The Role of Superannuation in Family Law Property Settlements

First published 21 July 2021, updated 27 November 2025.

Introduction

Superannuation splitting is an important aspect of family law property settlements under the Family Law Act 1975 (Cth) (FLA). This paper looks at some of the technical aspects of superannuation splitting so as to ensure that a superannuation split contained in a court order or a superannuation agreement can be implemented.

Since 28 December 2002 Australia has had a scheme that enables most superannuation funds to be split between parties as part of property settlements under the (FLA) between separated parties.

The scheme is based on superannuation being “treated” as property for the purposes of para (ca) of the definition of “matrimonial cause” in s 4(1) FLA. The “matrimonial cause” links the FLA with the federal government’s power to legislate regarding particular matters as set out in the Constitution. Paragraph (ca) of s 4(1) gives courts exercising jurisdiction under the FLA the power to legislate with respect to proceedings between the parties to a marriage with respect to the property of the parties to a marriage. Paragraph (c) of the definition of “de facto financial cause” in s 4(1) FLA is similarly worded although a breakdown of the de facto relationship is mandatory for the de facto financial causes to apply.

As superannuation is treated as property, the s 79 FLA process (or s 90SM process with respect to de facto relationships) must be followed before a superannuation splitting order is made. This requires that the court is satisfied that it is just and equitable to alter the parties’ interest in property, the superannuation must be valued, contributions are assessed and s 75(2) or 90SF(3) FLA matters considered.  This process is not dealt with in this paper.

What is a superannuation split?

A superannuation split under the FLA is a split of a payment. An order or agreement under the FLA only operates in relation to a ”payment” made from the fund itself, not the member’s interest in the fund. The split under the FLA occurs when the member is entitled to receive a payment from the fund which is normally after the member has reached a condition of release, such as retirement after they have reached retirement age.

Splitting the superannuation interest itself cannot be ordered under the FLA. A split of the interest can only occur under the superannuation legislation and regulations, and under the specific deed or legislation which applies to the superannuation fund if the deed or legislation permits it.

A new interest can be created for a non-member spouse under Div 2.2  Superannuation (Industry) Supervision Regulations 1993 (Cth). The trustee of a superannuation fund can ”split” an interest to create a new interest for the non-member or transfer assets to allow the non-member spouse to have an interest in another fund.

For a superannuation interest to be split, it must be a “regulated superannuation fund” which has the same meaning as it does under the Superannuation (Industry) Supervision Act 1993 (Cth) (SIS Act). The requirements set out in s 19 of the SIS Act include that the fund must be approved by the Australian Commissioner of Taxation. This means that an overseas fundcannot be split.

A superannuation interest must be an eligible superannuation plan as defined in s 90XD of the FLA as any of:

• a superannuation fund within the meaning of the SIS Act
• an approved deposit fund within the meaning of the SIS Act
• a retirement savings account (RSA), or
• an account within the meaning of the Small Superannuation Accounts Act 1995 (Cth),
• a superannuation annuity (within the meaning of the Income Tax Assessment Act (1997) (ITAA 1997).

Usually, it will be an accumulation interest in a retail or industry fund, a defined benefit fundor a self-managed superannuation fund.

Should a splittable payment be a dollar amount or a percentage?

There are four types of superannuation splitting orders which can be made, but the most common are called type (a) and type (b) orders.

In type (a) orders, a lump sum is set aside within the member’s fund for the non-member. The lump sum is calculated on the basis of a dollar figure known as the “base amount”. The base amount is adjusted over time and the non-member’s interest grows independently of the member’s interest. The member can continue to make contributions without affecting the base amount.

The family law value of the interest may not be the same as the value on the member’s statement. The base amount should not be higher than the family law value, which is the value of the superannuation under the Family Law (Superannuation) Regulations 2025 (Cth) (FLS Regulations). If the base amount is higher than the family law value, the court won’t make a splitting order. If the base amount is higher than the superannuation fund value, the superannuation fund won’t implement the split.

