LexisNexis Practical Guidance®

Over 80% of all family law matters commence in the Federal Circuit Court as a result of the protocol agreement which limits the Family Court to exercising its jurisdiction to complex factual matters. In Western Australia, all applications are made to the Family Court of Western Australia (WA).

It should be noted that there is currently before Parliament a Bill to merge the Family Court and Federal Circuit Court of Australia together to create a single unified court for family law matters in all states and territories except Western Australia. At the time of writing it was not clear if this Bill would pass but practitioners should be mindful as if passed it will significantly change the practice and procedure of family law matters at the Commonwealth level.

It should be noted that the Family Court and the Federal Circuit Court have different rules but often use the same documents. Therefore court procedures will differ between the two courts. The process in the Family Court of WA more closely mirrors that of the Family Court of Australia and, by and large, most of the Family Law Rules 2004 (Cth) are adopted for use in WA with some minor differences.

To see the court procedure, see the Family Court of WA website.

Invariably a practitioner preparing for a hearing will require subpoenas to be issued, either to ensure the attendance at court of a witness, to seek the production of documents or both.

The Family Court, the Federal Circuit Court and Family Court of WA have different rules in respect of the issue of subpoenas and care must be taken to comply with the relevant rules. In WA there are also relevant Case Management Guidelines and Practice Directions which guide practice. See Subpoenas.

Expert evidence is often required in proceedings in which property and financial orders are sought. In some circumstances, parties will engage their own experts but more commonly a “single expert” will be appointed by the court to provide a report on the issue requiring determination.

Particular rules apply to the appointment of experts, communication with those experts, the form of reports to be provided by those experts and meeting the costs of those experts. The Family Court, the Federal Circuit Court and Family Court of WA have different rules in respect of expert reports and care must be taken to comply with the relevant rules. In WA there are also relevant Case Management Guidelines and Practice Directions which guide practice. See Appointing an expert witness.

Parties who are not parties to the marriage or de facto relationship may either be joined by a party or may intervene in their own right in property settlement cases where they have an interest in the outcome of the proceedings. Typically a creditor or trustee in bankruptcy will be joined in an effort to secure repayment of debts to creditors. The court may make orders in their favour or equally, may restrain them from acting against a party.

Since 1992 superannuation contributions in Australia are partly compulsory and partly voluntary, encouraged by tax benefits. Employers are obliged to make superannuation contributions for their employees in addition to their wages and salaries. Currently the employer contribution rate is 9.5% of the employee’s salary with a planned increase to 12% in 2025. People are also encouraged to supplement compulsory superannuation contributions with voluntary contributions, either under salary sacrifice arrangements (pre-tax) or personal contributions (after-tax).

Payments towards a person’s retirement must be made into a superannuation fund which essentially is a special form of trust governed by its trust deed (the superannuation fund deed) and managed by its trustees. The trustee/s owe fiduciary obligations to the members of the superannuation fund and are similar to the obligations that any trust owes to its beneficiaries. The superannuation fund is required to invest the contributions received for the benefit of its members.

Superannuation funds differ from other forms of trusts in one very important respect: they must comply with numerous regulatory and reporting obligations specific to them. Management of superannuation funds is highly regulated by the Superannuation Industry (Supervision) Act 1993 (SIS) (Cth) and related legislation which prevents access to benefits until retirement age is reached. This reflects government policy that the role of superannuation is to provide for members through the payment of pension income and the payment of death benefits, once members have retired.

As a consequence of the compulsory nature of superannuation payments, superannuation has become a significant element in any property settlement adjustment under s 79 FLA between separating de facto or married parties. However because of the strict regulatory nature applied to superannuation fund trustees, practitioners must ensure they give adequate notice to fund trustees before applying for any splitting order of existing benefits.

The legal status of superannuation as property has been clarified under s 90XC FLA which extends the s 4 definition of a "superannuation interest" as referring to an interest that a person has as a member of an eligible superannuation plan, but does not include a reversionary interest.

However, because it is held in a trust, superannuation is differently treated as property under the Family Law Act 1975 (Cth). When a marriage or de facto relationship breaks down property can be divided between the parties under s 79 of the Family Law Act 1975 (Cth), that is their property interests can be altered. For more on how superannuation is treated in a property settlement, see also Identifying property and liabilities.

Superannuation interests can be altered either by:

• • an order of the Family Court or Federal Circuit Court; or
• • the parties making a superannuation agreement (a financial agreement that deals with a superannuation interest).

Part VIIIB of the Family Law Act 1975 (Cth) enables a court to alter the superannuation interests of spouses (including de facto spouses) and provides the framework for a court to make orders to distribute superannuation interests of the parties as well as the structure of superannuation agreements.

