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 Entitlements
When 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 relationship
The 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 contributions
To 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.
When 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.
Understanding the process for asset distribution can help ensure that parties are aware of their entitlements in a relationship. For example, in a marriage with minimal assets, individuals must be mindful of their superannuation interests, which could be the most financially significant. Seeking professional advice and legal assistance is crucial when separating, as it ensures that each party understands their rights and entitlements.
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?
The 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 Agreement
The 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 Order
If 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.
Parties 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.
In 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.
When 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
Preservation age is the earliest age that you can access your super funds. It is between the ages of 55 and 60, depending on your year of birth. It is called preservation age because super is a preserved benefit.
- Aged over 60 and retiring
- Aged over 65 years
There may be particular circumstances where you may be able to access your super early, such as experiencing severe financial hardship or for compassionate reasons.
What Are Your Superannuation Entitlements?
The amount of superannuation you may receive will depend on several factors as many variables are in play. For example, many women face short term financial difficulties after divorce, which may permit the court to give a more significant share of existing assets.
In a long relationship, you may receive an equal superannuation split as your superannuation balances at the start of the relationship were minimal. Dividing the superannuation assets equally for a 50:50 division is a common occurrence.
Both parties may negotiate a financial agreement between themselves. For example, one party may be close to the age of retirement and wish to retain their superannuation, in which case the other party may receive a more significant share of the cash assets.
A court will consider past contributions and future needs. Significant weight can be given to an individual’s ability to make post-divorce superannuation contributions and find employment, which may result in a more generous split than 50% to the other party.
Are The Rules The Same Throughout Australia?
The superannuation laws are uniform across the country except in one state, Western Australia. In WA, there are different rules for de facto couples. When a relationship breaks down, they are only entitled to their superannuation, not their partners.
A Family Law Amendment Bill was introduced to Federal Parliament in 2020 to bring WA in line with the rest of Australia. Once WA introduces legislation to support the amendment, the laws for superannuation in Australia will be the same in every state and territory.
In a marriage or de facto relationship breakdown, both parties must divide their finances and negotiate their property settlement. Superannuation benefits are treated as a part of the property pool and get valued as an asset. 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.
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.
Parties may independently reach a superannuation agreement which can become a consent order; if they can’t agree, then the family court can make a financial order on their behalf that is fair and equitable to both parties.
Splitting your super account does not convert it into a cash asset. You can generally only access your superannuation fund when you retire or meet a condition of release.
Overlooking or ignoring super can result in a substantial financial disadvantage, so seeking independent advice and legal assistance is crucial when separating, as it ensures that each party fully understands their rights and entitlements.
1. What Happens With Superannuation in a Divorce?
Answer: Superannuation is treated as a part of the property pool in a divorce and gets valued similarly. As such, it can be divided between parties when your relationship breaks down. Parties will need to obtain court orders to split the superannuation fund. Individuals must be aware of their superannuation interests as they could be the most financially significant.
2. What Is A Super Splitting Order?
Answer: A superannuation splitting order can be a consent or court order that specifies your super split agreement. The order is made by the family court, which determines parties superannuation entitlements after separation or divorce.
It will specify the base amount or value of the superannuation accounts, the method used to calculate the value, and the percentage that is to be applied to the payments.
3. How Long After A Divorce Can You Claim Superannuation?
Answer: As superannuation is treated the same way as the rest of the property pool, the same time limits apply. You should finalise the division of your financial assets within 12 months after the date of separation. For de facto couples, it is two years.
A flagging agreement can be made if you do not wish to decide how to split your superannuation immediately. Often used when it is difficult to determine an accurate value or when one party is close to retirement. The flagging agreement will prevent the trustee from making any payment until the flag is lifted.