Where a Binding Financial Agreement is executed during a relationship, for the Binding Financial Agreement to be binding after separation, a separation declaration should be signed by one of the parties after separation, in order to demonstrate that the parties have separated and that there is no reasonable likelihood that cohabitation will be resumed. Only once the separation declaration is signed, will the terms of the Binding Financial Agreement be triggered: s90DA & s90UF Family Law Act. A separation declaration is particularly important when a Financial Agreement purports to affect a superannuation split to one party. Read below for information about the special requirements of superannuation splitting in financial agreements.
Requirements for Superannuation Splitting in Financial Agreements
Besides meeting the requirements for a Financial Agreement to be binding under the Family Law Act, under section 90XI of the Family Law Act, a superannuation agreement must meet two additional requirements that do not apply to consent orders, as follows:
- The operative time for a superannuation split to become binding on the trustee of the superannuation fund is four (4) business days after the Agreement is served on the Trustee: s90XI Family Law Act;
- The Superannuation Fund cannot act on a superannuation agreement unless it is satisfied that the parties are either separated or divorced. This is satisfied either by the parties serving the superannuation fund with either:
- a copy of the Divorce order;
- A separation declaration signed by one of the parties stating that they were married/in a de facto relationship, they have separated and, in the event that the Financial Agreement is a pre-nuptial agreement, it must state that there is no likelihood of cohabitation being resumed: s90XI and s90DA.
- If the member’s interest exceeds the low rate cap, being the eligible termination payment tax-free threshold 9, s90XQ of the Family Law Act applies and a separation declaration must under s90XP also state that the parties have lived separately and apart for a continuous period of at least 12 months immediately before the time the declaration was made.
If the above requirements are not satisfied, the superannuation fund cannot agree to affect the proposed superannuation split and any provisions in the financial agreement which provide for the superannuation split are void.
Superannuation Splitting in Financial Agreements where separated less than 12 months
The effect of the above is that if you are entering into a Binding Financial Agreement which involves a superannuation split in excess of the low rate cap (in 2023/2024 the low rate cap amount is $235,000) it is void unless the parties have been separated and have been living separately and apart for 12 months before signing the separation declaration: s90XP and s90XQ.
The ‘low rate cap amount’ is an amount set by the Australian Taxation Office each year which sets a limit on taxable components for lump sum superannuation payments that receive a low rate of tax. The low rate cap amount is applicable to people who have reached the preservation age but are under 60 years of age.
The purpose of low rate cap amounts and the additional requirement under s90XP and s90XQ of the Family Law Act, is to reduce the potential for tax avoidance by preventing persons who have not retired from withdrawing their superannuation savings early due to the tax benefits of withdrawing superannuation below the low rate cap amount.
Service of Financial Agreement on Trustee of Super Fund
Before a superannuation splitting order is made, there must have been procedural fairness on the Trustee of the superannuation Fund, in a similar manner to consent order agreements: s90XZD.
This means that the Superannuation Fund must have received prior notice of the specific order sought and the opportunity to object to the order being made. This occurs by the superannuation fund being served with a copy of the draft order proposed to be made. The superannuation fund may require service of an amended order, if they are not agreeable to the terms of the original order served on them.
This is just a formality in most cases as superannuation funds have specific wording that they prefer before binding themselves to the terms of a superannuation splitting agreement.
The superannuation fund should be provided with at least 28 days to review and comment on the proposed superannuation agreement, prior to the superannuation splitting agreement being signed.
Importantly, the separation declaration which is attached to the Binding Financial Agreement must also be served on the Trustee. The separation declaration must be signed within the last 28 days, otherwise it will not be accepted by the Trustee of the superannuation Fund: s90XI.
Contact us and book a reduced rate consultation to obtain advice in relation to your specific circumstances, and whether a superannuation splitting agreement is right for you.
For more information on Consent Orders versus Binding Financial Agreements, click the link to view Courtney’s helpful explanation video.