a member’s superannuation is subject to a payment split, the trustee must give a payment split notice, within 28 days, to both the member and non-member spouse. If a trustee does not receive a reply from the non-member spouse requesting a specified action to be taken within 28 days after the payment split notice is served, then the trustee may create a new interest in the superannuation fund for the non-member spouse; roll over the transferable benefits to another regulated superannuation fund nominated by the non-member spouse; or, transfer the transferable benefits to an eligible rollover fund. The trustee must provide a written notice to the non-member spouse of their intentions. The trustee must not pay a lump sum without a request from the non-member spouse, even if a condition of release has been satisfied.

Where a superannuation account is in pension phase, a superannuation agreement or court order can specify that a pension that has commenced be split. In this case the pension would be commuted and the non-member spouse paid their entitlement under the agreement or court order. The balance of the original member’s interest would be paid to the member spouse either as a lump sum or a reduced pension. In situations where the governing rules of the fund do not allow the pension to be commuted, the split can be achieved by dividing the pension payments between the member and non-member spouse.

The death of the member spouse will not negate the effect of any existing payment split or interest flag. Any payment split or flag will be dealt with at the time the interest is cashed out. If the non-member spouse dies after the operative time for a payment split, the payment split continues to operate in favour of the legal personal representative of the deceased spouse, and is binding on them.

Both the member and non-member spouse will be taxed according to their age and the components of the superannuation benefit. Tax-free and taxable proportions will carry across to the non-member spouse’s entitlement in the same proportion as the member spouse’s original benefit.

Monica Rule is an SMSF Specialist

Original article here

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