MilitarySuper (super splitting)

Superannuation splitting in Australia

From 28 December 2002, changes to the Family Law Act 1975 came into effect allowing superannuation to be divided between the parties to a marriage as part of family law property settlements. The amendments and supporting regulations also introduced consistent methods and factors for the courts to value superannuation interests.

Legislative changes were also made to extend the family law superannuation splitting to de facto couples. These changes commenced on 1 March 2009 for most states and territories, and 1 July 2009 for South Australia.

Western Australia is yet to implement superannuation splitting arrangements for de facto couples under the Family Law Act 1975. However, the Commonwealth passed enabling legislation in December 2020 and implementation is awaiting the required legislative changes by the WA Government.

Prior to 28 December 2002, the valuation of defined benefit superannuation interests for family law purposes was inconsistent and court orders attempting to assign benefits to a non-member spouse were not always binding on the superannuation trustee.

About MilitarySuper

The Military Superannuation and Benefits Scheme (MSBS), also known as MilitarySuper, is a superannuation interest established by the Military Superannuation and Benefits Act 1991 and the Military Superannuation and Benefits Trust Deed and Rules.

MilitarySuper is a hybrid superannuation scheme as it has both defined benefit and accumulation components.

The Commonwealth Attorney-General has approved separate methods and factors for valuing superannuation interests in MilitarySuper.

The creation of a separate interest for the non-member spouse has been possible under the governing legislation of MilitarySuper since 18 May 2004.

Family law value

The value of a superannuation interest can be agreed by the parties or determined by the court.

However, where the parties are splitting superannuation through court orders, including consent orders, the superannuation interest needs to be valued in accordance with the Family Law (Superannuation) Regulations 2001, including any separate methods and factors approved for that purpose.

The Commonwealth Attorney-General has approved separate methods and factors for valuing superannuation interests in MilitarySuper. The separate methods and factors are contained in Schedule 1 of the Family Law (Superannuation)(Methods and Factors for Valuing Particular Superannuation Interests) Approval 2003.

The valuation process involves obtaining the necessary information from the MilitarySuper trustee and applying that information to the appropriate valuation method and factors.

The MilitarySuper trustee does not provide family law valuations, but the parties could:

• perform the valuation themselves; or
• engage the services of a suitably qualified and experienced person to perform the valuation for them.

IMPORTANT: When splitting orders or agreements are served on the trustee, the trustee will recalculate the family law value at the operative time of the splitting order or agreement. The family law value at the operative time may be different to the family law value originally determined by the parties or the court (especially where the operative time is different to the relevant date used for the purposes of the original valuation).

MilitarySuper pensions

MilitarySuper pensions generally

Recipients of MilitarySuper pensions can include former members on retirement or invalidity, spouses and children of deceased members, and former spouses of pension recipients following the effect of a superannuation splitting order or agreement.

IMPORTANT: The family law valuation specifically excludes any portion of a MilitarySuper pension payable to a child following the death of the original member. In other words, child and orphan pensions do not count towards the family law value of the MilitarySuper pension.

Members in receipt of MilitarySuper pensions will have a payment phase superannuation interest related to the pension payment, but may also have a separate growth phase interest made up of any member benefit, ancillary benefit or associate benefits preserved in the scheme. In these situations, separate valuations for the pension and preserved benefits would be required.

MilitarySuper invalidity pensions

The Federal Court case of Campbell v Superannuation Complaints Tribunal [2016] FCA 808 involved a dispute about whether or not the trustee was permitted to provide the Form 6 superannuation information based on the invalidity pension being a defined benefit superannuation interest. In that case, the court held that MilitarySuper invalidity pensions were not defined benefits, but were superannuation, and that the appellant should have instead been provided with information about the invalidity pension as if it were an accumulation interest.

Separating couples should seek professional legal advice to understand how the Campbell case may affect their matter and the suitability of family law valuations for this purpose.

Scheme value

The scheme value is calculated in accordance with the governing rules of the MilitarySuper. The trustee calculates the scheme value at the operative time of the splitting orders or agreement to determine the starting value of the non-member spouse’s interest and the corresponding reduction of the member’s benefits.

IMPORTANT: The scheme value is not used to value the superannuation interest for the purposes of subsection 90XT(2) of the Family Law Act 1975.

