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Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Bill 2019



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ISSN 1328-8091

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BILLS DIGEST NO. 19, 2020-21 16 OCTOBER 2020

Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Bill 2019 David Markham Law and Bills Digest Section

Contents

Purpose of the Bill ........................................................... 3

Structure of the Bill ......................................................... 3

Background ..................................................................... 3

Family Law - a brief summary ..................................... 3

Why is this Bill specifically about Western Australia?..................................................................... 5

Extent of jurisdiction of the family courts ................. 5 Transfer of powers .................................................... 6

Superannuation as a distinct family law subject ....... 7 Why are bankruptcy provisions included in a family law Bill? ........................................................... 8

What is a de facto relationship? ............................... 9

Committee consideration .............................................. 10

Senate Legal and Constitutional Affairs Legislation Committee .............................................. 10

Senate Standing Committee for the Scrutiny of Bills ............................................................................ 11

Policy position of non-government parties/independents.................................................... 11

Position of major interest groups................................... 11

Financial implications .................................................... 11

Statement of Compatibility with Human Rights.............. 11

Parliamentary Joint Committee on Human Rights ... 12 Key issues and provisions .............................................. 12

Family Law Provisions (Schedule 1) .......................... 12

Payment splitting ................................................... 13

Payment flags ........................................................ 13

Who does proposed Part VIIIC apply to ................ 14

Date introduced: 27 November 2019

House: House of Representatives

Portfolio: Attorney-General

Commencement: A single day to be fixed by proclamation; but that day cannot precede the day that section 4 of the Commonwealth Powers (De Facto Relationships) Act 2006 (WA) commences.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at October 2020.

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Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Bill 2019 2

What does a court take into account in making an order? ............................................................... 14

Other provisions .................................................... 14

Transitional Provisions (Schedule 4) ......................... 15

Comment on the transitional provisions............... 15 Bankruptcy Provisions (Schedule 2) .......................... 16

Other provisions ........................................................... 17

Consequential Provisions (Schedule 3) ................... 17 Concluding comments ................................................... 17

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Purpose of the Bill The purpose of the Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy Bill 2019 (the Bill) is:

• to give effect to a limited referral of power from the Western Australia (WA) Parliament to the Commonwealth in respect of superannuation matters in family law proceedings for separating de facto couples in WA, thus resolving the current anomaly whereby WA is the only state not permitting the use of superannuation splitting1 when de facto couples go through a property settlement2 and

• to extend federal bankruptcy jurisdiction to the Family Court of Western Australia so that the Court may hear bankruptcy proceedings concurrently with family law proceedings for de facto couples, when appropriate.3

Structure of the Bill The Bill is divided into five parts. The first part briefly provides technical details regarding the name of the Bill, the starting date of the subsequent Act and the legal status of the following schedules.

The substantive parts of the Bill are included in four Schedules:

• Schedule 1 proposes amendments to the Family Law Act 1975 (the FLA) with the principal proposed amendment being the insertion of a new Part VIIIC into the Act, dealing exclusively with superannuation splitting for separating de facto couples in WA

• Schedule 2 proposes amendments to the Bankruptcy Act 1966, with the effect of conferring jurisdiction in bankruptcy on the Family Court of Western Australia in defined circumstances

• Schedule 3 proposes consequential amendments to a variety of Acts, largely to include in those Acts references to the new provisions put in place by Schedules 1 and 2

• Schedule 4 contains application and transitional provisions.

Background

Family Law - a brief summary Forms of family law were present in Australia prior to Federation based on an English model. South Australia passed the Divorce Act 1858 and over the next 15 years the other states passed similar legislation. From its inception the Australian Constitution gave the Federal Parliament the power to make laws with respect to: ‘marriage’;4 and ‘divorce and matrimonial causes; and in relation thereto, parental rights, and the custody and guardianship of infants’.5 It also included the

1. Super splitting refers to the transfer of a portion of one party’s superannuation interests to another party. This is not, however, tantamount to cash conversion of such an interest, as superannuation laws relating to access to superannuation entitlements otherwise continue to apply as normal.

2. This is the case because in Western Australia, superannuation is not considered an asset for the purpose of a property division between de facto couples following a separation. As such, superannuation cannot be split or transferred between de facto spouses living in WA and is taken into account as a financial resource only. This places separating de facto couples at an unprincipled disadvantage. This is because in the case of married couples, WA law does consider superannuation to be property and thus makes provision for married spouses to split their super as part of a property settlement.

3. At present, the jurisdiction of the Family Court of Western Australia to concurrently hear family law and bankruptcy matters only applies to married couples. Because de facto couples do not have access to this process, they must pursue them in different courts thus making de facto couples have to face extra time and expense.

4. Australian Constitution, section 51(xxi). However, it was not until 1959 that Parliament made a comprehensive exercise of this power and enacted the Matrimonial Causes Act, 1959, which came into force on February 1, 1961. 5. Constitution, op. cit., section 51(xxii).

