(July-2003) The good news on divorce law interpretation

21 October 2005

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The Full Family Court has handed down its first major decision on the operation of the new family law superannuation-splitting provisions that started in December 2002. The court ruled that parties to a family law property settlement are not required to determine the value of their respective super interests pursuant to the new legislation, where the parties have agreed by way of consent order that their super interests should not be altered.

This aspect of the decision is good news for trustees of super funds as it means that they will not be forced to treat every family law consent order that indirectly deals with the parties’ super interests as a splitting order.

Facts

The husband and wife had reached agreement about the division of the family home, the alteration of other property interests and child support. They had also agreed that the husband should retain his current $25,000 accumulation superannuation interests and the wife her $10,600 interest, without the need for change.

The parties applied for final orders to this effect and the Family Court judge sought the opinion of the Full Family Court in relation to the clause seeking to declare that the husband and wife are the sole legal and beneficial owners of their current super entitlements. The Full Family Court was asked to answer several questions in relation to the interpretation of provisions of the Family Law Act 1975 dealing with super interests subject to a property settlement.

Decision

The court found that a superannuation interest is to be treated as “property” for the purposes of proceedings between the parties to a marriage.

Further, it was held that for the purposes of making a final order under s 79 of the Act, the court may include a clause which has the effect that an existing title or rights of the parties in respect of certain property are not altered. However, it was considered unnecessary for such a clause to be included where it does not involve an alteration of an interest.

The court also ruled that a final order may include a super interest as property irrespective of whether or not a splitting or flagging order is sought or proposed under new provisions. Although an order may be in relation to a super interest, the court considered that there is no requirement for there first to be a mandatory splitting order, and therefore, no need for a determination of an amount (valuation) in accordance with the Family Law (Superannuation) Regulations 2001.

In addition, it was held that the legislation does not provide for a “zero per cent splitting order” to be made, which would impose an obligation on trustees of super funds to record the order. The court found that it was not the intention of Parliament to require trustees to engage in “meaningless paperwork with no practical benefit”.

The court said that an order where an adjustment is made to other property having regard to the value of the super interest is not an “order in relation to a superannuation interest”. In doing so, the Full Court rejected a contrary view that such an order is an order in relation to super interests, because the interests are being used as a “measuring stick” for other rights.

Finally, it was held that the order did not infringe on the requirement of procedural fairness to the trustees of the super funds in which the super interests are held. The order was not expressed to be binding on the trustees and, as a result, there was no need to accord procedural fairness to the trustees.

Conclusion

Despite the Court’s finding, the accumulation interests in the present case would not ordinarily be difficult to value. In addition, the court declined to express a view in this case as to the appropriate material to be filed or placed before the court where there is a defined benefit super interest or where there may be unrepresented parties. The upshot is that the courts are still to test the methods for valuing defined benefit interests under the detailed provisions contained in the 158-pages of regulations.

— Stuart Jones is a tax writer at Australian Tax Practice. Email [email protected]