The information needed for the purposes of the family law valuation is quite specific.

In some cases the information may be available from the member’s information statement or a pension update letter, but in many cases the trustee may need to provide this information separately, e.g. in response to a Form 6 declaration and information request.

IMPORTANT: Obtaining superannuation information or a family law valuation may have unintended legal consequences. Therefore, it is important to seek legal advice before requesting information from the trustee or getting a family law valuation.

Relevant or appropriate date(s) 

The information is provided as at a relevant date (sometimes referred to as the appropriate date).

The relevant date for the purposes of a member information statement will be the end date of the statement period. For example, the relevant date of a member statement prepared for the end of a particular financial year will be 30 June of that financial year.

Where the trustee provides the information separately to the member information statement or a pension update letter, the relevant date is usually nominated by the person applying for the information. This can be the current date or a date in the past, but the trustee cannot provide the information for a future date.

More than one relevant date can be nominated, but remember that the trustee may charge a separate fee for each relevant date. 

The relevant date will also be the date used for the purposes of the family law valuation. Examples of dates used for valuations include:

• the date of separation;
• the date that the parties started living together; or
• a mutually agreed date, etc.

Specialist legal advice will help to inform the parties of the relevant dates that should be used for valuation purposes in their matter.

Form 6 declarations and information requests

Under Family Law legislation, eligible persons can apply for information about a member’s superannuation for the purposes of negotiating a superannuation agreement or a property settlement.

An eligible person is defined as:

• the member;
• a spouse of the member (including a de facto spouse); or
• a person who intends to enter into a superannuation agreement (including a pre-nuptial agreement) with the member.

An eligible person does not need the consent of the member to obtain this information. In fact, the superannuation trustee is prohibited from telling the member that an eligible person has even requested the information.

A request for information can be made directly to the superannuation trustee and the trustee may charge a fee for this service. A properly completed Form 6 declaration should accompany all such requests and it is a criminal offence to submit a false declaration.

Superannuation information form

After receiving a valid Form 6 declaration and information request, the trustee will prepare the necessary information in a superannuation information form (sometimes referred to as the ‘Form 6 information’) and provide this to the eligible person or their nominated legal representative.

The person performing the family law valuation will need a copy of this information.

MilitarySuper is superannuation and superannuation is property that can be divided between separating couples. However, just because it can be split does not mean that it must be split. Instead, the parties or the court could decide not to split a superannuation interest.

If the parties agree to split the Military superannuation interest, they can do this through either consent orders or a superannuation agreement that meets the requirements of the Family Law Act 1975.

If the parties cannot reach agreement, the court can decide to split the superannuation through a splitting order.

Splitting orders

Court orders, including consent orders, are generally binding on the superannuation trustee if the parties have provided a copy of the proposed court orders to the trustee at least 28 days before the date of the hearing.

During the 28-day ‘procedural fairness’ period, the trustee will consider the proposed orders and decide whether or not it will participate in the proceedings. The trustee may also provide feedback to the parties in relation to any perceived issues with the orders or their implementation. 

Operative time of splitting orders

The date that the superannuation split takes effect is called the operative time. 

The operative time of a splitting order is the date specified in the order or the date on which it is served on the trustee. The trustee may be able to accept retrospective operative times in some situations.

Splitting agreements

Superannuation agreements can determine how a superannuation interest is to be divided between the parties by specifying a base amount, splitting percentage, or formula for determining the splitting amount.

For a superannuation agreement to be binding, each party to the agreement must obtain independent legal advice (and ensure that the agreement has fulfilled the requirements of the Family Law Act 1975) before serving the agreement on the trustee. However, unlike superannuation splitting orders, the parties do not need to provide a draft copy of the agreement to the trustee.

Operative time of splitting agreements

The operative time of a superannuation agreement is four business days after the agreement and either a copy of the divorce order (where applicable) or the separation declaration is served on the trustee. 

Base amounts and splitting percentages

A base amount is a fixed dollar amount specified in the splitting orders or agreement to be allocated for the non-member spouse. A splitting percentage is a specified portion of the superannuation interest to be allocated to the non-member spouse.

