Relationship breakdown - transferring super to another spouse
The Family Law Act 1975 (in particular part VIIIB) stipulates that interests in super, RSAs and ADFs are to be included in the definition of 'property', and can be divided on marriage breakdown. Eligible de facto couples1 who separate on or after 1 March 2009 are also included.
A rollover of super benefits under the super and divorce laws is referred to as a 'family law super payment' for tax purposes. It is not included in the assessable income of the receiving fund.
A family law super payment is treated as a super benefit of the non-member (receiving) spouse, but not the member (originating) spouse. The definition of spouse includes relationships registered under particular State or Territory laws or couples who live together on a genuine domestic basis (including same sex couples).
Two common ways of deciding how the superannuation of a separating couple will be split are:
- Superannuation agreements/binding financial agreements
- Court orders
Superannuation agreements/binding financial agreements
A superannuation agreement forms part of a binding financial agreement. Binding financial agreements were introduced to allow separating couples who could reach agreement on a property split to do so without the delay, cost and the emotional toll of going to court. These agreements can be made before, during or after a relationship, and set out how the property of a couple, including their respective superannuation interests, will be divided in the event that the couple separate.
Binding financial agreements will be legally binding on a couple if both members have a copy, have received independent legal advice and have signed the agreement. These agreements cannot (except in rare circumstances) be overturned by a court.
Where a binding financial agreement does not exist, a court order from the Family Court will generally be required to allow property (including superannuation) to be divided. There are two types of court order.
- Consent orders where a separating couple have come to an agreement on how their property should be divided (but they do not have a binding financial agreement); they can apply to the court to issue a consent order. This ratifies the agreement between the two parties and makes it binding.
- Financial orders where a separating couple cannot come to an agreement on how their property should be split; the court can issue a financial order to divide the couple's assets based on the circumstances of the case.
Splitting superannuation upon relationship breakdown
When transferring the superannuation of one member of a separating couple (the member spouse) to the other member (the non-member spouse), one of two methods may be used.
Splitting the member's interest
Where the member spouse's super balance is in an accumulation account or in an account-based or term-allocated pension, there is the opportunity to immediately allocate the non-member spouse's entitlement to them. This may include:
- opening a new account within the fund for the non-member spouse;
- rolling over their entitlement to another complying fund of their choosing, or
- paying the entitlement to them directly (if a relevant condition of release has been met).
The non-member spouse is able to choose which option will apply to them, and the fund must comply with their choice, except where this is not possible (for example, their chosen fund cannot accept rollovers). Where the non-member spouse has not made a choice, the fund trustee generally has the option of:
- creating a new interest within the fund on their behalf, or
- rolling the non-member spouse's entitlement to an eligible rollover fund.
Splitting payments from the fund
Where the member spouse's super balance is a defined benefit interest, it is generally not able to be split until benefits become payable from the fund. This may, for example, occur when the member spouse reaches retirement and a lump sum or pension becomes payable. Lump sums (including commutations of a defined benefit pension) that become payable can then be:
- directed to a new account within the fund for the non-member spouse
- rolled over to another complying fund, or
- cashed out (subject to a condition of release being met).
Pension payments, however, must be paid directly to the non-member spouse.
Process required for splitting a super interest
The procedure that must be followed and the evidence required by a super fund in order to instigate the splitting of a superannuation interest or payments depends on a number of factors.
Once the super fund has received the required evidence, it is then required to notify both members of the separating couple within 28 days. The non-member spouse then has a further period of 28 days (or longer if allowed by the fund) to nominate whether they wish to retain, rollover, or cash out their entitlement.
Flagging a super interest prior to a split
A separating couple can agree on, or a court can order, a payment flag to be placed on a member's superannuation interest. This does not trigger a splitting of benefits, but instead prevents the trustee from allowing most withdrawals from the interest.
A payment flag might be an appropriate precautionary measure where:
- the couple have separated but a property settlement has not yet been reached, or
- the superannuation interest cannot be split until retirement (for example, where the member's interest is in a defined benefit fund).
- an existing payment flag can be lifted by agreement of the separating couple or by the court, then allowing a superannuation interest or payment split to occur.
An existing payment flag can be lifted by agreement of the separating couple or by the court, then allowing a superannuation interest or payment split to occur.
A payment flag cannot be placed on an interest already being used to pay a pension (for example, an account-based pension or a defined benefit pension).
Tax components and preservation
Any superannuation interest transferred to a spouse upon relationship breakdown must be made proportionally from tax components and preservation status.
Last modified: Tuesday, May 2, 2017