Type (a) orders are therefore designed for accumulation interests in the growth phase. If a percentage split is ordered rather than a base amount, the non-member will benefit from the contributions made by the member after the date at which the superannuation was valued and the orders were made. If there is a delay of years before the order is implemented (either because the fund does not allow the non-member to receive their interest until the member is entitled to payment from the fund, or the parties do not promptly take steps to implement the split) the non-member will benefit from the delay.

In type (b) orders, the non-member is paid a certain percentage of each splittable payment. These orders are most appropriate when superannuation is in the payment phase. The “payment phase” means that the member is receiving a superannuation pension or has met a condition of release and is entitled to receive a pension or lump sum.  

Percentage splits are particularly useful when there is an ongoing pension which will be CPI indexed so the parties know what proportion of each payment the non-member is entitled to, regardless of the total dollar amount payable to the member over time.

Percentage splits are also useful where parties want to ensure a precise 50/50 division of their superannuation, particularly in a self-managed superannuation fund. Baines & Baines[2016] FCCA 1017 is an example of a complex splitting order. To ensure that the superannuation entitlements were split equally, Scarlett J adopted the “cross split order” proposed by the single expert. The wife’s entitlement in the self-managed fund was split 100% to the husband and then the husband’s entitlements were split 50% to the wife.

Relevant date of superannuation split

When valuing a superannuation interest, the relevant date is the date at which the value of the interest is determined under the FLS Regulations.

Operative time or date for superannuation split

The operative time or date determines when a trustee must start to recognise the interest of the non-member. The operative time is not the same as the relevant date.

The “operative time” has a different meaning in different circumstances. It is defined in s 90XD FLA as:

“(a) ​in relation to a payment split under a superannuation agreement or flag lifting agreement – the beginning of the fourth business day after the day on which a copy of the agreement is served on the trustee, accompanied by the other documents required under s 90XI.

(b) in relation to a payment flag under a superannuation agreement – usually either:

(i) ​the service time, if the eligible superannuation plan is a self-managed superannuation fund; or

(ii) ​otherwise, the beginning of the fourth business day after the day on which the service time occurs (both (i) & (ii) are under s 90XK(1)); or

(iii)​ if s 90XLA applies, the time that the payment to the trustee of the new ESP is made (s 90XLA(2)(c)).

(c)​ in relation to a payment split under a court order, the time specified in the order”.

So, in relation to a superannuation agreement, the operative time is the beginning of the fourth day after the agreement and any other relevant documents are served upon the trustee (s 90XDA(a) FLA), but a court order can theoretically nominate any date.  

A majority of the Full Court of the Family Court in Wilkinson & Wilkinson (2005) FLC 93-222 said that a superannuation splitting order should have an operative time. The parties agreed that this should be the date of the order. The court considered that it should generally be the date of valuation of the interest if it is a base amount type (a) order. This was because the member’s interest may continue to grow from the date of valuation to the date the orders are made. The majority’s approach is very inconvenient and perhaps less practical for the trustee, but fairer between the parties.  In practice, the trustee will often object if the operative time is before the date on which the order is served.

Implementing a split

If an interest is to be split, the trustee must issue a payment split notice. The notice gives three options to the non-member which are set out in Part 7A SIS Regulations:

1. A new interest can be created in the member’s superannuation fund;
2. The interest can be rolled over to a fund nominated by the non-member; or
3. A lump sum can be paid if the non-member spouse satisfies a condition of release, such as retirement or permanent incapacity.

The trustee must be served with:

• the superannuation splitting order
• a notice under reg 144 FLS Regulations (formerly reg 72 of the Family Law (Superannuation) Regulations 2001 (2001 FLS Regulations) giving details about the non-member.

When the payment split is made, an interest will be created for the non-member spouse in a regulated superannuation fund or an approved deposit fund (“ADF”). This can be done either at the non-member spouse’s request or on the trustee’s initiative.

The trustee can create a separate interest for the non-member as at the operative time while waiting for the return of the payment split notice (reg 7A.03B(1) SIS Regulations.

