What are the Family Law Act amendments from Federal Government ?

Family Law Act amendments from Federal Government

The Family Law Act amendments occurred in 2002 to deal with superannuation. It gave power to the Court to deal with superannuation entitlements.  

The amendments allowed the Court to transfer entitlements in the fund of one of the parties to the other.  The person receiving the benefit of the entitlement in the other party’s fund would keep that entitlement in the fund or roll the entitlement out into a fund of that party’s choosing.

If the funds were not rolled out the party receiving the interest in the other party’s superannuation fund could deal with the entitlement as their own fund by paying monies into the fund or allowing the interest to increase by the actual increments of the fund.  

Prior to 2002, the superannuation interest could not be dealt with by the Court which meant that one party may have the benefit of a large superannuation interest which they retained and that the other party was excluded from that interest.  

A party may have salary sacrificed their income into their superannuation fund thereby creating a large superannuation interest.  The remaining assets may have been meager which meant that one party would walk away with a large superannuation interest and the other party would only have a small interest in the remaining assets of the marriage which could be meager.  

However, if a party was entitled to draw down on their fund because of retirement or some other reason which allowed that party to deal with their super, then the Court had powers to prevent a party from dealing with their superannuation entitlements and when that party retired, the Court could then make Orders for monies to be drawn down from the superannuation fund and paid to the other party. This created difficulty in enforcing such Orders. The Family Law Act was amended to overcome these problems.

The legislation was further changed in 2009 which enabled de-facto couples and same-sex couples to have the same rights as a married couple under the Family Law Act. This allowed them to also have the benefit of the change in legislation enabling the splitting of their superannuation funds.

Recent Federal Budget of Family Law Act Amendments to Superannuation

Substantial amendments were made to superannuation which greatly affects separating parties.

Pursuant to such changes the maximum amount a person can put into a superannuation (non-concessional contributions – after-tax dollars) is $500,000.00 per member.  This is a lifetime limit that became effective from 03 May 2016.

Prior to the changes being made a person’s limit was $540,000.00 every three (3) years (if that person was under 65 years of age) or $180,000.00 per year. Many people took advantage of the legislation as it then was to contribute $540,000.00 every three (3) years being the maximum allowed at that time.

If such contributions were made then the entitlements of that person now exceed the newly introduced lifetime cap. If the total amount paid into super exceeded the $500,000.00 after the date of the legislation then that person is now required to draw down the excess paid into superannuation and cannot contribute any more non-concessional contributions to his/her fund.

There was no penalty in drawing down the amount required. When the limited amount of $500,000.00 has been paid into the superannuation fund no further non-concessional contributions can be made.

Further, the limit on the allowable before-tax concessional contributions was reduced from $30,000.00 to $25,000.00 per year from July 2017.

Because the Family Law legislation allows for the splitting of superannuation funds, many couples now separating may lose the ability to replace the entitlements in their fund if a splitting Order is made by the Court.

Because of the changes to the superannuation legislation, people in a relationship, after separation will find it harder to rebuild their superannuation if a splitting Order has been made on their fund.

Are there ways to protect yourself from the Superannuation Changes?

Nicole Pedersen in a recent article suggests 4 ways of minimising the impact:

1. Split your pre-tax super contributions equally in marriage – the main goal may be to equalize balances so, as a family, pay in and amass as much as possible under the proposed stringent limits. Contribute as much as concessional – salary sacrifice – contributions as you can for a lower-earning spouse (from July 2017 it’s planned you’ll no longer have to do this through an employer).
2. Equalise your pre-tax contributions in marriage – if you and your spouse have unequal balances, you could also use the once-a-year opportunity to help even out balances by splitting concessional contributions paid into the higher balance account across to the other spouse’s super. Under the super splitting rules, you can move up to 85 percent of contributions into the other spouse’s account.
3. Split your post-tax contributions equally in marriage – this way, in the event of a subsequent relationship breakdown, neither spouse loses the right to make future non-concessional contributions. When making after-tax contributions progressively over time, share them between accounts. Also get freebies and tax benefits via after-tax spouse contributions (attracting up to a $540 tax rebate if, from July 2017, your spouse earns under $37,000) and a $1000 annual non-concessional contribution (to get the government’s co-contribution of up to $500 into the fund of someone earning under $50,454).
4. Split your super equally on divorce – possibly the only way to ensure both parties still have some capacity to rebuild their super if they have the money to do so.

Here is another guide for you may find helpful about Property Settlement by the”family law act“.

If you need any help please contact the Brisbane Family Lawyers team today for a FREE, no-obligation 20-minute consultation.

We have Qualified and Experienced Family Lawyers Brisbane at James Noble Law.

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