Federal Court protects pension from bankruptcy trustees: Morris' Case

The Federal Court has rejected the attempt by bankruptcy trustees of a deceased super member who argued that a benefit paid to the widow of the deceased super member who was herself a bankrupt was divisible property and so vested in them.

The bankruptcy trustees argued that the protection provided by s116(2)(d)(iii)(A) of the Bankruptcy Act did not apply as the widow was not a member of the superannuation fund and so the payment could not be from her interest in the superannuation fund.  The husband had previously been declared a bankrupt and then died.  After the husband’s death, the widow was declared a bankrupt.  The husband had been a member of the superannuation fund and the trustees had (as there was no binding death benefit nomination) exercised their discretion to allocate the benefit to his widow.  

The Court held that once the trustees exercised their discretion the widow became “presently and absolutely entitled to receive a benefit” which right amounted to an interest in the fund.  Consequently, s116(2)(d)(iii)(A) applied and so the benefit was not divisible property of the widow.  This reasoning would also apply to reversionary pensions and binding death benefit nominations.   

The relevant citation is [2016] FCA 846