SMSF practitioners must now consider whether documents pertaining to benefit splits in the event of a marriage breakdown are still fit for purpose as a result of changes made to the Family Law (Superannuation) Regulations. Michael Hallinan details the issues requiring examination.

The Family Law (Superannuation) Regulations 2025 applied from 1 April 2025 and completely replace the 2001 version. The new regulations were introduced after a ‘fit-for-purpose’ review of the old regulations. Additionally, the opportunity was to taken to update statutory references to the various super-splitting provisions of Part VIIIB of the Family Law Act 1975 to improve the readability of the text of the regulations and to eliminate numbering gaps in the old regulations.

However, the principal issue is whether the new regulations require SMSF practitioners to update their precedent and templates for super splitting and whether payment split interests can be converted to achieve a clean break between the parties to the marriage.

In short, the answers are set out below.

• Are current precedents and templates for base amount splits, percentage splits and formula splits? Yes, but the updating is straightforward substitution of the new section/regulation number for the corresponding section/regulation number.
• Can payment split interests still be converted using the Superannuation Industry (Supervision) (SIS) Regulations or powers within the trust deed/governing rules of the SMSF? Yes, with the only changes required being different regulation numbers.
• Has the readability of the provisions been improved? Yes.
• Is there anything the fit-for-purpose review failed to examine? Yes, the absence of the old regulations not referring to account-based pensions.

For the purposes of this article it is assumed the only superannuation interests in an SMSF are accumulation interests (as opposed to defined benefit interests), the entire interest is fully vested, the SMSF has no partially vested super interests and the only pension interests are account pensions (allocated, account-based or market-linked) and that the SMSF is a regulated superannuation fund. This will avoid the complexity of the super-splitting provisions and allow the article to be focused on SMSFs.

The complexity of the superannuation-splitting provisions, Part VIIIB of the new regulations and Part 7A of the SIS Regulations, is driven by two factors being the constitutional constraints on the commonwealth’s jurisdiction to regulate super splitting and the desire that the splitting provisions apply to all types of superannuation interests.

The commonwealth’s jurisdiction to regulate super splitting is based upon the ‘matrimonial causes’ power of the constitution. This power authorises the commonwealth to legislate with respect to the property of either or both of the parties of a marriage in the context of the dissolution of that marriage. The commonwealth’s power is restricted to adjusting the property rights of either or both of the parties to the marriage.

As superannuation interests generally do not constitute property rights, the commonwealth cannot use the matrimonial causes power to either ‘split’ or ‘allocate’ the superannuation interest of one party to the marriage in favour of the other. However, the right to presently receive a payment from a super interest is a property right. Consequently, legislation based upon the matrimonial causes power can apply to such payment rights; hence the term ‘payment splitting’ in the legislation.

The other constraint is the desire that the splitting provisions apply to all types of superannuation interests, whether in regulated or unregulated super funds, approved deposit funds, rollover annuities and retirement savings accounts, and whether the interest is an accumulation or defined benefit and whether the interest is in growth or payment phase. Consequently, the super-splitting provisions can be complex.

There seem to be three underlying assumptions in the design of the old regulations, as well as the new regulations. The first is that a superannuation interest is either in growth or payment phase (it cannot be in both phases at the same time). The second is that a superannuation interest can only move from growth to payment phase (it is not possible for an interest to move from payment phase to growth phase). The third is that for splitting purposes a member’s interest in a super fund constitutes a single superannuation interest, unlike the position for taxation purposes where because of the proportioning rule, each pension interest constitutes a separate and discrete superannuation interest with a residual super interest covering all non-pension interests.

To complement the three underlying assumptions in the design of the regulations, both old and new, there is one glaring omission – the existence of account-based pensions is ignored. This has been the position since September 2007 when account-based pensions were introduced and new allocated pensions could no longer be issued.

Changes made by the new regulations

In the context of SMSFs, the new regulations have:

• been updated to refer to ‘innovative income streams’, those income streams that satisfy the requirements of SIS Regulation 1.06A,
• been amended to include the concept of a ‘component of a superannuation interest’,
• recognised ‘terminal medication condition’ as a relevant condition of release, and
• increased the dollar threshold at which a superannuation interest is an unsplittable interest to $10,000 (previously $5000).

Innovative income streams

Under SIS Regulation 1.06A, income streams can only be issued by SMSFs if the fund acquires, in respect of a member, an immediate or deferred annuity that satisfies the requirements of Regulation 1.06A and the annuity flows through to the member. In this case, the income stream would be a life insurance/annuity-backed income stream. If this type of income stream is attractive to a member of an SMSF, the member should acquire the income directly from the issuer and not use the fund as an intermediary.

