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NEWS - PLANNING
Taking some pain out of divorce
1/14/2002
While the new rules on the splitting of superannuation assets in the event of divorce won't apply until the end of this year, they will dramatically simplify the process. The division of assets on divorce can be a very emotional issue - on a par with dividing up an estate when there are disputes between potential beneficiaries - so a relatively clean way to do this should be welcomed.
It is also a change of which those on the brink of divorce should be aware, given how different the new super rules will be.
Two important changes will be introduced. The first is the handing of real power to the Family Law Court to count and divide accumulated superannuation as part of a property settlement where there is a dispute. The other more important initiative is the requirement that trustees of super funds comply with a court order.
One of the problems with the existing system, says superannuation consultant Kevin Casey of Sydney-based KC Superannuation Consulting, is that not all family law decisions have automatically included superannuation.
Where they have, the courts, as well as individuals, often haven't understood that trustees of super funds are likely to be restricted in what they can actually do. Without a specific legal right, which the new rules will introduce, trustees can't just divide up the superannuation of one of their members and pay money to a non-member. The best that can often be done where there is a court decision that entitles a non-member to a portion of a former spouse's super is to come to some sort of arrangement generally involving other assets such as the family home.
In a divorce situation, even the member trustees of a DIY superfund can't split up the super of one member and give it to the other if both spouses used the fund but one has more super than the other, says lawyer Michael Vrisakis, the superannuation partner at Blake Dawson Waldron.
What trustees can and can't do in terms of complying with court orders has been a source of contention for some time.
A formal order that directs a trustee to act over a member's super is generally unenforceable and, therefore, won't be complied with. Where it has been ordered, it has caused headaches for both members and trustees, says Vrisakis.
He is aware of at least one family law case where the proceedings have been adjourned until the new legislation comes into effect on December 28.
Under the existing rules, superannuation cannot be split because there are restrictions on the assignment of interests in a fund, even between members of the same fund. This is one of the main prohibitions of the Superannuation Industry legislation. The best that can be done is to take the super as a financial resource of a marriage and then allocate other assets as compensation to the spouse without superannuation.
This is often not very satisfactory if a spouse with a lot of super that can't be accessed until retirement leaves a marriage with little in the way of immediate assets.
Under the new legislation, the rules will allow for an immediate splitting and payment or transfer to a non-member spouse. Where the receiving spouse isn't a member of a fund and also isn't eligible to receive the benefit as cash because they don't satisfy a general condition of superannuation release, such as being retired, the money can either be transferred into a new super account in the same fund or to a nominated fund.
The new rules will also oblige trustees to provide the court or a member's spouse with detailed information about a member's superannuation, stopping members from refusing to give information or providing misleading information.
Among other issues to consider are the fact that the rules only cover legally married couples. The Federal Government doesn't have the power to legislate for de facto or same sex relationships and such entitlements must be separately legislated by the States. Such legislation is expected to be introduced at least for de facto marriages, although this could take a couple of years.
According to Casey, the vast majority of divorce property settlements are reached on a voluntary basis and it is hoped this will continue. If a couple can't decide how to resolve the issue, the matter can go to the courts, which will make a decision that will be binding on all parties.
As far as the technical aspect of payments are concerned, when a benefit is transferred to a spouse's super the new system will mostly follow the lines of the original benefit with the exception of the taxed pre and post components. These amounts will be transferred as one sum.
Where a benefit is paid as a termination payment, the non-member spouse will receive the pre and post amounts converted to a post-83 benefit.
The implications for reasonable benefit limits (RBLs) are that a transfer to a non-member will not be counted as a benefit paid from the member's point of view.
But for the non-member, when the benefit is eventually cashed in it will count towards their RBL.
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