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General Provisions for Family Law Affected Income Streams
Types of Family Law Affected income stream
An income stream is Family Law Affected if it is split between a person and their former partner under Part VIIB or VIIIAA of the Family Law Act 1975. The table below describes the different types.
Original FLA income stream
The income stream that is the subject of a property settlement between the owner and the former partner
The portion of the original FLA income stream awarded to the owner of the original FLA income stream
The portion of the original FLA income stream awarded to the former partner of the owner of the original FLA income stream
How an original FLA income stream is affected by separation
The original FLA income stream is split into the primary and secondary FLA income streams according to the terms of a superannuation agreement or a court order. The split may take one of two forms:
- a percentage payment split, in which the owner and the former partner are each awarded a percentage of the original FLA income stream
- a base amount payment split, in which the entitlement of the owner and former partner are specified as dollar amounts.
Percentage payment splits
Under a percentage payment split, the asset value, income stream payments and deduction in respect of return of capital applying to the original FLA income stream is the same as the sum of the portions of those amounts applying to the primary FLA income stream and the secondary FLA income stream.
Trustee discretion to pay lump sum to former partner under percentage payment split
Before the first income stream payment is paid under the split, the income stream provider may exercise their discretion under regulation 14G of the Family Law (Superannuation) Regulations 2001 to pay out the entitlement of the former partner as a lump sum. This can be done by either:
- creating a separate income stream in favour of the former partner,
- rolling the amount over to another fund or retirement savings account in favour of the former partner, or
- paying the amount directly to the former partner.
In each case, the former partner's claim is finalised and there is no further entitlement to any payments in respect of the original FLA income stream.
Base amount payment splits
The income stream provider will generally seek to pay out the former partner's base amount interest in full immediately after the operative date by transfer, rollover or commutation to a lump sum. When this is done, the former partner is not entitled to receive any further payments in respect of the income stream. In some cases, this is not possible and the income stream is split into primary and secondary FLA income streams.
Means test assessment of base amount payment splits before date of first splittable payment
The former partner does not need to decide how they want to receive the base amount until the date of the first splittable payment. The assessable income from the primary and secondary FLA income streams cannot be calculated until the decision is made. Therefore, no income is assessed from either the primary or secondary FLA income streams between the operative time and the date of the first splittable payment. However, the asset value is still assessed in respect of income streams that are not 100 per cent asset test exempt.
The operative time is the date from which assessment of the split payments commences. This table describes how the operative time is calculated.
If the payment split occurs under
then the operative time is
a court order
the time specified in the court order
a superannuation agreement and the income stream provider is not a self managed superannuation fund (SMSF)
the beginning of the fourth business day after the day on which a copy of the agreement is served on the income stream provider
a superannuation agreement and the income stream provider is an SMSF
the time when a copy of the agreement is served on the trustee
Generally, superannuation fund trustees will seek to pay out the non-member's 'base amount' interest immediately after the operative time via the transfer, roll-over or commutation to a lump sum. However, in some cases, the payment of the base amount will be more complex.
Notional purchase price
The notional purchase price (NPP) refers to the purchase price of an FLA income stream at the time that the FLA income stream is assessed. The NPP is different from the purchase price of the original FLA income stream on its commencement day.
The commencement day in relation to an income stream is the first day of the period to which the first income stream payment relates. This is usually one instalment period before the date of the first income payment.
The commencement day cannot occur prior to:
- when all of the capital which is to support the income stream is available to the income stream provider;
- the day established as the commencement day in relation to the terms and conditions agreed between the income stream provider and the individual; and
- in circumstances where the individual or their beneficiary becomes entitled to the income stream as per the terms and conditions, the time at which the entitlement to start the income stream arises.
Legislative reference: subsection 5J(1) of the Veterans' Entitlements Act 1986.