From next year, and no later than 28 December 2002, superannuation interests can be divided on the breakdown of a marriage (Family Law Legislation Amendment (Superannuation) Act 2001).

The object of the Act is to address the common scenario of the majority of a family's wealth being tied up in one partner's superannuation entitlement, and that entitlement being preserved until that partner is aged 55 or later. The result is that the standard of living in retirement of each of the ex-spouses is likely to be unequal.

The new Act will not be retrospective, it will not apply to property settlements that have been finalised before it is operational, and parties will not be able, by consent, to set aside a final property settlement so it can be varied to split superannuation. However, it is likely that now the legislation has been passed, clients who have issued property proceedings or who are about to issue proceedings may be able to have those proceedings adjourned until the legislation is operational. Clients in this situation should seek advice from our office.

The Family Court will have authority to make a number of different orders:

• a 'splitting order' splitting superannuation interests between the spouses. Up to 100% of the entitlement of a member spouse can be paid to the non-member spouse;
• a 'flagging order' which will stop the trustee of the superannuation fund from paying out a superannuation interest. These orders will be more relevant if the benefits are to be paid in a short period of time.
• a second or further splitting or flagging order where a person marries or divorces more than once, so that a previous non-member spouse is not disadvantaged by the subsequent marriages of the member spouse.

Existing rules that apply to superannuation in general will apply to the ex-spouse, e.g. the benefits will have to be preserved until retirement (at least age 55), lump sum tax will apply on eventual withdrawal and the benefit will be subject to Reasonable Benefit Limit rules.

As an alternative to seeking a court order, the parties can make a superannuation agreement to split payment or to flag payment. Special rules apply to the making of these agreements and although they can be made before, during or after the marriage, trustees of superannuation funds will not be able to action a superannuation agreement until the parties have been separated for 12 months.

The new legislation will not apply to de facto partners.