Superannuation and coercion

161. A victim of family violence may be coerced to take action that relinquishes some control over their superannuation. Such situations may involve:

• superannuation agreements made under pt VIIIB of the Family Law Act;

• contributions under reg 6.44 of the Superannuation Industry (Supervision) Regulations to a spouse who uses family violence; or

• self-managed superannuation funds.

Superannuation agreements

162. Parties to a marriage or to a de facto relationship (contemplated or actual) may make a binding contract in respect of how their property or financial resources are to be dealt with, or other matters.^[111] Under the Family Law Act, such an agreement is known as a ‘financial agreement’, if it concerns a marriage, and as a ‘Part VIIIAB financial agreement’, if it concerns a de facto relationship.

163. When the agreement, or any component of it, deals with either or both spouse parties’ superannuation interests (existing or not yet in existence) as if those interests were ‘property’, the agreement, or that part of it, is known as a ‘superannuation agreement’.^[112] A superannuation agreement is of no effect unless and until the spouse parties marry or enter into the de facto relationship (whichever was contemplated).^[113]

164. To be enforceable, the financial agreement or pt VIIAB financial agreement, of which the superannuation agreement is a component, must have been made in accordance with the formal requirements set out in ss 90G or 90UJ respectively of the Family Law Act.^[114] The list of requirements in ss 90G and 90UJ includes:

• the agreement having been signed by all parties;

• each spouse party having, before signing the agreement, been provided with independent legal advice from a legal practitioner about the effect of the agreement on that spouse’s rights and the advantages and disadvantages to them of making the agreement at that point in time;

• a signed statement by the relevant legal practitioner attesting to having given that advice to their client spouse party; and

• a copy of that signed statement having been given to the other spouse party or that other spouse party’s legal practitioner.

165. A court is empowered to set aside a financial agreement or a termination agreement (an agreement terminating a financial agreement) if it is satisfied that any of the factors in s 90K(1) are established, or, in the case of a pt VIIIAB financial agreement or a pt VIIIAB termination agreement, it is satisfied that any of the largely similar provisions in s 90UM(1) are met.

166. Sections 90K(1) and 90UM(1) provide that, among other things, a court may make an order setting aside an agreement if the court is satisfied that:

• the agreement is void, voidable or unenforceable;^[115]

• in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out;^[116]

• since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage/de facto relationship) and as a result of the change, the child or—if the applicant has ‘caring responsibility’ for the child—a party to the agreement will suffer hardship if the court does not set the agreement aside;^[117] or

• in respect of the making of a financial agreement or pt VIIIAB financial agreement—a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable.^[118]

167. With respect to whether the agreement is void, voidable or unenforceable, an Explanatory Memorandum explains:

These grounds reflect the principles of common law and equity, under which an agreement would fail because of lack of certainty, lack of intention to enter legal relations, or because the agreement is affected by duress, undue influence, unconscionability, misrepresentation or operative mistake. The inclusion of unconscionability as a separate ground is simply to make it clear that this ground is included within the grounds for setting aside an agreement.^[119]

168. Sections 90KA and 90UN of the Family Law Act direct a court to determine the validity, enforceability and effect of financial agreements and termination agreements according to the applicable principles of law and equity concerning contracts and purported contracts. Section 90MR(2) provides an equivalent provision for the enforcement of superannuation agreements.

169. The limited role for courts in setting aside financial agreements (and therefore superannuation agreements) has been justified on the basis that parties will have obtained prior legal advice.^[120] One commentator has observed that the formal requirement for each spouse party to have received independent legal advice about the agreement may mean that ‘those grounds relating to duress, undue influence and unconscionability will be more difficult to establish than in general agreements where legal advice is not required’.^[121] The question arises whether the current provisions adequately protect people experiencing family violence.

170. The decision of the Federal Magistrates Court of Australia in Moreno v Moreno is an example of a victim of family violence succeeding in having a financial agreement set aside under s 90K of the Family Law Act.^[122] Ms Moreno came to Australia from Russia in order to marry Mr Moreno. She had limited English skills. She was physically and verbally abused by her husband and applied for a protection order (but later withdrew the application due to threats from her husband that he would withdraw sponsorship of her visa).^[123] During the marriage, Ms Moreno signed a financial agreement that was very unfavourable to her on the understanding that, if she did not sign, the marriage and her visa would end. After she separated from her husband, she sought to overturn this agreement on the grounds of unconscionability. The court held that these circumstances constituted duress significant enough to amount to unconscionable conduct and the agreement was set aside.^[124]

Spousal contributions

171. Since 1 January 2006, eligible superannuation members have been able to request that their personal or employer superannuation contributions be split with their spouse. In effect this means that the member may request that the superannuation trustee roll-over, transfer or allot an amount of the member’s superannuation benefits to a spouse.^[125]

172. There is no provision for a trustee to consider whether the member’s request to transfer any benefits to the receiving spouse was done voluntarily or as a result of coercion—although it may be impractical to place an obligation on the trustee to consider the possibility of coercion.

173. The ALRC is interested in comments on whether some mechanism should be introduced enabling the member to be invoke a ‘claw-back’ provision in such circumstances, enabling the member to recover benefits transferred to their spouse.

Self-managed superannuation funds

174. Self-managed superannuation funds (SMSFs) are funds where the trustees are the only members of the fund. That is, all members are natural persons who are trustees or directors of a body corporate trustee. However, most SMSFs do not have a corporate trustee.^[126] SMSFs are restricted to a maximum of four members. The majority of SMSFs—more than 90%—are funds with two members.^[127] SMSFs constitute the largest sector within Australia’s superannuation sector by both number of assets and asset size.^[128]

175. The Australian Taxation Office (ATO) is responsible for regulating the activities of SMSFs. SMSFs are subject to a less onerous regime than some other forms of superannuation funds, because all members are considered to be directly involved in the management of the fund and, therefore, are considered to be able to protect their own interests sufficiently.^[129]

176. The Superannuation Complaints Tribunal was established under the Superannuation (Resolution of Complaints) Act 1993 (Cth) to deal with complaints about superannuation—specifically in the areas of regulated Superannuation Funds, annuities and deferred annuities, and Retirement Savings Accounts. The Tribunal does not, however, have jurisdiction to deal with complaints concerning SMSFs.

177. The final report of the Super System Review chaired by Jeremy Cooper (Cooper review) was released on 5 July 2010. The report did not favour extending external dispute resolution mechanisms to SMSFs.^[130] The Commonwealth Government has not yet responded to the recommendations of the Cooper review.

178. Questions may arise about whether superannuation law should offer further protection for victims of family violence who are trustees of SMSFs.