Find out more about what happens to your super fund when your relationship breaks down, what are your superannuation interests and how is your super split. Separating your finances after a divorce can seem overwhelming and confusing, especially with the addition of emotional stress from your break-up. Splitting super can be complex. There are many things to consider, and seeking independent legal advice can help make sure that you make informed decisions and understand your rights and responsibilities.
Let’s take a closer look.
What Happens To Your Super In The Event Of A Divorce?When a marriage or de facto relationship ends, both parties must divide their finances and negotiate their property settlement. Superannuation benefits are considered part of the property pool and are valued as an asset, and as such, can be divided between parties when a relationship breaks down. Other than the marital home, a superannuation fund is most likely to be the next most significant asset, which can be overlooked as it is not immediately accessible. Forgetting or ignoring super can result in a substantial financial disadvantage, particularly for individuals with considerably less super. Statistics show that divorced women with children have 37% less super than divorced dads and 68% less than other married mothers, according to an AMP Income and Wealth study. The effect of divorce on superannuation is substantially different for women than men.
Contributions And EntitlementsWhen couples separate, family law stipulates that they need to divide their finances fairly and equitably. The family court will look at what contributions each party has made during the relationship. Factors that can influence the final distribution of the financial assets include:
Length of the relationshipThe length of a relationship can significantly affect the financial outcome of a divorce or separation. For example, in a long relationship of over ten years, it is more likely that an equal split of assets will occur, opposed to a short relationship of fewer than five years where joint assets or contributions may be minor.
Financial and non-financial contributionsTo determine your separation entitlements, your contributions to the relationship are assessed and calculated. The more valuable your contributions will often correlate to a higher share of the property pool. Financial contributions can include lump-sum payments, wages and assets. A non-financial contribution could include parental or homemaker duties or renovations to the family home.
Five-Step TestWhen the family court determines the individual entitlements for each party, they will use a five-step test. It will ensure that the split is calculated fairly and equitably.
- The court will determine if adjustments are needed. For example, short relationships with individual finances may not require adjustment as few joint assets exist.
- The assets and liabilities will be identified and valued.
- The court will determine the contributions of each party.
- The court will consider the future needs of each party concerning the care of children, health, mental state, personal finances, and future earning capacity.
- Using the family law legislative guidelines, the judge will ensure that the property pool split is fair and equitable.
Are You Entitled To A Superannuation Split?The Family Law Act states that if you have been in a relationship for at least two years, you may be entitled to a superannuation split. This includes de facto relationships. In a de facto relationship, you do not have to be married but must live together as a couple in a genuine relationship. The exception to the two-year rule is that if there is a child of the relationship, you may apply earlier than two years. De facto couples in Western Australia are not entitled to split superannuation.
Are There Any Superannuation Interests That Can’t Be Split?Superannuation splitting laws state that there are some “unsplittable interests”, which means there are some instances where super can not be split.
- Splitting superannuation may not occur if the withdrawal benefit is less than $5000 as it is not cost-effective.
- If the super fund pays an annuity or a non-commutable pension of less than $2000 per year, it cannot be split.
How Do You Split Your Super?
Valuing SuperannuationThe first step is to ascertain the current value of your superannuation assets. To establish the value of the superannuation fund, an information request form must be sent to the fund’s trustee, and there may be a fee involved. The Family Court of Australia website has a superannuation information kit that can help you to request the information, or you can seek legal advice from an experienced lawyer. In most cases, the information you receive from the trustee will be sufficient, but in complex cases, you may require more specialist advice. There are specific methods used to value the superannuation, and more details can be found on the webpage of the Attorney General. The methods used are detailed in the Family Law regulations 2001 and allow the Attorney General’s Department to determine the gross value of over 30 different superannuation schemes or funds.
What About Defined Benefit Or Self Managed Super Funds?A defined benefit superannuation account uses a preset formula that considers the number of years in employment and salary at retirement age. Therefore, it can be challenging to determine their value accurately. A self-managed super fund (SMSF) is privately operated and managed by its members. The members choose the investments and insurance and are also the trustees. The members may not have the required financial or legal knowledge to evaluate the fund accurately. It is recommended to seek personal financial advice from your accountant or consult an experienced family law lawyer in both circumstances.
Financial Agreement / Formal Written AgreementThe best scenario is to come to an agreement with your ex-partner regarding how you want to split your superannuation. You should seek independent legal advice from your lawyer to help you prepare a formal binding financial agreement which details your terms. To obtain consent orders from the family court, you will also need to provide a financial statement and affidavit. To formalise your superannuation split, you do not need to be present in court to obtain the consent order. The trustees will need to be supplied with a sealed copy of the consent order.
Financial Court OrderIf you can’t agree, then the family court can make a financial order on your behalf by following the family law superannuation regulations. Adjustments will be made based on individual circumstances. When making their decision, the court will also consider any challenges that either party may face and their future needs. Their decision will be fair and equitable to both parties. You need to inform your partner’s fund trustee, so they have an opportunity to attend the court hearing for procedural fairness.
Payment FlagParties may opt to defer the superannuation fund splitting decision to a later date. A flagging agreement can be made if you do not wish to decide how to split your superannuation immediately. For example, if both parties are close to retirement or if it is a defined benefit account which may be challenging to determine the value at the time of separation. The flagging order will prevent the trustees from paying out any funds until the court order is lifted.
Other AlternativesIn some cases, parties may choose to keep their individual superannuation funds. In place of a split, they could receive a lower percentage or an equivalent financial adjustment from the financial property settlement.
Interest SplittingWhen superannuation interests become payable, when they have met a condition of release, the agreed amount will be paid to the non-member, and the remaining balance will be paid to the member. Generally, the split will not create a new superannuation interest for the non-member unless there is a payment splitting agreement. In this case, they could transfer or rollover benefits into another fund. The interest splitting allows the eligible person to have access to their entitlements independently from their ex-partner.
Superannuation Splitting Laws?Under the Family Law Act, superannuation is considered property after separation, but it differs from other assets or property because it is held in a trust with rules regarding access. Superannuation can be divided when a relationship ends, and parties must obtain orders to split the superannuation fund. The order will bind each party as well as the superannuation trustees. Splitting your super does not convert it into a cash asset. You can generally only access your superannuation fund when you retire. The Family law superannuation regulations dictate the methods used to value the super fund, how the payment split will be put into effect, and Information that is required from the trustee. You are unable to access your superannuation fund until you meet a condition of release, which could be:
- Reaching preservation age
- Aged over 60 and retiring
- Aged over 65 years