Conservación de la masa-energía Para un sistema aislado, ya que la masa y la energía son intercambiables, la masa-energía total del sistema permanece constante.

2001 (C

)

The purpose of the FL(S)R is to create a system for the implementation of the provisions of pt VIIIB. The provisions are comprehensive and complicated. In summary, the FL(S)R prescribe the obligations of trustees to provide certain information; prescribe the valuation of certain superannuation interests; specify the circumstances where trustees have finalised any obligation pursuant to a superannuation agreement or order; provide for the adjustment of an interest of the non-member spouse in certain circumstances pending the conclusion of the obligations of the trustee; and finally, prescribe methods of calculating payments to the non- member spouse in certain circumstances.

The following examination of the FL(S)R is intended to provide no more than a broad outline of the operation of the Regulations. It was noted by the creator of the new regime, ‘[t]he Regulations are extremely detailed and complex and deserve a comprehensive commentary of their own’.372 Such a critique of the valuation of superannuation and the calculation of payments to the non-member spouse is beyond the scope of this thesis.373 Instead, the present examination is limited to exploring whether this system of uniform valuation methods for different types of superannuation results in consistent and realistic values for superannuation compared to the pre-reform law. The valuation methods for the more complex entitlements might be incomprehensible to men and women and require costly expert advice.374

371 _{See generally above 95–6; below 107–9 about the possible costs involved in obtaining information and a}

valuation.

372 _{Stephen Bourke, ‘Family Law (Superannuation) Regulations 2001’ (2001) 15 Australian Journal of Family} Law 184, 184.

373 _{But see below 281 in relation to recommended future monitoring and review.} 374 _{See generally above 94–5, below 108–9.}

The overview abides by the outline of the FL(S)R.

A Preliminary Provisions (Part 1)

Although the FL(S)R are complex the route through the regulations is carefully charted. The preliminary part sets out the definitions that clarify the meaning of the concepts underpinning the operation of the amendments.375 It expands upon and is intended to be consistent with the definitions in pt VIIIB.376 It defines the different types of superannuation covered by the regime. It also defines unflaggable and unsplittable interests377 as well as other concepts important to the operation of the scheme namely growth phase,378 payment phase,379 adjusted base amount380 and trustee381 to name a few.

B Payments that are Not Splittable Payments (Part 2)

Splitting orders and agreements do not apply to all superannuation payments. As discussed, payments of a particular type made for special reasons of a compassionate nature or for incapacity or hardship cannot be split, although the underlying interest can still be the subject of a payment splitting order.382 The risk of these types of payments being made and the possible impact upon the underlying interest are relevant to an assessment of whether a splitting order should be made especially if interest splitting is unavailable. Also certain payments to or on behalf of a child in the event of the death of the member spouse may not be splittable and may prevail over a splitting order or agreement in certain circumstances.383 Thus splitting orders or agreements are characterised by a degree of uncertainty for non- member spouses who are most frequently women. These risks must be considered and assessed when considering the option of splitting superannuation payments.

Also the circumstances when payments that would otherwise be splittable are not splittable are prescribed.384 These are payments made after the prior fulfilment of the obligation of the member spouse to the non-member spouse in respect of a splitting order or agreement. Either the trustee or the member spouse may take steps to pay the non-member spouse their entitlement prior to the member spouse satisfying a condition of release. Any splittable payment made to the member spouse after that time is ‘spent’ in respect of the non-member spouse. The Explanatory Statement confirms:

The purpose of the prescription of these payments is to bring to an end a payment split of an interest in favour of a particular separated or divorced non-member spouse where he or she has received the effect of the payment split in some other way at an earlier time than the member spouse’s receipt of superannuation benefits.385

Thus the regime envisages that there be the flexibility for a splitting order or agreement to be implemented in advance of the time when a splittable payment becomes payable and provides protection to the member spouse in this situation. Any payment made in advance of a

375

FL(S)R pt 1.

376 _{Ibid reg 4.} 377 _{See above 73–4.}

378 _{FL(S)R regs 3 (definition of ‘growth phase’), 6, 7.} 379

Ibid regs 3 (definition of ‘payment phase’), 8.

380 _{Ibid reg 3 (definition of ‘adjusted base amount’).}

381 _{Ibid reg 3 (definition of ‘trustee’), FLA s 90MD (definition of ‘trustee’).} 382 _{See above 73–4.}

383

See above 75.