The specified base amount or splitting percentage is allocated for the non-member spouse at the operative time of the agreement or orders and the operative time. This may be some time after the superannuation interest was originally valued and the family law value of the superannuation interest may have increased or decreased in that time.

Where the splitting orders or agreement specify a base amount, the starting value of the amount allocated for the non-member spouse will not be affected by any increase or decrease in the family law value of the superannuation interest. However, the starting amount of the non-member spouse’s separate interest in MilitarySuper may still be affected by changes in the scheme value (see ‘Valuing the superannuation’ for more about the scheme value).

Where the splitting orders or agreement specify a splitting percentage, the starting value of the amount allocated to the non-member spouse will increase or decrease in line with the changes to the greater of the family law value or the scheme value of the MilitarySuper superannuation interest.

Splitting of different benefit components

The splitting orders or agreement cannot nominate individual splitting arrangements for the elements that make up the defined benefit, such as the member benefit, and the funded and unfunded employer benefits.

However, some MilitarySuper superannuation interests have a separate accumulation component known as an ancillary benefit. The governing rules of MilitarySuper allow the parties to split the ancillary benefit differently to the defined benefit elements. For this to occur, the splitting orders or agreement would need to expressly specify the separate treatment of the ancillary benefit and the defined benefit.

The governing legislation of the defined benefit scheme allows for splitting orders and agreements to create a separate interest for the non-member spouse provided that:

• the interest is not an entitlement to an orphan’s pension; and
• both the member spouse and non-member spouse are alive at the operative time of the splitting order or agreement; and
• if a base amount applies, the base amount is not more than the family law value or the scheme value at the operative time.

If a base amount applies and the specified base amount is greater than the family law value or the scheme value at the operative time, the trustee will not be able to create a separate interest for the non-member spouse and the base amount will be maintained and updated in accordance with the default provisions in the Family Law (Superannuation) Regulations 2001.

Starting value of non-member spouse’s interest

The starting value of the non-member spouse’s separate interest is called the transfer amount. 

For splitting orders or agreements that specify a splitting percentage, the transfer amount is calculated at the operative time by multiplying the splitting percentage by the greater of the family law value or the scheme value.

For splitting orders or agreements that specify a base amount, the transfer amount is determined at the operative time and:

• if the family law value is equal to, or greater than, the scheme value, the transfer amount is base amount; or
• if the scheme value is greater than the family law value, the transfer amount is calculated by dividing the base amount (in whole dollars) by the family law value (in whole dollars) and multiplying the result by the scheme value.

The scheme specific provisions for splitting superannuation interests, including the nature and form of the subsequent benefits payable to the non-member spouse, are contained in Parts 12 to 13 of the Schedule to the Military Superannuation and Benefits Scheme Trust Deed.

The post-split benefit options available to the non-member spouse will vary depending on whether the benefit is being paid as pension (payment phase) or not being paid as pension (growth phase) at the operative time.

IMPORTANT: In some situations, the original interest may be payable as a pension and have an additional preserved amount of member benefit, ancillary benefit and/or associate benefits, which is not payable as a pension. Separate splitting arrangements may apply in relation to the payment phase and growth phase benefits.

Payment phase benefits

If the original superannuation interest is being paid as a pension, the transfer amount will be converted to a lifetime indexed pension by dividing it by a factor relevant to the non-member spouse’s age (in whole years and whole months) and gender.

Associate pensions are payable for the life of the non-member spouse and do not have a reversionary element. This means that the associate pension would cease when the non-member spouse dies and no further benefits would be payable.

Associate pensions are be indexed in line with movements in the Consumer Price Index (CPI) and cannot be commuted to lump sums (except for small associate pensions).

Growth phase benefits

If the original superannuation interest is not being paid as pension, the transfer amount will become the starting value of the preserved associate benefit allocated to the non-member spouse’s account. 

This will include funded and unfunded components calculated using the transfer amount and the scheme value (plus any surcharge debt).

Associate A benefits

Any funded component of the transfer amount will become the Associate A benefit, which is actually or notionally invested in the fund and adjusted for the investment returns (or losses) of the fund. 

Associate A benefits can be rolled over to another superannuation fund at any time but may also become payable as one or more lump sum benefits under a limited number of other situations. These are detailed below.

