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Find out what your peers are asking – based on real-life questions submitted to TechConnect.
By Janet Manzanero-Caruana, Senior Technical Services Manager
Q: My client (let's call her Alice), aged 40 years old, served a court order to the trustee of her ex-spouse's (let's call him Peter) super fund to split her super interest as part of a divorce property settlement (called a payment split).
The value of Peter's super accumulation is currently $875,000, made up of $300,000 tax free component and the balance is a taxable (taxed) component. There is an unrestricted non-preserved amount of $50,000 and the remaining balance is preserved. The unrestricted non-preserved amount meets a condition of release and can be cashed or used to commence an account based pension; the preserved amount does not meet a condition of release and cannot be accessed.
Under the court order, Alice is entitled to $500,000 from the Peter's interest. My questions are:
A: Alice must confirm her preferred payment method in writing to the superfund trustee within 28 days (or longer if the trustee allows) of receiving notice of Peter's interest being subject to a payment split.
The following payment options are available in this case, depending on the superfund's trust deed provisions. The superfund trustee can:
The payment must be made within 30 days of Alice making a written request for payment, unless the regulator (ATO or APRA, depending on the type of superfund) allows an extension.
SISR 7A.12 requires the payment split amount to Alice to be consist of the same proportion of preservation components as the member spouse's interest immediately before the split.
For example, if Peter's interest just before the split is $50,000 / 5.71% (out of $875,000) unrestricted non-preserved component with the remaining balance being preserved, then $28,571 (5.71%) of the $500,000 payment split amount is unrestricted non-preserved.
For the claim we outlined above, the payment options are:
Transfer or rollover the $500,000 payment split amount which consists of $28,571 unrestricted non-preserved and $471,429 preserved components to Alice's super account which may be in the same superfund or with another superfund.
Alice must meet a condition of release to cash out the preserved component or commence a pension with it.
The tax components of the payments must be paid in proportion to the Peter's tax components immediately before the split in line with the proportioning rule, s307.125 ITAA 97. For example, if Peter has interest which composes of 34.29% tax free component ($300,000 out of $875,000) just before the split, the tax components of payment under the options are:
If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.