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power to legislate with respect to ‘matters incidental to the execution of any power vested by this Constitution in the Parliament’.6

The Constitution gave the Australian Parliament the power to make laws, rather than compelling it to make laws about the subjects set out in the Constitution. Until the Australian Parliament exercised its constitutional power state laws continued to prevail in these areas of law, consistent with section 108 of the Constitution.7

In fact the Commonwealth did not exercise the marriage and divorce powers for a considerable period after Federation. It made its first legislation under these powers with the passage of the Matrimonial Causes Act 1945. However, this Act was of limited scope dealing only with jurisdiction and not with grounds for relief; the principal aim of it was to ensure that Australian women who had married overseas persons (usually during the course of the Second World War) could institute divorce proceedings in Australia.8

The Commonwealth moved more firmly into the field with the passage of the Matrimonial Causes Act 1959 and the Marriage Act 1961, and then further entrenched its position with the passage of the Family Law Act 1975 (FLA). The effect of the passage of Commonwealth legislation, combined with the effect of section 109 of the Constitution,9 meant that the Commonwealth had effectively taken control of the law on many aspects of family law, but only to the extent that such control was consistent with the explicit wording of the Constitution. This meant, for example, that the Commonwealth’s power to make laws with effect to ‘divorce … and in relation thereto, parental rights’, was taken to mean that the Commonwealth could only make laws regarding the children of the marriage.10 An issue that did not automatically fall under the ‘parental rights’ power in the Constitution concerned separating partners’ children who were not themselves children of the marriage.

While powers such as this remained at that stage with the states, there is a mechanism under the Constitution for the states to refer powers to the Commonwealth. Section 51(xxxvii) of the Constitution specifically allows the Commonwealth to make laws about matters referred to it by the states. When a state refers a matter, the Commonwealth has the same power to make laws on that matter as it does on the other matters spelt out in section 51.

However, any law made by the Commonwealth following the referral of a power by a state or states only has effect in the referring states. In other parts of Australia state law continues to apply. Thus, if five states refer their powers on a subject pertaining to family law to the Commonwealth and a single state such as WA does not, then any subsequent amendment to the FLA that depends on the referral of state powers will apply to those five states and not to the non-referring state(s).

6. Ibid., section 51(xxxix). 7. Section 108 says in effect that state laws on a subject continue in force, and can be amended, until the Federal Parliament exercises its constitutional powers on that subject. 8. Section 10 of the Act provided that where a person was domiciled in a State or Territory of the Commonwealth and was

resident in another State or Territory and had been so resident for not less than one year immediately prior to the institution of proceedings, that person could institute proceedings in any matrimonial cause in the court of the State or Territory of residence. Section 11 prescribed the application in that case of the law of the domicile. This Act was repealed by subsection 4(1) of the Act of the Matrimonial Causes Act 1959. 9. Section 109 says that where Commonwealth and state laws clash the Commonwealth law prevails to the extent of any

inconsistency. Where the Commonwealth law covers all aspects of a subject (‘covers the field’) no state law on the subject will have any legal effect. 10. Russell v Russell; Farrelly v Farrelly (1976) 134 CLR 495, [1976] HCA 23.

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Why is this Bill specifically about Western Australia? When the FLA first took effect in 1976, leading to the establishment of the Family Court of Australia (FCA), the FCA could only hear matters that were within the Commonwealth’s constitutional powers. No relevant state referrals had at that stage occurred. From the beginning, the FLA had provision for states to establish their own Family Courts.11 The FLA provision gave a state family court, when established, the ability to hear matters of federal jurisdiction.12 This is consistent with the Commonwealth’s power in section 71 of the Constitution which says that ‘the judicial power of the Commonwealth shall be vested in … such other courts as it invests with federal jurisdiction’. In fact, WA was the only state to create its own Family Court with the passage of the Family Court Act 1975 (WA).13 The Family Court of Western Australia had such federal jurisdiction as was bestowed on it by the FLA,14 and jurisdiction over other WA Acts, where those Acts gave it that jurisdiction.15

None of the other states established their own Family Courts, rather relying on the Commonwealth system to hear those family law matters that fall within the powers of the Commonwealth. However, WA has always maintained its original decision to retain the Family Court of Western Australia. The effect of this decision by WA is that WA and the Commonwealth have had legislatively separate but, in the main, parallel family law systems.

Judges of the Family Court of Western Australia may have a dual appointment to the FCA. There are currently five Judges of the Family Court of Western Australia - a Chief Judge and four other Justices.16 The names of these judicial officers also appear in the list of Judges of the FCA. WA Magistrates also have a family law role, similar to the role taken by Judges of the Federal Circuit Court in the Commonwealth sphere.17

Extent of jurisdiction of the family courts All of the Australian jurisdictions have long been of the view that, in the family law context, the ideal approach is for matters based on similar facts that may arise under both state law and Commonwealth law to be decided together. It is both a waste of the litigants’ resources, and of the resources of the justice system, for matters covering much of the same ground to be heard in two different venues.