Associate B benefits

Any unfunded component of the transfer amount will become the Associate B benefit, which is not invested and instead are paid from consolidated revenue when the final benefit becomes payable. Associate B benefits are increased in line with the 10-year Treasury bond rate.

Payment of preserved associate benefits

Preserved Associate A benefits can be rolled over to another superannuation fund at any age, but preserved Associate B benefits can only be rolled over to another superannuation fund after the non-member spouse has reached 55 years of age.

Preserved Associate A and Associate B benefits may also be become payable as lump sum benefits: 

• after the non-member spouse reaches their preservation age and satisfies a condition of release under superannuation law;
• where the relevant authority approves an early release (and subject to any limits given in the approval) due to severe financial hardship or on compassionate grounds;
• where the superannuation trustee is satisfied that the non-member spouse is suffering from total and permanent incapacity; and
• following the death of the non-member spouse.

If the non-member spouse does not claim their benefit earlier, preserved Associate benefits must be paid as a lump sum when the non-member spouse reaches 65 years of age.

IMPORTANT: Where the original member transferred to MilitarySuper from the Defence Force Retirement and Death Benefits Scheme (DFRDB), the Associate A benefits assigned to the non-member spouse may include an untaxed element. Specialist taxation advice can help to avoid unintended tax consequences when rolled over or claimed as a lump sum.

Preservation age

The preservation age is a restriction imposed by superannuation law on accessing some lump sum and pension benefits. An individual’s preservation age will depend on when they were born.

Table: Preservation age

Date of birth	Preservation Age
Before 1 July 1960	55
1 July 1960 – 30 June 1961	56
1 July 1961 – 30 June 1962	57
1 July 1962 – 30 June 1963	58
1 July 1963 – 30 June 1964	59
After 30 June 1964	60

Reaching preservation age is not a guarantee that the superannuation trustee can pay the preserved associate benefits to the non-member spouse as a lump sum. The trustee would also need to ensure that the non-member spouse had also satisfied a condition of release and any associated cashing restrictions under superannuation law.

Payment phase

Where the original interest is being paid as pension at the operative time, the reduced annual rate of the pension payable will be the original (pre-split) annual rate of pension multiplied by the reduction factor, which takes into account the transfer amount and the scheme value.

If the original recipient was in receipt of a spouse pension with additional pension amounts payable for eligible children, the rate of the pension entitlements payable for any eligible children will not be reduced.

Growth phase 

Where the original interest is not being paid as pension:

• the funded elements (including the member benefit, ancillary benefit and productivity benefit) will be reduced by the amounts from each that were included in the non-member spouse’s Associate A benefit; and
• the unfunded elements of the employer benefits will be reduced by multiplying the pre-split unfunded employer benefit(s) by a reduction factor, which takes into account the transfer amount and the scheme value plus any surcharge debt.

Additionally, the employer benefit multiple will also be reduced for contributing members. The reduced employer benefit multiple will be calculated by multiplying the pre-split employer benefit multiple by the reduction factor.

Please note that the trustee may need to recalculate the reduction of the employer benefit multiple for members who reach their maximum benefit limits.

IMPORTANT: The pre-split (unreduced) employer benefit multiple will be used to determine if and when the member reaches the applicable maximum benefit limit. 

Associate benefit. The separate interest in MilitarySuper created for the non-member spouse as a result of splitting orders or a binding superannuation agreement.

Associate pension. The separate pension payable from MilitarySuper to the non-member spouse as a result of splitting orders or a binding superannuation agreement.

Base amount. A specified dollar figure allocated in respect of the non-member spouse through splitting orders or a superannuation agreement.

Growth phase interest. A superannuation interest that is not in the payment phase.

Member spouse. The person who holds the original superannuation interest before the superannuation split occurs.

Non-member spouse. The spouse, former spouse, or former de facto partner of the member spouse.

Payment phase interest. A superannuation interest for which the member spouse has satisfied a condition of release and has instructed the trustee to pay the benefits as a pension, a lump sum or a combination of pension and lump sum benefits.

Splitting percentage. A specified percentage of a superannuation interest allocated in respect of the non-member spouse through splitting orders or a superannuation agreement.

Superannuation agreement. A superannuation splitting agreement that deals with the division of superannuation following the breakdown of a marriage or de facto relationship.