This article will discuss payment flagging Family Law Act 1975 in relation to superannuation agreements. Superannuation agreements, in the context of family law, are agreements between divorcing couples. A divorcing or separating couple's assets and liabilities are divided between them during the property settlement phase.

Superannuation is treated as property for the purposes of property settlement in Australia and is subject to division between the parties. This means that an ex-partner may be entitled to a share of his/her partner's superannuation as part of the property settlement. Superannuation splitting agreements must be in writing and signed by both parties. Read on to know more about payment flagging Family Law Act.

What is Payment Flagging?

Payment flagging allows for the payment of superannuation benefits to be delayed or 'flagged' in certain circumstances. It can be used when a superannuation agreement or court order provides a payment split. This means that one party is entitled to a share of the other party's superannuation benefits.

In these cases, payment flagging can be used to ensure that the payment of the benefits is delayed until the necessary administrative arrangements have been made. The trustee under the payment flagging mechanism is required to delay the payment of the benefits until they receive:

  • A written copy of the superannuation agreement or court order
  • Details of the payment split
  • Any other relevant information

Once the trustee has received the necessary information and has verified the payment split, they can proceed to make the payment in accordance with the agreement or court order.

Payment flagging is carried out to ensure that the superannuation benefits are paid out correctly and in accordance with the relevant agreement or court order.

Section 90XK: Operative Time for Payment Flag

According to Section 90XK of the payment flagging Family Law Act, the operative time for a payment flag for superannuation agreements is:

  • The service time (if the eligible superannuation plan (ESP) is a self-managed super fund)
  • At the beginning of the fourth business day after the day on which the service time occurs

A self-managed super fund (SMSF) is a type of superannuation fund that the members of the fund themselves manage. SMSFs are a popular option in Australia, and are regulated by the Australian Taxation Office (ATO). The service time refers to the time when a copy of the agreement is served on the trustee. It is usually accompanied by a:

  • Copy of the divorce order
  • Separation declaration
  • Any other relevant forms

Section 90XL: Payment Flag

Section 90XL of payment flagging Family Law Act applies to a superannuation interest if the:

  • Interest is identified in a superannuation agreement
  • Agreement provides that the interest is subject to payment flag
  • Agreement is in for at the operative time
  • Interest is not an unflaggable interest

A payment flag starts to operate on the superannuation interest at the operative time. It also continues to operate until either of the two factors comes into effect:

  1. A court terminates the operation of the payment flag under an order mentioned in Section 90XM
  2. A flag-lifting agreement is served in the trustee as mentioned in Section 90XI in respect of the superannuation interests. The cessation is unaffected by the flag-lifting agreement's termination if a payment flag ceases to operate due to this factor.

The following happens if either spouse dies while a payment flag is in operation:

  • The payment flag continues to operate
  • The legal personal representative of the deceased spouse has all the rights the deceased spouse would have in respect of the payment flag.

Payment Flagging Family Law Act: Penalties

While a payment flag is active on a superannuation interest, the trustee is not permitted to make any splittable payment to anyone in respect of the interest. This does not apply if the splittable payment is made under the provisions of section 90XLA. The trustee may receive 50 penalty units if he does so. The penalty for a body corporate is 250 penalty units.

What happens if a splittable payment becomes payable in respect of a superannuation interest while a payment flag is active? If this is the case, the trustee must notify the member spouse and non-member spouse in writing within 14 days of the payment becoming payable.

This does not apply if the trustee has previously given a notice for an earlier splittable payment. The trustee may receive 50 penalty units if he/she fails to do so. The penalty for a body corporate is 250 penalty units.

Section 90XLA: Payable Splittable Payments

Section 90XLA of the payment flagging Family Law Act applies if a:

  • Superannuation interest a person has in an ESP is identified in a superannuation agreement;
  • Payment flag under Section 90XL is operating on the original interest; and
  • Splittable payment is made by the trustee of the old ESP to the trustee of another eligible superannuation plan (new ESP). This is in respect of the original interest as part of a successor fund transfer.

A successor fund transfer refers to the transfer of a person's superannuation interest in the old ESP in circumstances where:

  • The new ESP grants the person rights in relation to the new interest that are equivalent to the rights the person had in relation to the original interest.
  • The trustee of the new ESP had agreed to the conferral of such rights with the trustee of the old ESP prior to the transfer

If this section applies, then the:

  • New interest in the new ESP is taken to be the original interest identified in the superannuation agreement
  • Payment flag operates in the new interest; and
  • Operative time for the payment flag in respect of the new interest is the time that the payment to the trustee of the new ESP is made.

Section 90XM: Termination of the Payment Flag

Section 90XM of the payment flagging Family Law Act states that the court may terminate a payment flag. They may also issue a court order under section 90K which sets aside a financial agreement in relation to an operating payment flag. A superannuation agreement must be part of a financial agreement under section 90XH.

As a result, putting the financial agreement aside has the same effect as putting the superannuation agreement aside. The court may also issue an order terminating the flag's operation if a court issues an order under Section 90UM.

A superannuation agreement relating to a de facto relationship must be part of a Part VIIIAB financial agreement. Therefore, setting a financial agreement aside has the same effect as putting the superannuation agreement aside.

Section 90XN: Flag Lifting Agreement

According to Section 90XN payment flagging Family Law Act, spouses may make a flag-lifting agreement that either:

  • Provides that the flag is to cease operating without any payment split (If the flag lifting agreement provides for a payment split, the spouses may make a termination agreement to terminate the flag lifting agreement); or
  • Specifies an amount, method or percentage in accordance to 90XJ(1)

A flag lifting agreement or termination agreement has no effect unless it has the following:

  • Both spouse's signatures
  • Statements from both spouses that they have received legal advice from a legal practitioner about the legal effect of the agreement.
  • A certificate signed by the person who provided the legal advice

According to Section 90XN of the payment flagging Family Law Act, both spouses must also each receive a copy of the agreement. A court may issue an order that sets aside a flag lifting or termination agreement if and only if the court is satisfied that:

  • Any of the grounds set in Section 90K(1) other than Section 90K(1)(f)
  • Any of the grounds set in Section 90UM(1) other than Section 90UM(1)(i)

An order reserving a flag lifting agreement also operates the related financial agreement or Part VIIIAB financial agreement. A section 90K order that sets aside a financial agreement also sets aside the related flag lifting agreement. A section 90UM order that sets aside a Part VIIIAB financial agreement also sets aside the related flag lifting agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.