384 _{FL(S)R reg 14.}

condition of release must be of the properly calculated amount and, in relation to defined benefit interests, must not reduce the entitlement of other members of the plan or scheme.386 From this point on the FL(S)R prescribe the provision of information, the valuation of certain entitlements, the adjustment of base amount orders and agreements and the calculation of payments. They become progressively more detailed and difficult.

C Implementation of Certain Splitting Agreements (Part 3)

The valuation of an interest pursuant to the provisions of the FL(S)R is not mandated for splitting agreements. Therefore there is no need to obtain information about the interest using the relevant provisions of the FL(S)R applicable to court orders. It might be considered prudent, but it is not mandatory. This impedes the bargaining power of the non-member spouse and compromises his or her ability to negotiate a fair agreement given the historical reluctance of both men and women to properly take superannuation into account where they have not been legally advised to do so.387 The conclusion of a fair agreement for women must be a more difficult process notwithstanding the requirement for legal advice.

In any event because valuation is not mandatory for agreements the pathway through the FL(S)R can be shorter than for orders about superannuation. Nevertheless, the FL(S)R do regulate the treatment of the interest of the non-member spouse once the operative time commences for a payment split, unless the agreement specifies a percentage that is to apply to all splittable payments, in which case when a splittable payment becomes payable the payments are split in accordance with the agreed percentage.

Otherwise pt 3 prescribes the pathway. For base amount agreements the route depends upon whether the interest is in the growth phase at the date of service of the agreement388 or the payment phase.389 If the interest is in the growth phase the base amount must be appropriately adjusted from the operative time to the time when the splittable payment becomes payable.390 After adjusting the base amount the manner of payment must be calculated. This is significant if the initial splittable payment is insufficient to meet the quantum of the adjusted base amount. If it is insufficient then various complex methods are prescribed for the payment of any outstanding amount out of subsequent payments.391 If the interest is in the payment phase then the calculation of the payment is prescribed and the methods are similarly complex.392 Where the interest is a percentage-only interest other than a superannuation annuity and the agreement specifies a percentage which does not apply to all splittable payments393 then pt 3 prescribes the formula for calculating the entitlement of the non-member spouse.394 The effect of the formula is that the agreed percentage applies to a portion only of the superannuation payment in effect segregating any post separation accumulation. This would not appear to be fair to the non-member spouse who may have made indirect contributions to the post

386 _{FL(S)R regs 14G(7), (7A), 14N(6A).}

387 _{See, eg, 2008 Evaluation, above n 228, 219–221, 226.} 388

Ibid reg 16.

389 _{Ibid reg 17.} 390 _{Ibid pt 6 div 6.1A.} 391 _{Ibid pt 6 div 6.2.} 392

Ibid pt 6 div 6.3.

393 _{FLA s 90MJ(1)(b)(i).} 394 _{FL(S)R reg 19.}

separation increase in value of the entitlement and appears to revert to a type of mathematical approach.

For percentage-only interests in the nature of a superannuation annuity the splittable payment is multiplied by the percentage specified in the agreement.395

Thus the FL(S)R ensure that base amount splits by agreement are adjusted if there is a delay before implementation, a protection that is inbuilt for percentage splits. As well if the first splittable payment is insufficient to meet the adjusted base amount then the non-member spouse is protected by provisions which ensure that subsequent splittable payments can be used to meet any outstanding adjusted base amount. However, because a prescribed valuation of the interest is not required the impact of these benefits may be reduced.

D Payment Splitting by Court Order (Part 4)

The FL(S)R provide for a more complicated pathway for splitting orders, from the provision of information, through to the valuation of the interest, then the adjustment of the interest and finally the calculation of the manner of payment. Separate provisions apply in respect of splitting orders although the pt 6 provisions in respect of the adjustment of base amounts followed by the calculation of the manner of payment apply to both orders and agreements. Part 4 is specific to splitting orders and maps the pathway through these provisions. Separate provision is made for non percentage-only interests and percentage-only interests. For certain non percentage-only interests the relevant pt 5 valuation pathway is prescribed which depends upon whether the interest is in the growth phase396 or payment phase.397 Then the relevant pt 6 pathway is prescribed for the adjustment of a base amount and the calculation of the payment to the non-member spouse for non percentage-only interests in the growth phase398 and in the payment phase.399

In respect of percentage-only interests, the same formula is prescribed for the calculation of the entitlement of the non-member spouse in respect of a type (c) order as for agreements400 and is therefore subject to the same criticism. Also similar provision is made for orders about superannuation annuities as for agreements.401 The result is that both valuation and adjustment processes are encompassed in one calculation.