However, where WA and the other states have differed is that WA has continued to maintain its single venue as the Family Court of WA, while the other states have accepted that the single venue should (generally) be in the federal system, either in the FCA or the Federal Circuit Court.

For all matters to be heard in one system or the other, it has been necessary, under Australia’s federal system, for one level of government to allow another level of government to exercise what would normally be its powers. For this to occur in a federal court, the relevant state has to give the Commonwealth permission to hear matters that are originally state matters. The converse is also true. For a WA Court to hear matters that fall within Commonwealth powers under the

11. Family Law Act 1975 (FLA), as made, section 41, ‘Establishment of State Family Courts’. 12. Ibid., subsection 41(3). 13. This Act has since been superseded by the Family Court Act 1997 (WA); however, the Family Court of WA has had a continuous presence since its establishment in 1976.

14. Family Court Act 1975 (WA), section 24. 15. Ibid., section 26. 16. Family Court of Western Australia, ‘Judicial officers’, Family Court of Western Australia website. 17. Family Court Act 1997 (WA), sections 38 and 39.

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Constitution, the Commonwealth has to pass laws, consistent with section 71 of the Constitution, to invest in the relevant state court the power to hear matters that ordinarily fall under the mantle of federal law. This is the principal reason that the current Bill is necessary.

Transfer of powers As noted above, the FCA originally only had the power to make decisions regarding the children of a marriage. The FCA finally gained the power to make orders about ex-nuptial children with the passage of the Family Law Amendment Act 1987, which applied to the various states as they referred the necessary powers to the Commonwealth. WA did not refer these powers to the Commonwealth. The relevant legislation in other states transferring the powers to the Commonwealth was:

• Commonwealth Powers (Family Law) Act 1986 (SA)

• Commonwealth Powers (Family Law—Children) Act 1986 (NSW)

• Commonwealth Powers (Family Law—Children) Act 1986 (Vic)

• Commonwealth Powers (Family Law) Act 1987 (Tas)

• Commonwealth Powers (Family Law—Children) Act 1990 (Qld)

The actual referral in each Act was in respect of:

(a) the maintenance of children and the payment of expenses in relation to children or child bearing;

(b) the custody and guardianship of, and access to, children. 18

As can be seen from the date of the state Acts, the 1987 Commonwealth amending Act could only reference the referred powers from SA, NSW, Victoria and Tasmania. The Explanatory Memorandum to the Bill which, when passed, became the 1987 amending Act, said:

Insofar as the Act will extend to the four referring States and will apply in the Australian Capital Territory, the Northern Territory and Norfolk Island, the provisions relating to children will apply generally to all children, whether children of a marriage or not, and their parents, whether married or not. In relation to the non-referring States, those provisions will be confined, as at present, to children of a marriage and to parties to a marriage.

19

Around 10 years after the passage of the legislation in each jurisdiction the states amended these referrals. The relevant legislation in NSW was the Commonwealth Powers (Family Law—Children) Amendment Act 1996, the need for which was explained in the second reading speech of the NSW Minister Paul Whelan who said:

The intention of the bill is to close a gap that currently exists whereby neither the Family Court nor State courts have jurisdiction to effectively make orders relating to the custody, access, guardianship or maintenance of children who are the subject of orders under State child welfare laws. The need to resolve these issues, as well as certain matters concerning the ability of the Family Court to make declarations concerning a child's parentage, have been the subject of discussions by the Standing

18. Commonwealth Powers (Family Law-Children Act) 1986 (NSW), subsection 3(1). The same referring words are in the other state Acts. 19. Explanatory Memorandum, Family Law Amendment Bill 1987, p. 2.

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Committee of Attorneys General, or SCAG, since 1990. This bill will give effect to a number of decisions made by the standing committee which will enable these matters to be resolved. 20

Each of the states that had made the original referrals made the same amendments.

More recently the five states other than WA referred powers to the Commonwealth in relation to de facto relationships in the:

• Commonwealth Powers (De Facto Relationships) Act 2003 (NSW)

• Commonwealth Powers (De Facto Relationships) Act 2003 (Qld)

• Commonwealth Powers (De Facto Relationships) Act 2004 (Vic)

• Commonwealth Powers (De Facto Relationships) Act 2006 (Tas)

• Commonwealth Powers (De Facto Relationships) Act 2009 (SA).

The referral in the NSW legislation was in respect of:

(a) financial matters relating to de facto partners arising out of the breakdown (other than by reason of death) of de facto relationships between persons of different sexes,

(b) financial matters relating to de facto partners arising out of the breakdown (other than by reason of death) of de facto relationships between persons of the same sex.21

The powers referred by the other states were the same.