The amount payable to the non-member spouse is calculated in accordance with regs  73-76 of the FLS Regulations. The FLS Regulations require that at the time of payment, the amount to be paid to the non-member spouse is the base amount stipulated in the court order or superannuation agreement adjusted with interest from the operative time up to the payment date. The interest rate which applies to accumulation interests (other than in SMSF’s) is the interest earned by the fund. The interest rate which applies to defined benefit interests and SMSF’s is determined by the Australian Government Actuary and is published in the Commonwealth Gazette. The rate is 2.5% above the percentage change in theoriginal estimate of full-time adult ordinary time earnings for all persons in Australia, as published by the Australian Bureau of Statistics during the year ending with the November quarter immediately before the beginning of the adjustment period.

The rates for the current and the previous three financial years are:

• 2025-2026 – 6.9%
• 2024-2025 – 7%
• 2023/2024 – 5.9%

The actual scheme earning rate has no relevance in determining the interest rate to be applied. It is irrelevant if the scheme has negative earnings between the operative date and the payment date; interest is still paid on the base amount at the rate set by the Australian Government Actuary.

If a member has both an accumulation account and a defined benefit with the same fund, the superannuation split will be taken from the accumulation account first (unless the contrary is specified).

Unrestricted non-preserved, restricted non-preserved and preserved benefits are shared between the parties in the same proportions as their shares of the total interest.

The tax-free and taxable components of the superannuation benefit are also divided in the same proportions.

What is the most appropriate superannuation splitting method? Order or agreement?

A superannuation splitting order is usually simpler and cheaper to implement than a superannuation split in a superannuation agreement. Factors to consider include:

• Costs
• Time-frame in which finalisation is sought
• Whether proceedings are already before the court
• How other (financial) matters are being resolved
• Any unusual aspects to the superannuation or method of split

Reasons for using a superannuation agreement include:

1. The parties want to settle all property and maintenance matters with a financial agreement. Under s 90XH(1) FLA, a superannuation agreement can be part of a financial agreement which also deals with non-superannuation property. Parties may prefer to have all their financial issues covered by one document or may prefer the privacy of a financial agreement.
2. There does not need to be a formal valuation of the superannuation. This may suit parties faced with difficult valuation issues regarding a defined benefit fund, self–managed superannuation fund or a pension in the payment phase. There may be a significant difference in the value of the fund using scheme specific factors rather than the member’s statement and the parties agree to rely on the member’s statement or a different amount altogether.

A superannuation agreement may be useful when parties agree to assume a retirement age of, say, 55 when calculating the value of entitlements, rather than another age imposed by the FLS Regulations or scheme specific factors. Valuation evidence of some sort is still required to reduce the risk of later negligence claims against the lawyers, but a valuation method is not prescribed for superannuation splits contained in financial agreements whereas a valuation method is prescribed when superannuation splits are in court orders.

BAR & JMR (No. 2) [2005] FamCA 386 is an example of a case in which there was discrepancy between the family law value of a superannuation interest from its “fair” value.

Justice Young held that imposing a payment flag and giving the wife a split of the husband’s interest when it was in the payment phase, rather than in the growth phase, was fairer because the wife would share in the growth of the fund. The likely period until the husband retired was four years but it could be as long as 14 years.

The single expert valued the husband’s defined benefit interest using the method in the former regulations, the 2001 FLS Regulations. As at 5 February 2005, it was worth $403,810.42. He calculated the resignation benefit, not in accordance with the 2001 FLS Regulations, as $534,084.74. The difference was $130,274.32.

The single expert said that valuing under the 2001 FLS Regulations did not give a fair and just valuation of the Emergency Services Superannuation Scheme fund (the ESSS fund). He did not give an alternative valuation.

Justice Young disregarded the difference in the two values for valuation purposes, but held the difference relevant under s 75(2)(f) and (o) (now s 79(5)(i) and (v)) FLA. He also said that was very significant that the valuation under the 2001 FLS Regulations increased by almost $45,000 within one year. The wife was entitled to share in the growth. A splitting order in the growth phase disadvantaged the wife. She would lose the very real financial benefit of the applicable multiple and the generous provisions of the particular fund. Her base amount when rolled over could not appreciate in value in any way comparable to the husband’s interest left within the fund.

