House of Representatives

Explanatory Memorandum

(Circulated by authority of the Attorney-General,the Honourable Daryl Williams AM QC MP)

GENERAL OUTLINE

The Family Law Legislation Amendment (Superannuation) Bill 2000 ('Superannuation Bill') will give effect to the Government's commitment to reform family law to enable superannuation interests to be divided on marriage breakdown.

Under the current law, the court can take into account any superannuation interest held by the parties, and can and does adjust other property having regard to the fact that one of the parties will have the superannuation interest available as a financial resource.. However, a superannuation interest is not able to be divided.

The Superannuation Bill will amend the Family Law Act 1975 ('the Family Law Act') to provide for the division of superannuation interests on marriage breakdown. This can be achieved either by agreement or by court order.

The Superannuation Bill will provide that parties will be able to make a superannuation agreement, in the context of a broader financial agreement, that specifies how a superannuation interest will be divided on marriage breakdown. Parties will be able to agree on how payments made pursuant to a superannuation interest are to be split.

Schedule 2 of the Family Law Amendment Bill 1999, which is currently before the Parliament, will provide that parties will be able to make a financial agreement, either before or during marriage or after marriage breakdown, about how any or all of their property is to be divided on marriage breakdown. If the agreement complies with the formal requirements, set out in the Family Law Amendment Bill 1999, then it will be binding on the parties. If the agreement is binding, then the court will generally not be able to make an order about the property that is dealt with in the agreement.

The Superannuation Bill will provide for different methods of valuing a superannuation interest depending on whether the interest is a lump sum or a pension interest. The details of the information needed, and the calculations necessary, to value a superannuation interest and to split it will be contained in the Family Law Regulations. The application of the regulations will yield a single valuation that will be particularly important for the actuarial method, as it will require complex calculations in order to establish the present day value of a contingent superannuation interest. This will ensure that parties are aware of the value of a superannuation interest that they are dealing with in the agreement, and will also minimise the opportunity for dispute about the value of a superannuation interest.

In some circumstances, parties may wish to defer their agreement about how a superannuation interest is to be divided, for example because the party who holds the superannuation interest is nearing a condition of release (for example, retirement) at which time the actual value of the interest will be known. The Superannuation Bill will provide that parties will be able to make a flagging agreement, which will act to prevent the trustee of the superannuation fund from dealing with a superannuation interest until the flag has been lifted. The flag will be able to be lifted either by further agreement or by court order should the parties be unable to subsequently agree.

Superannuation agreements will be binding in the same circumstances as the general financial agreements will be binding, pursuant to the provisions contained in the Family Law Amendment Bill 1999. When a superannuation agreement is binding, the trustee of the relevant fund will be required by the law to give effect to the agreement.

Because parties will have obtained prior advice, a court will only be able to set aside a superannuation agreement in certain circumstances, for example if it was obtained by fraud, it was otherwise void or where there was a significant change in circumstances that would make it unfair to give effect to the agreement.

If parties are unable to agree about how to divide a superannuation interest on marriage breakdown, the court will have the jurisdiction and the power to make an order about a superannuation interest that will bind the third party superannuation trustee.

Section 79 of the Family Law Act provides that in proceedings with respect to the property of the parties to a marriage, a court may make such order as it considers appropriate altering the interests of the parties in the property. The court must not make an order altering the interests of the parties in the property unless it is satisfied that it is just and equitable to make the order.

The Superannuation Bill will provide that a superannuation interest is to be treated as property for the purposes of a property order. Therefore, an order about a superannuation interest will be able to be made in proceedings pursuant to section 79 of the Family Law Act. Such an order would usually be made as part of a broader court order dealing with any of the property of the parties that has not been dealt with in a financial agreement.

As with superannuation agreements, the court will be able to make either an order about how payments made pursuant to the superannuation interest are to be split or an order to flag a superannuation interest.

The Superannuation Bill will also amend the Bankruptcy Act 1966 ('Bankruptcy Act'), consequent on the amendments to the Family Law Act relating to superannuation. The Bankruptcy Act provides that certain superannuation interests of the bankrupt, and payments made pursuant to those interests, are property that is not divisible among the creditors of the bankrupt. The amendment to the Bankruptcy Act will extend a similar exemption to a bankrupt who acquires payments pursuant to a payment split of a superannuation interest.

The Superannuation Bill will also amend the Superannuation Industry (Supervision) Act 1993 ('SIS Act') and the Superannuation (Resolution of Complaints) Act 1993 ('Complaints Act'). It is intended that amendments to the Superannuation Industry (Supervision) Regulations ('SIS Regulations') will allow, in certain circumstances, the creation of a new interest for the non-member spouse who is to receive payments under an agreement or order to split a superannuation interest. The amendments to the SIS Act and the Complaints Act contained in the Superannuation Bill are designed to facilitate this and to ensure that the non-member spouse is given, in appropriate circumstances, similar membership rights to those that the member spouse enjoys.

FINANCIAL IMPACT STATEMENT

There will be costs associated with the preparation of actuarial tables to be used in the valuation of defined benefit superannuation interests. There will also be costs associated with an education campaign to inform the family law community and the superannuation industry of the changes that are being made. These will be met from existing resources.

REGULATION IMPACT ON BUSINESS

There will be an impact on the superannuation industry. The trustee of a superannuation plan will be required to divide a superannuation interest in accordance with either an agreement or a court order.

This will necessitate changes to both the administrative and the information technology systems of the superannuation plan. The costs of implementing these changes will be born by the superannuation industry.

The superannuation plan will be able to charge a small administrative fee, set by regulation, for work associated with a payment split of a superannuation interest.