Superannuation as a distinct family law subject Since the introduction of compulsory superannuation, superannuation has become a major component of people’s property—commonly either the most important interest or second only to real property. Therefore, in a division of property after a relationship breakdown, superannuation has become an increasingly important subject and possibly a major point of contention. It is also an issue of some complexity as it is not necessarily a convertible asset, in that because of laws regarding ‘preservation age’ it can frequently not be accessed by either party for a considerable period of time.

The FLA first included provisions specifically covering superannuation in the Family Law Legislation Amendment (Superannuation) Act 2001 (Cth), which applied to parties to a marriage. This amendment to the FLA also applied to WA, as the ability to make the amendments fell within Commonwealth constitutional power and thus was also within the WA Family Court’s power in exercising its federal jurisdiction.

In 2008 the FLA’s financial settlement regime was extended to de facto couples through the Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008 (Cth), which relied on the state referrals of power between 2003 and 2009 mentioned above.

In the same period WA made a limited referral of power to the Commonwealth in the Commonwealth Powers (De Facto Relationships) Act 2006 (WA) (the WA Act). As noted above, the referrals of the other states was in respect of ‘financial matters’ in general, whereas the WA Act’s intention was specified as ‘to refer legislative power to the Commonwealth Parliament … in

20. P Whelan, ‘Second reading speech: Commonwealth Powers (Family Law—Children) Amendment Bill 1996’, New South Wales, Legislative Assembly, Debates, 1 May 1996, [p. 15]. 21. Commonwealth Powers (De Facto Relationships) Act 2003 (NSW), section 4.

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relation to the superannuation interests of de facto partners whose relationship has broken down’.22

This specific and limited referral of powers in relation to superannuation in the WA Act has not previously been accepted by the Commonwealth. The Commonwealth’s stated grounds have been that such a limited referral ‘would not provide for a nationally consistent family law property regime for separating de facto couples’.23

In October 2018 the Australian Government’s position on this matter changed, and it decided to ‘accept and implement a narrow referral of power from WA’.24 Schedule 1 (and the majority of Schedule 3) of the Bill is the result of that acceptance and implementation.

Why are bankruptcy provisions included in a family law Bill? It is common enough for persons to have family law and bankruptcy issues at the same time. As these can both involve a court assessing complicated financial arrangements, it would make little sense for the parties, their legal advisors, or the justice system generally, to have essentially duplicate matters running concurrently. Therefore, for the majority of Australians, these matters can be heard together in a single venue through the vesting of the relevant courts with the necessary powers.

However, at this stage, this is not the case in WA for parties to a de facto relationship. Currently, the WA person with concurrent de facto separation and bankruptcy issues would need to have matters heard in two venues—the Family Court of Western Australia for the family law matter, and the Federal Court or Federal Circuit Court for the bankruptcy matter.25 While bankruptcy is within the constitutional power of the Commonwealth, the Constitution also allows the Australian Parliament to make laws that invest any court of a state with federal jurisdiction.26

That is to say, a WA, or other state, court can hear bankruptcy proceedings provided that a Commonwealth law allows it to do so. Indeed, the Family Court of Western Australia does have bankruptcy jurisdiction in relation to parties to a marriage. The FCA obtained bankruptcy jurisdiction as a result of the Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth), and the Family Court of Western Australia was given bankruptcy jurisdiction only in relation to married people by the Family Law Amendment Act 2005 (Cth). In many jurisdictions, the passage of the Family Law Amendment (De Facto Financial Matters and Other Measures) Act, which extended the FLA’s financial settlement regime to de facto couples (see above), also amended the Bankruptcy Act to extend the Family Court of Australia’s bankruptcy jurisdiction to parties to a de facto relationship.

However the 2008 amending Act did not apply to WA. Consequently the Family Court of Western Australia does not currently have jurisdiction to hear bankruptcy matters in the context of a de facto family law matter.27 This is proposed to be remedied by the Bill.

22. Explanatory Memorandum, Commonwealth Powers (De Facto Relationships) Bill 2005 (WA), p. 1. 23. Explanatory Memorandum, Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Bill 2019, p. 2. 24. Ibid. 25. Bankruptcy is within the Commonwealth’s law-making powers—subsection 51(xvii) of the Constitution. 26. Constitution, subsection 77(iii). 27. Bankruptcy Act 1966, subsection 35B(1A).

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What is a de facto relationship? De facto relationship is defined at section 4AA of the FLA. A definition of the term is also contained in sections 2D to 2F (inclusive) of the Acts Interpretation Act 1901 (Cth) (AIA), and that definition applies to all Commonwealth legislation which defines the term by reference to the AIA. For example, subsection 5(1) of the Bankruptcy Act defines ‘de facto partner’ by reference to the AIA. While there are some minor drafting differences, the definitions in the FLA and the AIA are essentially the same. For the sake of completeness, the AIA definition is reproduced here:

2D References to de facto partners

For the purposes of a provision of an Act that is a provision in which de facto partner has the meaning given by this Act, a person is the de facto partner of another person (whether of the same sex or a different sex) if:

(a) the person is in a registered relationship with the other person under section 2E; or

(b) the person is in a de facto relationship with the other person under section 2F.