The Family Law (Superannuation) Regulations 2001 (Cth) sets out:

• • the methods of valuing superannuation interests;
• • the way in which the payment split is to be put into effect; and
• • the information that the trustees have to provide.

Part VIIIB of the Family Law Act 1975 empowers the court to make two different types of orders with respect to superannuation interests:

• • a splitting order: s 90XT (formerly s 90MT) of the Family Law Act 1975 (Cth); or
• • a flagging order: s 90XU (formerly s 90MU) of the Family Law Act 1975 (Cth).

Superannuation is an asset of the party in whose name it stands and as such will be included in the property pool available for distribution between the parties in a property matter.

Superannuation can also be dealt with by way of a superannuation agreement as follows:

• • splitting order/agreement; and
• • flagging order/agreement.

See Is superannuation property?

Because there are many types of funds to which the super splitting scheme applies, the regulations allow the Attorney-General to approve methods to be used to determine the gross value of specified superannuation interests. The Family Law (Superannuation) (Methods and Factors for Valuing Particular Superannuation Interests) Approval 2003 (Cth) includes factors for determining the value of interests in more than thirty superannuation funds or schemes.

In family law proceedings the majority of the funds are either:

• •accumulated interests (the most common type of fund);
• •defined benefit funds (which are increasingly rare and usually only found in government superannuation funds); or
• •self-managed funds (which are becoming increasingly popular as the Australian population ages).

Funds can also change during the life of the account. For example, in the case of Campbell v Superannuation Complaints Tribunal (2016) FLC 93-724 the Federal Court determined that a superannuation scheme which was a defined benefit scheme, had become an accumulation interest after the payment phase commenced due to the member becoming eligible for a pension as a result of injury.

It is important that practitioners identify the type of superannuation fund in which the parties have interests as the way the superannuation is valued is different depending on the type of fund and nature of the interest.

For example, when a party has an accumulated interest in a fund, the most recent superannuation statement or a Form 6 Declaration (Declaration to accompany application to trustee for information about a superannuation interest) completed by the superannuation fund may be sufficient for the purposes of a valuation, whereas if the interest is held in a defined benefit fund or a self-managed fund a formal valuation by a qualified accountant will need to be obtained.

Practice Tips:

• •Western Australia has not referred its powers to the Commonwealth in relation to de facto relationships. Instead it has enacted provisions under the Family Court Act 1997 (WA) to deal with property disputes between de facto partners (Pt 5A, Family Court Act 1997 (WA)). This does not include the ability of the court to make any orders in relation to superannuation of the sort commonly identified and utilized by parties under the Family Law Act 1975 (Cth).
• •Accordingly, in Western Australia the Family Court of WA takes into account superannuation interests as a financial resource in the same way as the Family Court of Australia did prior to 28 December 2002 and the operation of Pt VIIIB of the Family Law Act 1975 (Cth).
• •However, in 2018 the Commonwealth and Western Australian government announced this would be changing and legislative changes would be introduced to enable de facto parties in Western Australia to split their superannuation as part of their family law property settlements. At the time of writing no bill had yet been introduced.

See Types of funds and methods of valuation.

A superannuation splitting order is an order or agreement for the division of the sum held in the superannuation fund either by way of a percentage division/split or a dollar division/split.

Once an ordert is made, that order must be served on the trustee of the superannuation fund as prescribed by the Rules. The trustee must then transfer the amount (either $ or %) from the owner’s name into the name of the other fund similar to a transfer from a bank account. The transfer may be by way of the creation of a new interest in the fund on behalf of the non-member spouse or by rolling over the amount to another superannuation fund in which the non-member spouse already has an interest. Each superannuation fund has its own laws in this regard and investigation must be undertaken prior to an order/agreement being made as to the rules/laws of the fund.

See also the Superannuation Industry (Supervision) Amendment Regulations 2001 (No 3) (Cth) and the Superannuation Industry (Supervision) Amendment Regulations 2002 (No 5) (Cth).

A flagging order is similar to an injunction which prohibits the trustee of the relevant superannuation fund from making payments without the trustee and/or the owner of the superannuation interest first obtaining an order from the court permitting such payment.

See also Splitting and flagging orders.

Parties may make a written financial agreement which includes reference to superannuation interests and how they might be divided if their relationship should break down. Superannuation interests will usually form only part of the financial agreement and is treated as a superannuation agreement for the purposes of s 90XH FLA. Such an agreement can be made before or during a marriage or de facto relationship and will be binding on a superannuation trustee provided it meets the compliance requirements.

See Superannuation agreements.

