Percentage Payment Splits - Lifetime Income Streams
For Asset-test Exempt Income Streams, Defined Benefit Income Streams, Asset Tested Long Term Income Streams, Allocated (Account-based) or Market Linked Income Streams, see the relevant pages under 10.5.6 Family Law Affected Income Streams.
This table shows how to calculate the asset value of a Lifetime Income Stream where the superannuation agreement or court order specifies that payments from the original Family Law Affected (FLA) income stream, owned by the member, are to be split with the former partner (non‑member) on a percentage basis.
Calculating the asset value
To calculate the Lifetime Income Stream assessable asset values for the member (primary FLA) and non-member (secondary FLA) respectively:
Step | Description |
|---|---|
1 | Ascertain the percentages awarded to the member and the non-member in the payment split (e.g. 60% - 40%). The percentages indicate the proportions (MPROP, NMPROP) in which the member's original interest is apportioned respectively between the member and the non-member. |
2 | Calculate the purchase amount of original FLA at operative time. |
3 | Calculate the purchase amount at the operative time for the primary FLA and secondary FLA respectively using the formula: Purchase amount of primary FLA at operative time = Purchase amount of secondary FLA at operative time = Where:
|
4 | Calculate asset values for the primary FLA and secondary FLA as per the assets test rules for asset-tested income streams (lifetime), noting that:
|
Subsequent commutations made by member (assets test assessment)
The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the proportions resulting from the original percentage payment split.
The purchase amount for each member and non-member’s FLA will be reduced by their share of the commutation, with consequent adjustments to the member's and non-member's asset value.
Income test assessment
Calculate assessable income for member (primary FLA) and non-member (secondary FLA) respectively as follows:
Step | Description |
|---|---|
1 | Obtain gross annual payment for primary FLA and secondary FLA respectively. |
2 | The assessable income from the primary FLA and the secondary FLA is 60 per cent of the gross annual payment for each income stream. |
Subsequent commutations made by member (income test assessment)
The member may commute part of the original income stream after the operative time. The family law provisions require that such commuted amounts be apportioned between the primary FLA and the secondary FLA in the percentages specified in the original percentage payment split.
After the commutation is made, the new gross annual payment amount must be obtained from the fund trustee for both the member (primary FLA) and non-member (secondary FLA). The purchase amount for each member and non-member must be reduced by his or her share of the commutation.
Example: Paris buys a fixed term pension from XYZ super fund on 1 January 2020. Paris’ income stream is assessed by DVA as an 'asset-tested income stream (lifetime)'.
Purchase amount = $200,000
Pension payments = $9,000 p.a
Assessment day = 1 January 2020
Threshold day = 1 July 2040
The income stream was purchased in one lump sum, and no commutations or additional payments were made after the assessment day.
5 years after purchasing the income stream, Paris and Sydney get divorced.
Court orders a percentage payment split with 60% of payments going to Paris and 40% of payments going to Sydney. Operative time is 1 January 2025.
Under the payment split, Paris receives a primary FLA income stream with annual payments of $5,400 and Sydney receives a secondary FLA income stream with payments of $3,600. These amounts are advised to DVA by the trustee.
Assets test
Step | Description |
|---|---|
1 | Paris’ proportion of the payment split is 60%. Sydney’s proportion of the payment split is 40%. |
2 | Calculate the purchase amount of the original FLA income stream (original FLA) at the operative time. As the income stream was purchased in one lump sum, and no commutations or additional payments were made after the assessment day, the purchase amount of the original FLA is $200,000. |
3 | Calculate the purchase amount for the primary FLA (member) and secondary FLA (non‑member) income stream at the operative time. MNPP (Paris) = MPROP × Purchase amount of the original FLA at the 'operative time' = 0.60 × $200,000 = $120,000 (Paris’ NPP at the operative time) NMNPP (Sydney) = MPROP × Purchase amount of the original FLA at the operative time = 0.40 × $200,000 = $80,000 (Sydney’s NPP at the operative time). |
4 | Calculate asset values for the primary FLA and secondary FLA as per the assets test rules for asset-tested income streams (lifetime), using purchase amounts of $120,000 for Paris, and $80,000 for Sydney, noting the threshold day of the original FLA was 1 July 2039, and the assessment day of the original FLA was 1 January 2020. The assessment day and threshold day for the primary FLA and the secondary FLA will depend on Paris and Sydney’s individual circumstances (e.g. their age, when they meet a condition of release, when they reach pension age). |
Income Test
Step | Description |
|---|---|
1 | As per advice by the fund trustee, Paris’ new gross annual payment is $5,400 (primary FLA). Sydney’s gross annual payment (secondary FLA) is $3,600. |
2 | Calculate the assessable income by using the formula: Paris has assessable income of $5,400 x 0.6 = $3,240 Sydney has assessable income of $3,600 x 0.6 = $2,160 |
Effect of commutations after operative time
On 1 January 2028 (3 years after the operative time and 8 years after the assessment day), Paris made a commutation of $10,000 from the income stream. As this is a FLA income stream, Paris is only entitled to receive 60% of the commuted amount (i.e. $6,000), while 40% will go to Sydney (i.e. $4,000). The 'proportional split' was originally set out in the superannuation agreement or court order.
Assets test when a commutation is made under a percentage payment split
Step | Description |
|---|---|
1 | Recalculate purchase amount for both the primary FLA (member) and secondary FLA (non‑member) income stream by using the formula: Adjusted purchase amount of primary FLA = $120,000 − $6,000 = $114,000 (Paris’ adjusted purchase amount) Adjusted purchase amount of secondary FLA = $80,000 − $4,000 = $76,000 (Sydney’s adjusted purchase amount). |
2 | Calculate asset values for the primary FLA and secondary FLA as per the assets test rules for asset-tested income streams (lifetime), using purchase amounts of $114,000 for Paris, and $76,000 for Sydney. The assessment day and threshold day for the primary and secondary FLAs would not change due to the commutation. |
Income test when a commutation is made under a percentage payment split
Step | Description |
|---|---|
1 | Obtain from the fund trustee the new gross annual payments after the commutation is made for both the member (primary FLA) and non-member (secondary FLA). In this example, Paris’ new gross annual payment is $4,320. Sydney’s new gross annual payment is now $2,880. |
2 | Calculate the assessable income by using the formula: Paris has assessable income of $4,320 x 0.6 = $2,592 Sydney has assessable income of $2,880 x 0.6 = $1,728 |
Source URL: https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/105-income-streams/1056-special-provisions-regarding-family-law-affected-income-streams/percentage-payment-splits-lifetime-income-streams