2E Registered relationships

For the purposes of paragraph 2D(a), a person is in a registered relationship with another person if the relationship between the persons is registered under a prescribed law of a State or Territory as a prescribed kind of relationship.

2F De facto relationships

(1) For the purposes of paragraph 2D(b), a person is in a de facto relationship with another person if the persons:

(a) are not legally married to each other; and

(b) are not related by family (see subsection (6)); and

(c) have a relationship as a couple living together on a genuine domestic basis.

(2) In determining for the purposes of paragraph (1)(c) whether 2 persons have a relationship as a couple, all the circumstances of their relationship are to be taken into account, including any or all of the following circumstances:

(a) the duration of the relationship;

(b) the nature and extent of their common residence;

(c) whether a sexual relationship exists;

(d) the degree of financial dependence or interdependence, and any arrangements for financial support, between them;

(e) the ownership, use and acquisition of their property;

(f) the degree of mutual commitment to a shared life;

(g) the care and support of children;

(h) the reputation and public aspects of the relationship.

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(3) No particular finding in relation to any circumstance mentioned in subsection (2) is necessary in determining whether 2 persons have a relationship as a couple for the purposes of paragraph (1)(c).

(4) For the purposes of paragraph (1)(c), the persons are taken to be living together on a genuine domestic basis if the persons are not living together on a genuine domestic basis only because of:

(a) a temporary absence from each other; or

(b) illness or infirmity of either or both of them.

(5) For the purposes of subsection (1), a de facto relationship can exist even if one of the persons is legally married to someone else or is in a registered relationship (within the meaning of section 2E) with someone else or is in another de facto relationship.

(6) For the purposes of paragraph (1)(b), 2 persons are related by family if:

(a) one is the child (including an adopted child) of the other; or

(b) one is another descendant of the other (even if the relationship between them is traced through an adoptive parent); or

(c) they have a parent in common (who may be an adoptive parent of either or both of them).

For this purpose, disregard whether an adoption is declared void or has ceased to have effect.

Committee consideration

Senate Legal and Constitutional Affairs Legislation Committee The Bill was referred to the Senate Legal and Constitutional Affairs Legislation Committee (the Senate Committee) for inquiry and report. The Senate Committee reported on 13 March 2020. Details of the inquiry are at its home page. Ten submissions were made to the inquiry.28

The Committee’s Report had three recommendations, namely:

• the Committee recommends that the Bill be amended so that it is not the date upon which an application is filed which determines if superannuation of de facto couples can be split, but instead the date upon which the relevant final order from the Family Court is made

• the Committee recommends that the Bill be amended to expressly provide that the provisions do not apply to separating de facto couples who have already made a binding financial agreement pursuant to Division 3 of Part 5A of the Family Court Act 1997 (WA), and where that agreement has not otherwise been set aside29

28. Senate Legal and Constitutional Affairs Legislation Committee, Inquiry into the Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Bill 2019, Submissions. 29. Financial Agreements (also known as Pre-nuptial or Separation Agreements) can be made before, during or after a marriage or de facto relationship. They may deal with how property will be divided, the splitting of superannuation, and spousal

maintenance upon separation.

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• the Committee recommends that, subject to the preceding recommendations, the Senate pass the Bill.30

Senate Standing Committee for the Scrutiny of Bills In its Scrutiny Digest 10 of 2019, the Scrutiny of Bills Committee stated that it had no comment on the Bill.31

Policy position of non-government parties/independents Non-government parties and independents have not provided comment about the Bill at the time of writing.

Position of major interest groups As noted above, 10 submissions were made to the Senate Committee, ranging from groups with a day to day professional interest in the matter, such as the Family Court of Western Australia and the Family Law Practitioners’ Association of Western Australia, to a fathers’ group and private individuals. The relevant Australian Government agency, the Attorney-General’s Department also made a submission.32 The Department also provided a further reply to a question from the Committee.33

The submissions made to the Senate Committee were considered by the Committee and were summarised in the Committee’s report. However, a major point made in a number of submissions, and followed up in the Committee’s recommendations, is that the transitional provisions in the Bill, in relation to matters already before the courts at the time that the Bill becomes law, should perhaps be amended to broaden the range of people who can take advantage of the amended provisions. This is discussed further in the Key issues and provisions section of this Digest.

