Marriage equality’s impact on super

Marriage equality’s impact on super

The Marriage Act 1961 was amended late last year to permit any two unmarried people aged 18 years or older to get married, regardless of gender or sexual orientation.

While this legislation is a significant change to Australian marriage laws, nothing changes for same sex or different sex couples when it comes to financial matters such as the nomination of beneficiaries for superannuation or life insurance policies.

Prior to 8 December 2017, when the Marriage Amendment (Definition and Religious Freedoms) Act 2017 received Royal Assent, the term ‘spouse’ referred to individuals who were legally married or in a defacto relationship and lived together “on a genuine domestic basis in a relationship as a couple”. This applied to both same sex and different sex couples.

The rights of ‘third party beneficiaries’ and the taxation treatment of life insurance and superannuation benefits paid to spouses has not changed under the new rules.

Therefore, where a policy owner who is also the life insured nominates their spouse as a third party beneficiary, the spouse has the right to receive all benefits without the proceeds of the life insurance contract being paid to the estate of the deceased first.

In the event of bankruptcy, any life insurance policy owned by the life insured on their own life or owned on the life of their spouse is an exempt asset under the Bankruptcy Act 1966 (Section 116).   Life insurance policies that provide death cover, total and permanent disablement (TPD) cover, or trauma cover are entitlements that are not divisible amongst a bankrupt's creditors.

When lump sum life insurance benefits (death, TPD or trauma) are paid to defined relatives including spouses, the benefits paid to spouses are tax free.

Finally, when lump sum death benefits are paid from a superannuation fund to a spouse after a member’s death, the spouse would be deemed to be a dependant and receive the death benefit paid from the superannuation fund tax free.

The only situation where a death benefit paid from superannuation to a spouse after the death of a member is not tax free is when the death benefit is paid to a surviving spouse, who is under age 60, as a pension or income stream and the deceased member was also under age 60 at time of death.  In that circumstance, the income stream would be taxed at the spouse’s marginal rate of tax less a 15% tax offset.



Jeff Scott is Head of Product at ClearView.