Section 90MT(2) FLA (now s 90XT(2) FLA) required the court to “make a determination” rather than value the superannuation interest. Without contrary evidence, Young J was not able to look behind the valuation. It is unclear how Young J would have dealt with any contrary evidence.There were many uncertainties and contingencies about valuing the husband’s interest, including:

• • the husband’s actual retirement date
  • the husband’s salary
  • the applicable superannuation tax rates for each of the parties
  • proposed changes to the ESSS fund
  • the husband’s applicable multiple (from time to time)
  • a just and equitable valuation as put by the single expert, and
  • the failure to have evidence from the trustee of the ESSS fund.

Making a flagging order and then making orders in the payment phase overcame these problems, allowed the wife to share in the growth of the fund, and achieved a just and equitable alteration of property interests. The husband’s income, multiplier, applicable tax rate and retirement date would be known with certainty. The guess work and likely injustices were largely eliminated.

3. The parties may have agreed to take the superannuation into account in a manner which may not seem, on its face, to be proper, appropriate, and just and equitable as required by s 79 or s 90SM FLA. Using a superannuation agreement avoids the risk of a Registrar refusing to make the consent orders in chambers and referring the matter to a Judge in open court. Of course, the benefits of this must be weighed up against the risks of a later application by one of the parties to set the agreement aside if a ground can be established under s 90K or s 90UM FLA.

4.​ The parties can specify a method in the agreement for splitting the superannuation interest. This can be different to the options available in court orders. If the parties use their own method they must give an example to the trustee to show how the base amount is to be achieved (s 90XI(b) FLA). The example does not need to be in the agreement itself but can be in a separate document.

An alternative approach if the parties had agreed as to the value of the interest was to use the agreed value rather than the valuer under the FLS requirements and settlewith a Superannuation Agreement rather than Consent Orders.

5. ​The complexity of superannuation generally and of the proposed orders in a particular case may encourage lawyers to split superannuation by a superannuation agreement even if non-superannuation is dealt with in consent orders. A superannuation agreement can be particularly useful for the complex issues which may arise with self-managed funds.

A reason not to use a superannuation agreement in the past was if the parties had not been separated for 12 months and the member had superannuation which was more than the low rate cap amount which was $235,000 in 2023-2024. Court orders were required if a financial agreement was used to split the superannuation, a specific separation declaration under s 90XQ. This law no longer impacts superannuation splits in this way.  

Transfer balance account

A transfer balance account is a record of events that count towards a personal transfer balance cap.

The transfer balance cap rules, which apply generally from 1 July 2017, restrict the amount of capital an individual can transfer to a tax exempt retirement phase account to support a superannuation income stream. The transfer balance cap is intended to limit the extent to which an individual’s superannuation interests can benefit from the tax exemption on the income from superannuation investments when they receive superannuation income stream benefits.

A person starts to have a transfer balance account when they commence to receive a tax exempt retirement phase superannuation income stream from their superannuation fund. The transfer balance account records events, either as credits and debits, that count towards a personal transfer balance cap.

A person has an excess transfer balance if the balance of their transfer balance account exceeds their personal transfer balance cap on a particular day. The person may then be required to pay tax on the notional earnings relating to the excess amount or commute the excess amount and withdraw it from superannuation or transfer it to an accumulation account.

When a superannuation payment or interest split occurs, the change to the transfer balance account must be reported to the Australian Taxation Office in a Transfer Balance Event Notification Form. The transfer balance of the member will fall by the amount of the split, which may be advantageous to the overall financial position of the parties. Complexities arise where a pension is in the payment phase but the non-member has not yet met a condition of release. The crediting and debiting of the commuted value of the pension may result in a higher than otherwise transfer balance cap for both parties. It is therefore important for both parties to seek expert advice in these situations so that they maximise any advantages.

Usually, if superannuation falls in value after retirement it can’t be “topped up” to the person’s transfer balance cap but, if it falls in value because of a superannuation split under the Family Law Act 1975 (Cth) (FLA) it can be.