Component of a superannuation interest

In relation to a component of a superannuation interest, it is highly unlikely an interest in an SMSF could have a ‘component’. This term is defined in Regulation 5 as part of a superannuation interest that has distinct features and has requirements that must be met before a benefit in respect of the part becomes payable. In the context of an SMSF, a member who commences an account-based pension using only part of the member’s superannuation interest would not, for super-splitting purposes, then have two components of a super interest, being the accumulation interest and the pension interest (which would be the case for taxation purposes). Rather, for superannuation-splitting purposes, the member would have only one super interest. The examples given in relation to Regulation 5 suggest if a member had an accumulation interest and a defined benefit interest, or an interest constituted by a deferred income stream, then each interest would be a component of a single superannuation interest.

Why the need for such definitional contortions? Why not simply accept that the member has two superannuation interests? One key aspect of the superannuation-splitting regime is that each member has only one super interest and introducing the concept of a component of a superannuation interest preserves this aspect.

A change not made by the new regulations

One significant change not made by the new regulations is the absence of recognition of account-based pensions. The new regulations have express definitions of ‘allocated pension’ (allocated pensions cannot be issued on or after 20 September 2007) and ‘market-linked pensions’ (market-linked pensions can only be issued on or after 20 September 2007 if the entire purchase price can be traced back via one or more pension rollovers to a market-linked pension that commenced before 20 September 2007). It should be noted this was the position under the old regulations.

Consider Regulation 134. This specifies information that must be provided upon a request under Section 90XB of the Family Law Act being made to the trustee. If the superannuation interest is in payment or drawdown phase, the trustee must provide, in respect of an allocated pension, the withdrawal benefit and, in respect of a market-linked pension, the member account balance (refer to Regulation 134(a) and (b)). While paragraph (c) of the regulation refers to “any other case (of a pension)” (italicised words added) and then a shopping list of additional information, this additional information is clearly intended to cover lifetime or fixed-term pensions, though a tortuous argument could be made that paragraph (c) covers account-based pensions.

However, more telling examples are Regulation 86(2), base amount split where the superannuation interest is in growth phase at the time of service or date of court order, and Regulation 93, base amount split where the superannuation interest is in payment phase at the time of service or date of court order. Both of these regulations deal with the crystallisation of a payment split interest into a statutory right for the non-member spouse to receive all or part of a splittable payment and possibly residual rights to receive a portion of all subsequent splittable payments if the first splittable payment is less than the base amount or adjusted base amount. There are no corresponding regulations for percentage splits as the non-member spouse is entitled to the specified percentage of the splittable payment by reason of the court order.

Clearly the world is still spinning and all reasonable and practical people will adopt the practical and robust solution, which is to simply read the reference to ‘allocated pension’ as including an account-based pension. But it is curious the opportunity was not taken in the new regulations to address this omission.

Possibly the better solution is to not allow payment split interests to crystallise, but to convert them into either new superannuation interests, family law super payments or direct payments to the non-member spouse (if the non-member spouse has satisfied an unrestricted release condition).

Clean-break options

The new regulations make no material changes to the ability to convert a payment split interest before crystallisation can occur. However, as noted above, statutory references in template and precedent documents may need to be updated.

Conversion can be under the SIS Regulations, in particular the process permitted by Subdivision 7A.1 (where the trustee unilaterally creates a non-member spouse interest into the SMSF pending the non-member spouse providing instructions in relation to that interest) or under Subdivision 7A.2 (where the non-member spouse is given the option of converting the payment split interest with the trustee), if no option is selected by the due date, unilaterally effecting the conversion of the payment split interest.

Alternatively, if the trust deed or governing rules of the SMSF provide the necessary powers on the trustee, the trustee and the member and the non-member spouse could effect a conversion of the payment split interest into a new member interest in the SMSF, roll over the non-member’s spouse entitlement under the payment split interest into a membership in another super fund or, conditions of release permitting, a direct payment to the non-member’s spouse.

The alternative solution of the conversion of a payment split interest under the trust deed/governing rules is that if the parties act promptly, the need to issue payment split notices may be avoided.

As the implementation of either conversion method results in the payment split being satisfied, no crystallisation can subsequently occur in respect of the payment split, so the issue of whether an allocated pension includes an account-based pension for the purposes of the new regulations does not arise.