Protecting Superannuation Pending Final Property Settlement
Significant amendments were made to theFamily Law Act in 2002 so that superannuation could be treated as ‘property’ in a property settlement. This allowed separated couples to split superannuation to another spouse as part of a property settlement by a superannuation agreement or court order. Prior to the amendments to the Family Law Act the Family Court had no power to spilt a superannuation fund or any power to require a trustee of a superannuation fund to freeze a fund pending settlement.
With superannuation becoming increasingly significant in Australia today it is important for parties to be aware of the legal avenues available to them under the Family Law Act to preserve a superannuation interest pending final property orders.
WHAT IS AN ELIGIBLE SUPERANNUATION PLAN?
The Family Law Act specifically defines the type of superannuation policies it can deal with:-
- A superannuation fund within the meaning of the Superannuation Industry (Supervision) Act 1993 including those in the public and private sector;
- Self managed superannuation funds;
- An approved deposit fund; and
- A retirement savings fund.
The Family Law Act does not provide the courts jurisdiction to deal with overseas superannuation policies or overseas pension funds. The jurisdiction only extends to superannuation funds and pensions in Australia.
UNDERTAKING BY A MEMBER SPOUSE
An undertaking can be signed by the member spouse of the superannuation fund setting out that they are not to deal with their superannuation policy until a certain date or until a final property settlement. An undertaking is a promise to the Court and is as binding as an Order of the Court. A breach of an undertaking is treated the same as a breach of a court order.
A personal undertaking however will not be binding on a trustee of the superannuation fund. The only way to obtain a binding injunction on a superannuation fund is to apply for a payment flag over the fund.
A payment flag can be made by an order or by agreement in accordance with the provisions of theFamily Law Act. A flagging order or agreement is a binding injunction on the trustee of the superannuation fund from making any further payments.
Flagging orders are usually utilised by parties in two distinct circumstances:
- Where the value of a superannuation interest is currently unknown but will be known in the near future; or
- Where retirement is imminent and there is a concern that the member may deal with the superannuation unilaterally.
Once a flagging order has been successfully placed on a superannuation fund, the flag will remain on the fund until lifted by a superannuation agreement or a court order or the imposing of the flag is set aside by the court.
It should be noted that an ‘unflaggable’ superannuation interest is a superannuation fund that is in a payment phase. If a member spouse is accessing their superannuation then an application to the court seeking an injunction will be more appropriate.
Flagging Orders on Defined Benefit Funds
If a payment flag is placed on a defined benefit fund this will prevent a trustee from making any payments from the fund. If however the member of the funds dies prior to an agreement being reached, this can have a negative effect on a fund. A flagging order therefore may not be appropriate in every matter, therefore it is important to obtain advice from a family law specialist as to whether a payment flag is appropriate in your circumstances.
A party may also make an application to the Family or Federal Circuit Court seeking that an order for injunction allowing a party to deal with the superannuation fund. This may be an appropriate order if a party is unable to obtain a payment flag because the superannuation fund is no longer in the growth phase and payments are being made to a member spouse.
This may also be the appropriate option for a party seeking to protect an overseas fund. Whilst the Family Court would have no power to order an injunction on an overseas fund, the court could order a personal injunction on the member spouse from dealing with that overseas fund.