The transfer balance cap was stuck on $1.6 million for several years but it is now increasing and from 1 July 2025 it is $2 million. For a particular person the cap may be lower because of their particular circumstances such as non-concessional contributions made. A defined benefit fund pension may be treated differently as it usually cannot be commuted, and the fund advises the member of the “special value”. The “special value” will not create an excess balance of itself.  There must be another fund as well to take the member over the cap.

Self-managed superannuation funds

The main distinction between self-managed superannuation funds (SMSFs) and industry or retail funds are that the members of an SMSF are also usually the trustees of the fund.

The statutory requirements for SMSFs are heavy, and many clients and their partners seem ill-equipped to meet them. SMSFs are regulated under the SIS. The Australian Taxation Office (ATO) regulates SMSFs and verifies their compliance. Funds are probably more likely to be non-compliant in proceedings under the FLA given the emotional and financial stresses of separation and litigation.

A non-compliant fund risks losing the tax concessions associated with superannuation funds meaning that tax penalties and interest may be payable. These may be quite high.

Importantly, members of an SMSF must also be trustees (or directors of a corporate trustee) and trustees must usually also be members (SIS Act s 17A(1)). This means that both parties to the marriage or de facto relationship need to be trustees of the fund or directors of the corporate trustee. The only exception to this is if the SMSF has only one member. If the SMSF has only one member and there is a corporate trustee, there does not need to be a second member other than the member. If there is no corporate trustee, the second director must be a relative of the member (SIS Act s 17A(2)).

Each trustee or director is jointly and severally liable for breaches of the obligations imposed on trustees.

Common problems with SMSFs in family law matters include:

• not completing financial statements and taxation returns in a timely fashion
• using the fund’s bank account for personal purposes
• not investing properly – often funds are simply left in a bank account, which is not, in itself, necessarily a breach although the fund is required to have an investment strategy, and this may be an indication that there is no investment strategy or that it is not being followed, in which case, especially in a low interest rate environment, parties may be financially better off using an accumulation fund
• using fund assets for personal purposes (eg holiday house and even a family home), which is a breach of the sole purpose test (SIS Act s 62)
• incorrectly categorising the taxation status of funds held by the SMSF

Another problem is that the underlying assets may be illiquid or “lumpy”, and a strategy may be required to ensure that the interest of one party is properly transferred to another fund.  A sale of the lumpy asset will often be ordered. Examples are:

• If the SMSF owns real property, a sale may be unavoidable. In Odens & Odens [2021] FCCCA 575, a sale was ordered despite one party seeking that both parties remain members of the SMSF and the real property not be sold.
• In Aldam & Cesari (No 2) [2020] FamCA 732 one party unsuccessfully sought to pay the other 70% of their 50% superannuation entitlement by way of a cash amount to avoid a sale of the real property.

If the fund is non-compliant, independent advice may be desirable as to the works and costs required to make the fund compliant. Professional advice should be sought as to how to deal with any potential tax penalties.

There are ongoing risks for a party resigning as a trustee. The ATO can impose penalties on each trustee personally. An order that the remaining trustee indemnify the resigning trustee for any penalties may be difficult and expensive to enforce.

The courts, when faced with an SMSF that is non-compliant, usually make orders that require the non-compliance to be rectified as recommended by an accountant or other expert.

If the SMSF’s financial statements show current values of the assets in the fund, these can be used to value the fund. However, the valuations in the financial statements are usually not current: publicly listed shares may be, but real estate is usually not. In addition, sales and purchases may have taken place, interest or dividends may have been earned and taxation or other expenses incurred since the financial statements were prepared.

There may be liabilities to take into account in determining the value of a SMSF and the member accounts. Capital gains tax may affect the valuation of the fund if the requirements of Rosati & Rosati (1998) FLC 92-804 are met. It is important to ascertain whether the CGT will definitely be incurred. If it will not be incurred immediately or in the near future, it should not be taken into account in valuing the SMSF. The CGT may not eventually be payable or the amount may vary due to changes in the member’s circumstances, tax laws, etc. There may be roll-over relief available if assets are transferred from one SMSF to another or to another complying superannuation fund. Other CGT relief is available in certain circumstances and specialist advice should be sought.