Financial implications The Explanatory Memorandum states that the Bill is not expected to have any financial implications. It is not expected to lead to an increase in the number of cases heard in Western Australian courts, but may broaden the range of issues at dispute in matters already heard by those courts.34

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.35

30. Senate Legal and Constitutional Affairs Legislation Committee, Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Bill 2019 [Provisions]—Report, The Senate, Canberra, March 2020, p. vii. 31. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 10, 2019, 5 December 2019, p. 28. 32. Attorney-General’s Department (AGD), Submission to Senate Legal and Constitutional Affairs Legislation Committee, Inquiry

into Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Bill 2019, 24 January 2020. 33. AGD, Answer to Question on Notice from Senate Legal and Constitutional Affairs Legislation Committee, Inquiry into Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Bill 2019, 2 March 2020. 34. Explanatory Memorandum, Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy)

Bill 2019, p. 4. 35. The Statement of Compatibility with Human Rights can be found at pages 5 to 8 of the Explanatory Memorandum to the Bill.

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Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights stated that it had no comment on the Bill.36

Key issues and provisions

Family Law Provisions (Schedule 1) Part VIIIAB of the FLA deals with financial matters relating to de facto relationships. Under this part, section 90RA provides that the relevant provisions only apply to ‘participating jurisdictions’, which means each ‘referring state’, and each territory.37 However, a state is not regarded as a referring state if its Parliament has referred only a limited class of the relevant matters.38 This has been the situation with WA, so that it has not been regarded as a ‘participating jurisdiction’ up to this point in time.

The approach taken by the drafters of the Bill has been not to amend Part VIIIAB, but rather to insert a new Part in the FLA, proposed Part VIIIC, which will apply to WA specifically, and only to WA.39 Nevertheless, the provisions in Part VIIIC will be similar to those that already apply to other Australian jurisdictions.

Proposed Part VIIIC sets out the provisions relating to superannuation interests held by the separating partners in WA de facto relationships in full. Proposed section 90YA sets out the object of the Part as:

… to allow certain payments (splittable payments) in respect of a superannuation interest to be allocated between de facto partners in a de facto relationship in Western Australia, either by agreement or by court order.

Proposed section 90YC notes that the provisions in the Bill will override any other law, state or Commonwealth, and anything in a trust deed or other document.

Proposed sections 90YD to 90YI provide definitions for the purposes of Part VIIIC, in a number of cases by reference to other proposed clauses.40 Some notable definitions are:

• a ‘child of the de facto relationship’ only refers, for the purposes of the part, to a child of both parties to the relationship41

• splittable payment refers to a payment in respect to a superannuation interest either to a party, or to another person for the benefit of that party, to a legal representative of the party following the death of the party or to a reversionary beneficiary or their legal representative after the death of the party; unless a regulation is made which specifies that a particular payment or payments generally are not splittable payments.42

The latter provision means that most superannuation payments in respect of an individual’s superannuation are splittable payments regardless of how they are to be otherwise distributed.

36. Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 1, 2020, 5 February 2020, p. 95. 37. FLA, section 90RA(1). 38. Ibid., sections 90RA(2) and 90RA(3). 39. An amending provision in the Bill, proposed section 90YB of the FLA, at item 4 of Schedule 1, will allow the relevant amending

Part of the Bill to apply to WA even though that state’s referral is limited. 40. For example, payment flag means, in part, ‘the application of section 90YP’. 41. Proposed section 90YE. 42. Proposed section 90YG.

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Proposed sections 90YK and 90YL set out what superannuation agreements the Bill is intended to cover. Section 90YK replicates the effect of existing section 90XHA, so as to apply to WA. This means, in effect, that a superannuation agreement between WA de facto partners will form part of a general financial agreement relating to the distribution of property on the breakdown of the relationship. This already applies to parties to a marriage Australia wide, and parties to a de facto relationship in other Australian jurisdictions.

One significant difference in WA is that for WA de facto couples a financial agreement is made under the WA Family Court Act, rather than under the FLA as is the case otherwise. Proposed section 90YK thus specifies that if a financial agreement made under the WA Act includes a superannuation agreement, that superannuation agreement will, with the passage of proposed section 90YK, only be enforceable under the FLA and not the WA Act.

Payment splitting Proposed sections 90YM and 90YN set out provisions in respect of payment splitting. This sets the conditions for how, and when, superannuation is distributed following the breakdown of a WA de facto relationship. Superannuation splitting is a process by which the value embedded in a superannuation fund is divided between the relevant parties. It does not convert superannuation into a cash asset. The ‘split’ is only on paper until the superannuation asset is realised in line with general superannuation law—for example, when the person whose superannuation policy it is retires from the workforce.

