Members of APRA-regulated funds
Super funds regulated by the Australian Prudential Regulation Authority (APRA) are typically large funds with hundreds or thousands of members.
Under the Family Law Act 1975 and the Superannuation Industry (Supervision) Act 1993 (SISA), an interest in superannuation (a 'super interest') or a super payment may be divided or split by agreement or court order in the event of a relationship breakdown.
A member's super interest is defined as their 'interest in a superannuation fund'. Generally, an account will constitute an interest in the fund.
Super agreements and court orders specify how a member's super interest in the fund, or how a super payment, is to be split between the member and non-member spouse.
Splitting super interests and payments
Depending on the rules of the super fund, it may be possible for a member's super interest to be split immediately upon receipt of the agreement or order, rather than waiting for the member's benefit to become payable (such as when they meet a condition of release). This means that the obligations under the agreement or court order can be finalised closer to the time of separation, rather than waiting until retirement of the member spouse.
If the rules of the super fund allow it, a new super interest can be created for the non-member spouse in the member's fund. If not the interest can be transferred or rolled over to another fund in the non-member spouse's name. In some cases, the non-member spouse may be immediately entitled to be paid their interest in the form of a super benefit if they meet a condition of release.
The tax-free and taxable components of the super interest or a super payment must be calculated immediately before the interest split or payment, and divided between the split interests or payments in the same proportion.
Super benefit payments subject to a payment split
Where a new interest in super is created for the non-member spouse, any super benefits subsequently taken by the non-member spouse from the new super interest are taxed according to the current rules for member benefits.
When relationship breakdown occurs after a super income stream has started to be paid, a super agreement or court order made under the family splitting laws can specify that the super income stream be split.
In most cases, the super income stream would be commuted and the non-member spouse paid their entitlement under the agreement or court order. The remainder would be paid to the member spouse either as a lump sum or a reduced super income stream.
Where the non-member spouse's entitlement is paid as a super lump sum, it is treated as a separate super lump sum benefit for the non-member spouse.
If the non-member spouse's entitlement is paid as a super income stream, it is treated as a separate income stream for the non-member spouse.
Where the super income stream is unable to be commuted due to the governing rules of the fund, the split is effected by dividing each income stream payment between the member spouse and non-member spouse.
The split will result in two regular payments being made from the same income stream, one each to the member spouse and non-member spouse.
More information on super and relationship breakdown is provided by the Department of the Attorney-GeneralExternal Link.
Acquiring 'in specie' super assets
If you are a trustee or investment manager of a regulated super fund, may be able to acquire an asset from a related party of the fund as the result of a relationship breakdown of a member of the fund.
The asset may be acquired from a trustee or investment manager of another regulated super fund.
Tax consequences of splitting super
The tax consequences from splitting super on relationship breakdown could include:
- a super lump sum payment and pension paid to the member spouse and non-member spouse being taxed separately
- super lump sum components being calculated for member spouse and non-member spouse entitlements individually.