Capital gains tax (CGT) concessions may apply in transferring assets in specie between superannuation funds. Certain conditions must be satisfied in order to attract CGT roll-over relief because of marriage or relationship breakdown between funds in circumstances where each party is keeping their own entitlement. These conditions are as follows:

1. ​The parties are members of an SMSF;
2. ​An interest in the SMSF is subject to a payment split under the FLA;
3. ​​The trustee of the SMSF transfers a CGT asset to the trustee of another complying fund for the benefit of the leaving party;
4. ​​The transfer is in accordance with an award, order or agreement under s 126-140(2B) of the ITAA 1997 or under s 90XZA FLA;
5. ​The transfer is in accordance with the terms of a superannuation agreement or order and the transfer is because of marriage or relationship breakdown;
6. ​As a result of the transfer, the leaving party will have no entitlement in the SMSF;
7. ​​It may be necessary to have cross-splits to ensure that the party who remains a member of the SMSF does not incur a CGT liability as a result of the restructure;

CGT roll-over relief may also be available to payment splits where the parties are not retaining their own interests if the requirements of the FLA, especially s 90XZA, or the SIS Regulations are met.

Gabbard & Gabbard [2010] FMCAfam 1486

The husband dissipated nearly all of the assets of the SMSF without the wife’s knowledge18 months later or consent. In August 2007, there was $164,936.45 in the SMSF. By 12 January 2009, the balance was only $1,767.23. Federal Magistrate Henderson found that it that the fund had to be repaid the sum necessary to make it compliant and that this was a priority. There had been two adjournments to enable the husband to do certain things including to reimburse the SMSF, but he did not do so.

The wife relied on the report of an expert setting out the actions required to make the SMSF compliant. These actions were:

• the moneys must be fully refunded;
• tax returns had to be prepared for the 6 non-complying years;
• the ATO had to be advised of the husband’s conduct and actions, and
• the parties would then await the ATO’s decision.

Under the SMSF’s deed the wife could be appointed as the delegate of the trustee of the SMSF. An order for this was made so that the wife could do all acts necessary to make the fund compliant. After making the fund compliant the wife could effect the split to a fund she nominated leaving the husband with his interest in the SMSF. The wife was given authority to sell assets outside of the fund so she could make the fund compliant. The husband was ordered to indemnify the wife for any tax debts incurred by the SMSF.

Thurston & Loomis [2016] FamCA 318

There were substantial issues of non-compliance with legislative and regulatory requirements by the parties who were directors of the corporate trustee of the SMSF.

The parties had withdrawn most of the funds from the SMSF to pay for the development of real property registered in the name of one party and the rest to pay for personal purposes not related to the proper conduct of the fund. A jointly instructed independent accountant gave evidence which was summarised by Forrest J (at [4]) recommending that:

“. . . the withdrawals should be treated as loans to members of the fund as a prelude to taking remedial steps so as to reduce the impact of the regulatory consequences of the non-compliance, as far as is possible. Whilst . . . treating the withdrawals as loans to members does not in itself remedy the non-compliance because they are related party loans and breach the ‘in house asset’ rules of the Superannuation Industry (Supervision) Act 1993 (Cth) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) . . . if the loans are repaid with interest calculated at the appropriate rate, having regard to guidance set by the Australian Tax Office (‘the ATO’), that the issues of non-compliance may be dealt with in a less punitive fashion by the ATO than they might if the non-compliance is otherwise not addressed”.

Forrest J ordered that funds held in two bank accounts which derived from the sales of real property acquired by the parties during the relationship should be used to repay the SMSF. He also ordered that the independent accountant report the matters to the ATO. He adjourned the delivery of his judgment until after the interim matters were dealt with and the parties and the judge had been advised of the remaining funds in the two accounts.

He held that the net pool to be divided between the parties was not able to be ascertained until after the ATO was paid in full, so the case was adjourned.

On the adjourned date, the fund was still owed money – $33,000. The husband was ordered (without his consent) to take a transaction to retirement pension payment and then repay it to the fund to make up the money still required to be refunded to the SMSF.