The proposed provisions on superannuation splitting for de facto relationships in WA replicate those already in the FLA in respect of other Australians. Superannuation can be split by consent between the parties, or by court order in line with proposed section 90YX. Where a court itself decides the interests of the parties in the value of the superannuation asset it does so by applying the Family Law (Superannuation) Regulations 2001, or by determining the value of the interest by such method as the court considers appropriate.43

Payment flags Proposed sections 90YO to 90YS (inclusive) contain provisions about payment flags and the lifting of payment flags. Essentially, a payment flag is an injunction to stop the relevant superannuation fund from paying out certain sums to the policy holder while the flag is in place. This approach might be taken, for example, where the parties are about to reach the age at which they can access their superannuation, and no superannuation agreement or orders are in place. Penalties apply for the trustee of a superannuation fund who acts contrary to a payment flag.44

The parties can make an agreement to lift a payment flag. Certain conditions apply to this, including that both parties must have obtained independent legal advice and must provide a certificate from the relevant legal practitioner attesting to that.45 The WA courts exercising family law jurisdiction can set aside a flag lifting agreement under certain specified circumstances. These include where the flag lifting agreement is unconscionable or fraudulent; was entered into for the purpose of defrauding someone such as a creditor; or where circumstances have arisen or changed since the agreement was made.46

43. Proposed subsection 90YY(2). 44. Proposed section 90YO. 45. Proposed section 90YS. 46. Ibid.

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Who does proposed Part VIIIC apply to Proposed sections 90YZB and 90YZC limit the jurisdiction of proposed Part VIIIC. For that Part to apply, at least one of the parties must be resident in WA on the day the application was made; they must have resided in WA for at least one third of their de facto relationship (or have made substantial contributions as set out in the WA Family Court Act in WA); and they must have been in a de facto relationship for at least two years, unless there is a child of the relationship and the two year rule would cause serious injustice to the carer of the child.

What does a court take into account in making an order? Proposed section 90YZD sets out what a court should take into account before making an order under proposed section 90YX. This section is lengthy but not novel. It largely replicates provisions already in the FLA in subsections 90SM(2) to 90SM(20).47

The court must take into account issues such as:

• age and health of the parties

• their financial resources

• their earning capacity

• their contributions while in the relationship and

• their necessity to support other people, including persons who they may now be cohabiting with.

(This list is not comprehensive).

Other provisions The court is not compelled to make an immediate decision under proposed section 90YX. It can adjourn a matter where, for example, there is likely to be a significant change in the financial circumstances of the parties and where it considers that the adjournment would be more likely to do justice between them.48

Persons other than the separated parties, whose own interests might be affected by a section 90YX order, can become parties to a proceeding for such an order. These might include

• creditors or

• persons who have a financial agreement with one of the parties, such as other de facto partners or spouses.49

Decisions of the court under proposed Part VIIIC must ultimately be final decisions. The court has a duty to end the financial relations between the parties.50 A party to a payment split can waive their right to a split (for example, this might occur when the former partner makes a cash payment equivalent to the value of the superannuation interest). A waiver notice must be accompanied by a statement, and evidence in the form of a certificate, that the non-member spouse has received independent financial advice from a prescribed financial adviser.51 The death of the non-member

47. Explanatory Memorandum, op. cit., p. 36. 48. Proposed subsection 90YZD(5). 49. Proposed subsection 90YZD(10). 50. Proposed section 90YZJ. 51. Proposed section 90YZQ.

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spouse does not negate a payment split—the person’s legal representative has all the rights of the non-member spouse, including being able to waive the payment split.52

Transitional Provisions (Schedule 4) The courts which consider family law matters have a heavy and ongoing workload. Consequently an important question when there are substantial legislative amendments, such as in this Bill, is to which cases should the new provisions apply? The transitional provisions in the Bill provide an answer to this question—however, those transitional provisions are probably the most contentious in the Bill.

Item 2 of Schedule 4 says that proposed section 90YK (inclusion of superannuation interest in general financial agreement) applies in relation to any WA financial agreement made after the commencement (of section 90YK). Item 3 provides that the new provisions do not apply to a de facto relationship where the parties are parties to proceedings under the WA Act which have commenced and are not yet determined, unless the parties choose for proposed section 90YX (the court may make orders) to apply. It is not possible, under the transitional provisions, for a single litigant to ‘opt in’ to the new provisions. Proposed sub-item 3(2) of Schedule 4 says ‘the parties … may choose for section 90YX … to apply’ (emphasis added).

For such a choice to be made both parties have to provide informed consent, following the receipt of legal advice. A choice, once made, is irrevocable by the parties themselves;53 but can be set aside by a court if the court decides that it would be unjust and inequitable not to set the choice aside.54

Comment on the transitional provisions The contentious nature of the transitional provisions was summed up by the Senate Committee in its report. It said:

… a number of key stakeholders expressed concerns regarding the transition arrangements contained in Schedule 4. These stakeholders were concerned that the transitional arrangements may disadvantage the financially-weaker party because they require parties in matters that are already before the courts to agree if they wish the provisions to apply to their settlement (‘opt-in’ to the new regime).

55

It appears to be implied in the Senate Committee report’s summary of the submissions that it received that the new legislative regime will provide more protection to the weaker party in a superannuation split. This would further imply that it may be in the interests of the party in a stronger position to ensure actions commence under the existing provisions.