In effect pt 4 has a similar charting function in relation to court orders as pt 3 in relation to agreements although additional charting is provided to the relevant information and valuation provisions.

E Valuation Determination (Part 5)

One of the main objectives of the amendments was to achieve fair and consistent valuations of superannuation especially the more complex entitlements such as defined benefit interests that have both vested and unvested components.402 Prior to the amendments valuation of

395 _{Ibid reg 19A.} 396

Ibid reg 22(1)(a).

397 _{Ibid reg 22(1)(b).} 398 _{Ibid reg 23(2)(a).} 399 _{Ibid reg 23(2)(b).} 400

Ibid reg 26.

401 _{Ibid reg 26A.} 402 _{REM, above n 1, 6.}

superannuation was ad hoc and the consideration, if at all, of the value of superannuation, particularly any unvested component, was unclear. A standardised regime of valuation of these interests which takes account the value of any unvested component should result in values that are higher than the withdrawal or resignation values. This is generally, but not always, the case and can be affected by proximity to retirement. It is an issue that has resulted in debate. Nevertheless, proper valuation of these valuable interests should result in consistency and more realistic valuations both of which should normally benefit the homemaker unless otherwise eroded by the case law.403

Valuation of superannuation is now a mandatory step in the process of obtaining a splitting order and pt 5 provides direction through the relevant provisions of the FL(S)R. Before making a splitting order the court must determine the value of the interest.404 The approach taken depends upon whether there is a prescribed valuation for the interest or not. If not then the court ‘must determine the value of the interest by such method as the court considers appropriate’.405 This may require appropriate expert evidence.406 Part 5 does not apply to a small superannuation accounts interest407 the value of which is the account balance.408 Nor does pt 5 apply to a percentage-only interest.409 Similarly an interest in a self managed superannuation fund is excluded410 and generally valuation of this type of interest requires valuation of the underlying assets.411 Also an interest in a regulated fund to be reconstructed or terminated need not be valued as presumably an accurate determination of value would be required by either process.412

Otherwise a ‘determination of an amount’413 must be undertaken and the amount determined in this way ‘is taken to be the value of the interest’.414 Part 5 proceeds by separately regulating growth phase and payment phase interests.

1 Growth Phase Interests

A three step process for valuing superannuation interests in the growth phase, other than percentage-only interests, is prescribed.415 The first step is to determine the gross value of the interest at the relevant date.416 The second step is to deduct the amount of any earlier payment split and the last step is to deduct the amount of any surcharge debt in the most recent member information statement. Although the surcharge was abolished in relation to superannuation contributions made on or after 1 July 2005 surcharge debts will continue to be relevant for some considerable time into the future.

403 _{Chief Justice Diana Bryant, ‘Finding the Balance: Women’s Access to Superannuation after Marriage}

Breakdown’ (Paper presented at the Australian Women’s Lawyers Conference, Sydney, 29 September, 2006) 19.

404 _{FLA s 90MT(2).} 405 _{Ibid s 90MT(2)(b).}

406 _{See, eg, Hayton & Bendle [2010] FamCA 592.} 407 FL(S)R reg 22(2)(a). 408 _{Ibid reg 24.} 409 _{Ibid regs 27, 39.} 410 _{Ibid reg 22(2)(b).} 411

See generally Stephen Bourke, ‘Splitting Self Managed Superannuation’ (Paper presented at the 13th National Family Law Conference, Adelaide, 6–11 April 2008) 339.

412 _{FL(S)R reg 22(2)(c).} 413 _{FLA s 90MT(2)(a).} 414

Ibid s 90MT(2A).