Linder & Linder [2016] FamCAFC 139

The SMSF was non-compliant and there were therefore contingent taxation liabilities, the amounts of which were unknown. Both parties were members, but there was no dispute that the non-compliance arose from the husband’s mismanagement of the fund.

The tax liabilities were potentially between $22,817 and $343,240. The trial judge proposed that the superannuation fund be brought to the attention of the ATO, then whatever liability was payable could be assessed. The wife agreed with this course of action, but the husband did not. The husband proposed that he retain the whole of the SMSF with no allowance for taxation. There was no certainty as to what the liability would be.

On appeal, one of the husband’s arguments was that the trial judge was in error in not making any allowance for taxation. He sought that half of the highest possible amount, namely $171,620, be deducted.

The Full Court of the Family Court dismissed this aspect of the appeal because:

• the husband did not ask the trial judge to include the contingent tax liability as a debt of the parties
• it was not possible at trial to determine precisely the magnitude of the liability to the ATO or when it might arise, and
• if there was a future liability to the ATO, it would be the result solely of the husband’s failure to properly manage the fund, and this failure should affect the wife.

Powell & Christensen [2020] FamCA 944

The court ordered that the parties make the SMSF compliant before they made submissions as to how the superannuation and non-superannuation property be adjusted. The court found that it was unable to value the parties’ interests until the parties had paid the funds required to make the SMSF compliant. The father did not cooperate with the process and the mother had to obtain enforcement orders dispensing with the necessity for his co-operation. The father’s main objection was that he wanted one of the parties to do the work to make the fund compliant and did not want to pay accountants.

Aldam & Cesari (No 2) [2020] FamCA 732

The husband’s proposal for the wife to be paid the equivalent of 30% of non-superannuation rather than 50% of his superannuation was rejected. The husband argued that a discount should apply to the wife’s entitlement because on his approach the wife would enjoy the benefit of immediate access to funds, and the wife would not be burdened by hardship as she would be free to invest that money in another fund, property, shares or other appreciating assets. The husband would retain the benefit of his interest in the self-managed superannuation fund. He said that given the ages of the parties, he would not have access to those funds for a considerable time, that the 30% discount rate proffered was reasonable under s 75(2) FLA and in the event that an order for a sale of the real property was made the husband would first want an opportunity to buy out the wife’s share in the property owned by the fund based on valuation evidenced before the court.

The court held that the husband’s proposal was likely to have the effect of occasioning undue hardship on the wife. The husband argued that a sale of the real estate was an unnecessary erosion of the value of the fund. The court rejected this proposition and said as the erosion was more apparent than real as on his proposal the husband would be left with the real property at full value whereas the wife would receive a discount of 30% on her 50% share of the property thereby reducing her entitlements to the fund from $102,718 to $71,524. By contrast the husband would be left with very valuable real estate in his sole name.

Odens & Odens [2021] FCCA 575

After over 22 years of marriage there was insignificant property available for distribution between the parties except for superannuation. The wife had superannuation of $79,000 in an industry fund. The husband’s superannuation was in a retail fund until he unilaterally moved it into a SMSF which he valued at $284,000. The SMSF owned residential property which the husband valued at $410,000 and was subject to a mortgage of $203,000. There were other liabilities including a loan to the husband of $79,000. The wife was alarmed at the prospect that if she had entitlements in the SMSF, that the husband could detrimentally affect her entitlements by borrowing further amounts from the SMSF. The husband was concerned that the sale of the residential property might attract capital gains tax. He considered a sale to be financially improvident.

The trial judge pointed to the advantages of the superannuation being managed by a professional trustee, which advantages had been denied to the wife by the husband’s  unilateral actions in setting up a SMSF.  

Procedural fairness

Parties to court orders have a legitimate expectation to receive procedural fairness before orders are made. The right of a trustee to procedural fairness is reinforced by s 90XZD FLA. The court cannot make an order which binds a trustee who is not a secondary government trustee (defined in ss 90XD and 90XDA) without according procedural fairness (s 90XZD(1)).