This would appear to be contrary to the spirit of the amending legislation. The Family Law Practitioners Association of WA considers that the opt-in mechanism fails to meet the intent of the legislation, which is to overcome inequity in cases where the inability to super split leaves one party without access to the appropriate property settlement.56

52. Proposed section 90YZS. 53. Sub-item 3(4). 54. Sub-item 3(5). 55. Senate Legal and Constitutional Affairs Legislation Committee, Family Law Amendment (Western Australia De Facto

Superannuation Splitting and Bankruptcy) Bill 2019 [provisions], Senate, Canberra, March 2020, p. 6, para. 2.7. 56. Ibid., p. 8, para. 2.19.

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On the other hand, the Attorney-General’s Department has submitted,57 and indeed resubmitted in its answer to the question on notice,58 that the transitional provisions as drafted were consistent with the provisions in place when superannuation splitting amendments were applied to other Australian jurisdictions by the inclusion of Part VIIIAB in the FLA.

One point, which could not perhaps be envisaged when the Senate Committee released its report, is the time taken for this legislation to pass Parliament, mostly because of the public health situation in Australia in 2020. This may strengthen the case for more flexible transitional provisions. It may be the case that a party who wished to rely on the new provisions has not been able to do so because of time limits after separation for the commencement of proceedings.

Bankruptcy Provisions (Schedule 2) Schedule 2 contains provisions amending the Bankruptcy Act 1966. As noted earlier, the purpose of these provisions is to extend the capacity of the WA courts to hear bankruptcy matters, which are constitutionally federal issues, where appropriate.

Section 35 of the Bankruptcy Act, which will not be amended, gives the FCA jurisdiction in bankruptcy where the trustee is a party to property settlement proceedings. Subsection 35(1) contains clauses about a marriage break-up. WA is already covered by provisions relating to marriage, as previously explained. Subsection 35(1A) relates to the break-up of a de facto relationship.

Current subsection 35B(1) specifically notes that subsection 35(1A) does not apply to the Family Court of WA. Neither does section 35A of the current Act in relation to de facto relationships. (Section 35A allows the transfer of bankruptcy matters from the Federal Court to the FCA.)

In summary, section 35B as it stands gives the WA Family Court bankruptcy jurisdiction in the same way as the FCA has that jurisdiction, but specifically excludes matters relating to the breakdown of a de facto relationship.

Rather than making amendments to the current provisions such as section 35 and section 35A, the Bill replaces current section 35B in its entirety with a proposed new section 35B.

Proposed section 35B gives the WA Family Court full jurisdiction to hear bankruptcy matters in similar fashion to the FCA. Proposed subsection 35B(4) specifically refers to matters where the trustee to a bankrupt person is also a party to proceedings under proposed Part VIIIC of the FLA. This will mean that, unlike before, the Family Court of WA will have the capacity to hear the bankruptcy and de facto separation matters together.

Appeals against decisions of the Family Court of WA made under proposed subsection 35B(4) will lie to the Court of Appeal of the WA Supreme Court and not elsewhere (for example, not to the Federal Court).59 This means that once the matter goes into the WA court system it remains there.

A bankruptcy matter can be transferred to the WA court either on the application of a party or on the initiative of the Federal Court or Federal Circuit Court.60 There is no appeal against such a transfer (or indeed a decision not to transfer).61 Where a matter is transferred to the WA Family Court, that Court has full capacity to make and enforce decisions in the proceeding.62

57. AGD, Submission, op. cit., p. 4. 58. AGD, Answer to Question on Notice, op. cit. p. 3. 59. Proposed subsection 35B(6). 60. Proposed subsections 35B(8) and 35B(9). 61. Proposed subsection 35B(12). 62. Proposed subsection 35B(10).

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Schedule 2 contains a number of other consequential changes to the Bankruptcy Act, necessitated by the effect of proposed section 35B. These largely involve cross referencing the new Part VIIIC of the FLA.

Other provisions

Consequential Provisions (Schedule 3) The substantive changes made by the Act necessitate that certain consequential changes to other Acts must be made. The Acts that are amended by this schedule are typically Acts relating to superannuation or pensions, as well as the Income Tax Assessment Act 1997, the Social Security Act 1991 and the Proceeds of Crime Act 2002. In each case, the purpose of these consequential amendments is to cross reference the new sections in the FLA.

Concluding comments The substantive provisions of this Bill appear unexceptional and largely replicate for Western Australians the system which has operated elsewhere in Australia for a number of years.

As noted earlier, the principal, or perhaps only, point of contention has been concerning to whom the new provisions should apply when the Bill becomes law. There is no objectively right answer to this. Some submitters, and the Senate Committee, have suggested one course of action while the Attorney-General’s Department has stated and restated its opposition. It might be noted, though, that the Bill, though it is basically uncontroversial, has taken, like most legislation this year, a considerable time to pass through the Parliament for reasons other than the Bill’s contents. In these circumstances a reconsideration of the transitional provisions may be warranted.

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