415 _{FL(S)R reg 28.}

The type of superannuation interest determines the relevant provisions for determining the gross value of the interest and pt 5 provides direction to the appropriate valuation method in the schedules417 except for accumulation interests. The value of these interests is more simply determined and the member information statement or trustee statement of voluntary resignation value will suffice.418 However, if both statements are before the court and the values differ the latter statement prevails.419 The information in these statements is unlikely to provide an accurate basis for valuing a defined benefit interest.420

The valuation of combined superannuation interests is also prescribed.421 For example, if a superannuation interest comprises a combination of a defined benefit interest and an accumulation interest then the value of the interest is calculated by valuing the defined benefit component and the accumulation component and adding them together.422 Finally, the valuation of an interest that requires a comparative valuation of multiple types of superannuation or the deduction of an amount to be calculated from a valuation amount is prescribed.423

The valuation methods in schs 1A–6 were formulated by the Australian Government Actuary.424 They are based on a standard set of factors which may or may not reflect the circumstances in an individual case. In recognition of the fact that the prescribed valuations may result in injustice in certain circumstances the Minister can approve alternative valuation methods and factors425 which provide a more accurate valuation and which prevail over the standard valuation. Nonetheless, if no alternative valuation has been approved for determining the gross value of a particular interest then the use of the appropriate methodology prescribed by the regulations is mandatory where a splitting order is to be made.

Once any deductions for prior payment splits and surcharge are made, then this is the value of the interest. Any type (a) base amount order must not exceed this amount.426

2 Payment Phase Interests

A two step process is prescribed for valuing payment phase interests rather than a three step process427 because any surcharge is paid when the interest enters the payment phase. The first step is to determine the gross value of the interest and the second step is to deduct any earlier payment split.

Where the whole or remaining part of the benefit is payable as one or more lump sums then the value of the benefit is the withdrawal benefit.428 However, where the benefit is being paid

417 _{Ibid see, eg, regs 29 (defined benefit interest), 32 (partially vested accumulation interest).}

418 _{Ibid reg 31. Regs 31(3)–(5) prescribe a method of calculating the value of an accumulation interest at a date}

other than the date of the member information statement or trustee statement of voluntary resignation value.

419 _{Ibid reg 31(2B).} 420

Kapoor & Kapoor [2010] FamCAFC 113 [82]–[95].

421 _{FL(S)R regs 33 (combined defined benefit interest and accumulation interest), 34 (combined defined benefit}

interest and partially vested accumulation interest).

422 _{Ibid reg 33.} 423

Ibid regs 35–37.

424 _{Australian Government Actuary, Superannuation and Family Law — Calculation of Superannuation} Valuation Factors, 25 February 2002.

425 _{FLA s 90MT(3); FL(S)R reg 38.} 426

FLA s 90MT(4).

427 _{FL(S)R reg 40.} 428 _{Ibid reg 41.}

as a pension then the valuation method depends upon the type of pension.429 A valuation method is also prescribed where the benefit is payable partly as a pension and partly as a lump sum.430 As with growth phase interests the Minister may approve alternative valuation methods and factors but only for life pensions.431

Valuation of an interest in the payment phase, even if it is not commutable, requires that a lump sum value be given to the interest. However, there is a conflict between acknowledging the significant value of these types of interests and recognising that they may never be capable of being paid as a lump sum. If a splitting order is to be made then a valuation is required even if the split is an equal one.

One commentator noted that:

The complexity of the new FL(S)R is primarily due to the desire to have legislation that provides universal coverage and will cater for all forms of superannuation. The complexity of the current legislation arises mainly because of the difficulties involved in valuing the defined benefit and hybrid superannuation interests.432

The valuation of certain interests, namely accumulation interests, allocated pensions and market linked pensions, is relatively uncomplicated. Conversely, the valuation methodology for defined benefit interests, partially vested accumulation interests, life pensions and fixed term pensions or hybrid interests containing one or more of these components is particularly complicated. A perusal of the relevant schedules discloses a complex array of actuarial formulae and tables.

The regime of valuation will have the greatest impact upon interests, other than the more straightforward accumulation interests, such as the defined benefit interests. It removes the element of judgment that was previously exercised by actuaries by providing ‘a standard methodology and standard factors (incorporating economic and demographic assumptions) for the valuation of the superannuation interest.’433 The regime of valuation captures the unvested component of these types of interests which previously had been an issue and was generally overlooked. It also enables a value to be ascribed to interests having a reversionary entitlement. These changes should benefit women by ensuring that these valuable types of interests are ascribed a proper value.

However, whether a prescribed valuation of superannuation is required in property proceedings where no splitting order is sought, and indeed whether it is to be treated as property at all in those circumstances, has been a contentious issue for the courts. If not then the efficacy of the amendments is compromised and a return to the previous position is possible for the significant number of former married and defacto couples who settle by agreement.

The regime of valuation is complex. There is a tension between achieving the objective of