Prior to the introduction of the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) (BFLAA), the position of the Family Court in respect of a bankrupt party was very uncertain. That has changed and matters related to the property of a bankrupt and a non-bankrupt spouse (including those in de facto relationships) may now be relatively confidently dealt with under the Family Law Act 1975 (Cth) (FLA).

Under s 35 of the Bankruptcy Act 1966 (Cth) (BA) the Family Court is given specific jurisdiction in bankruptcy where the trustee is a party to property settlement or spousal maintenance proceedings. By enabling the trustee in bankruptcy to be joined to family law proceedings, the BFLAA gave the Family Court jurisdiction to deal with a non-bankrupt spouse’s claim once the bankrupt’s property had vested in the trustee. Nevertheless, the BA and the FLA have quite different approaches to measuring contribution by a party which can make it difficult for the trustee to succeed in securing the interests of the creditors against the interests of the spouse.Notes

In particular, the FLA recognises the non-financial contribution of the spouse which is not a factor considered under the BA and gives a more uncertain outcome to any proposed action. Another factor that should be considered in the equation is the action of the Australian Taxation Office in recovering unpaid tax or superannuation.

Both the FLA and BA refer to a bankrupt as being a person:

• • against whose estate a sequestration order has been made; or
• • who has become a bankrupt because of a debtor’s petition.

Once a person has been declared a bankrupt, they are required to advise their spouse (married or de facto) and the court within seven days of their change in status. Once declared bankrupt, their property vests in the appointed trustee in bankruptcy and the bankrupt is no longer able to make separate submissions to the court except in relation to their superannuation assets which are exempted from the vesting.

Usually a bankruptcy lasts for three years and the bankrupt is limited as to how he/she may use any income earned or property that may be obtained during that period.

Parties should be aware that very little property is exempted from being vested in the trustee including the family home. In fact, the family home may be “clawed back” by the trustee if there has been a transfer of property by the bankrupt to the spouse within the 6 months prior to the act of bankruptcy occurring. Any transfer of property which gives a preference to another person over the interests of other creditors can be voided by the trustee. The only exempted assets are: household goods, superannuation, tools of trade up to $3,400 and a motor vehicle up to $6,850 in value: s 116, BA.Notes

The trustee represents the interests of creditors and often there is a conflict between the role of the trustee on behalf of the creditors and the proposed claim of the spouse which is likely to reduce the entitlements of the creditors.

In most cases, the non-bankrupt spouse will join the trustee in bankruptcy by way of an Application in a Case once proceedings have commenced. Although the FLA tends to use the term “creditors” and “trustee” interchangeably, once a party is bankrupt, it is necessary to join the trustee rather than a creditor.

A debtor in a personal insolvency agreement who becomes a party to proceedings, is also required to notify the court, their spouse and the court within 7 days of the event:s 79G, FLA.Notes

The trustee can also apply to be joined to proceedings in their own right.

The FLA makes specific provision to protect the interests of trustees and creditors in both the making of orders and agreements and in the setting aside of orders and agreements in Part VIII of the Act.Notes

The process followed by the court in making any alteration to the property interests of the parties under s 75(2) of the FLA retains the same just and equitable requirement as is usually followed (see Just and equitable principle) but the additional requirement is that the court must consider the interests of the trustee or creditor. It is not that the interests of creditors will always prevail over the interests of the spouse, but rather that the court will attempt to balance their competing claims.Notes

While financial agreements are often made with the intention to oust the jurisdiction of the Family Law Act, s 79A permits the court to set aside any orders which have been made in certain circumstances. These include that;

• • the court or a party was not notified that a trustee had been appointed;
• • there was not proper disclosure by a party; or
• • the interests of a trustee have been affected by an order.

Where the court has made an order, and at the time of making the order a party was a bankrupt or subsequently became bankrupt, s 79A(5) of the FLA enables the court to set aside the order on the basis that the bankruptcy trustee’s interests have been affected. See Setting aside orders.Notes

In general terms, the bankrupt’s assets held in a regulated superannuation fund either at the time of entering into bankruptcy or during the course of the bankruptcy, are exempted from vesting in the trustee. There are exceptions however, if it is found that a bankrupt has transferred their assets into their super fund prior to the bankruptcy with the intention of defeating the claims of creditors, or if the bankrupt has taken funds out of their super fund. In such cases those transfers will be voided and the funds will vest in the trustee: s 128B, BA.Notes

The obligations of a bankrupt to support any children of the relationship is unaffected by entering bankruptcy and will be enforced by the Child Support Agency. See s 50 Child Support (Registration and Collection) Act 1988 (Cth).Notes

Similarly a non-bankrupt spouse may seek spousal maintenance from a bankrupt spouse however their claim is more likely to be satisfied by a transfer of property in either partial or total satisfaction of their claim rather than periodic or lump sum payments, as is more usual.