Before a superannuation splitting or flagging order is made there must have been procedural fairness to the trustee (s 90XZD FLA). This means that the trustee had prior notice of the specific order sought and had the opportunity to be heard about the order before it was made. Notice of an intended order usually occurs by serving a copy of the proposed order on the trustee. If the terms of the proposed order change, further notice to the trustee is usually required. Procedural fairness should also be given in relation to superannuation provisions in financial agreements to ensure that the fund is able to implement the split, although there is no legislative requirement for this

If an order is sought by consent in a court exercising jurisdiction under the FLA which is intended to bind the trustee of an eligible superannuation plan, not less than 28 days before lodging the draft consent order or filing the Application for Consent Orders, a party must notify the trustee in writing:

• of the terms of the order that will be sought to bind the trustee
• of the next court event (if any)
• that the parties intend to apply for the order sought if no objection to the order is received from the trustee within 28 days
• that if the trustee objects to the order sought, the trustee must give the parties written notice of the objection within 28 days (r 10.06(2), Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (the Rules).

If the matter is proceeding to trial, the party seeking an order to bind the trustee of an eligible superannuation plan must, not less than 28 days before the date fixed for the trial, notify the trustee of the fund in writing of the terms of the order that will be sought at the trial and bind the trustee, and the date of the trial (r 1.12(6) of the Rules).

If an application for final orders or a response or reply to such an application seeks a flagging or splitting order in relation to a superannuation interest or applies for such an order to be set aside, a sealed copy of the document must be served on the trustee of the fund immediately after filing (r 1.12(5)(a) of the Rules.

If a splitting order or flagging order is made, the party in whose favour the order is made must serve the trustee with the order (r 1.12(5)(b) of the Rules).

The FLA does not define “procedural fairness”. It appears that a trustee is required to be given reasonable notice of any intended orders relating to the superannuation fund and be given an opportunity to be heard in respect of them. If procedural fairness is not accorded there is an error of law justifying an appeal. The fund does not have a right of veto, but a right to notice.

Generally, the phrase “procedural fairness” has a similar meaning to “natural justice” and “due process”. In a case dealing with administrative law not family law, the High Court held that there is a common law duty to act fairly in making decisions which affect rights, interests and legitimate expectations (Kioa v West (1985) 125 CLR 550, 584 per Mason J).

Orders made without notice to the trustee are voidable, so they are valid until they are set aside (Fatt & Fatt [2004] FMCA fam 254).

Although it was not an issue raised by the parties, the Full Court of the Family Court in Pandelis & Pandelis (2019) FLC 93-885 raised the problem that the trustee had not been given procedural fairness and required that the parties rectify this before fresh orders were made.

In Naisby & Naisby [2021] FamCAFC 92 the trustee was not given any notice and accordingly was not afforded procedural fairness. Consequently the superannuation splitting order was made without power. The Full Court found that there was merit in that ground of appeal. If that was the only successful ground of appeal, both parties agreed that the Full Court could re-exercise discretion. The Full Court said that this could have been done, after dispensing with the relevant rule of court, in one of two ways:

• Re-drafting the paragraphs in the property settlement order relating to superannuation splitting so that it had no effect until the expiration of 28 days after the order has been served upon the trustee, or
• Delaying actually remaking the order until the Court was satisfied that the requisite notice has been given to the trustee without the trustee seeking leave to intervene.

By adopting either of those courses, the trustee would have been afforded the opportunity to have the matter relisted in the event that the trustee sought to become a party and be heard in respect of the order coming into effect or being made.

However, as that ground was not the only ground upon which the appeal succeeded neither of those options were pursued.

Other issues

Proposed reforms

Conclusion

This overview of the making of superannuation splitting orders sets out some of the problems and issues which need to be considered when drafting them. When dealing with funds which are not SMSFs, the first step should always be to look at the website of the relevant fund and follow as closely as possible to any preferred wording of the fund. When dealing with SMSFs particular care must be taken with checking its compliance status, ensuring it’s compliant status is maintained and dealing with lumpy assets which may be owned by the SMSF.

© Copyright – Jacqueline Campbell of Forte Family Lawyers and Wolters Kluwer/CCH. This paper uses some material written for publication in Wolters Kluwer/CCH Australian Family Law and Practice. The material is used with the kind permission of Wolters Kluwer/CCH.