A divorce or separation can be an extremely difficult time in your life. Even when the decision to split is an amicable one, the process can still be emotionally exhaustive and stressful.
There are many things that need to be considered and organised when separating or divorcing from someone, including new living arrangements, parenting agreements, and the division of property and assets.
Essentially, you need to be planning for your future, which is why the division of property, and your superannuation is especially important.
In this article, we discuss what happens to superannuation in a divorce or separation from someone. We’ll answer a variety of questions that we are often asked here at Unified Lawyers regarding superannuation during a divorce or separation.
How does superannuation come into the equation when divorcing or separating?
Superannuation is considered to be a type of property or asset that is divisible in a property settlement. Not only is it a type of property, but it can often be one of the largest and most valuable properties of a relationship – especially if you do not own a family home. A person’s superannuation fund can be quite sizeable, from thousands of dollars to hundreds of thousands of dollars.
Superannuation is one of the most important aspects of future financial planning and when you’re working through a property settlement, understanding your rights and responsibilities is vital in ensuring you’re putting yourself in the best position in the long run.
How does the law deal with your superannuation?
We mentioned earlier that super is seen as a type of property, and like all other types of property, in the event of a relationship breakdown, under the Family Law Act, superannuation can be adjusted, transferred or divided between the parties of the relationship.
Superannuation splitting laws can be applied to both married and de facto couples, and the same rules apply whether the relationship is heterosexual or same sex.
It is important to note that these rules are the same in all Australian states and territories, except for in Western Australia, where superannuation is not considered a property that can be split in a de facto relationship.
It is also important to note that while superannuation is considered to be a type of property, and can be split like other types of property, it is actually different to other property types.
Why is superannuation in a divorce different to other types of property?
The key difference between superannuation and other property, like real estate and bank accounts, is that it is held in a trust and is not able to be converted into a cash asset.
Even if it is split or transferred between the parties, it still remains subject to the superannuation preservation laws and will not be released until you satisfy the criteria of release of the super fund, such as reaching retirement age.
Who decides how your super is handled in a divorce or separation?
Decisions about what happens to your superannuation assets (and other assets) can be made through negotiation and agreement between you and your former partner – this can be done privately, or with the help of legal representatives – like a family lawyer.
If you and your former partner/spouse are unable to come to an agreement, you can also apply to the court to divide your assets.
There is no right answer when it comes to whether you should come to an agreement or go through the courts as there are lots of factors that can influence your need for either process.
One key recommendation we have for both options is to ensure you receive legal advice from an experienced family lawyer.
How can super be dealt with during a divorce or separation?
In a separation or divorce, your superannuation is usually dealt with in one of three ways. These are:
1. Split the super
Whether you do so by a private agreement or through a court order, the total superannuation pool may be split or divided between the former couple. The split usually involves one person splitting their superannuation, or rather, having some of their superannuation funds transferred to the other party’s nominated fund. It is not always an overall 50/50 split and can be adjusted pursuant to the parties overall property split agreement. A variety of factors will influence how much each party will receive.
When super is split in a separation or divorce proceeding, it will remain in the superannuation system and is not converted into a cash asset i.e the monies are transferred to the other person’s superannuation fun. The only time a person may be entitled to a payment is if they are already at retirement age or they meet the criteria of release.
2. Defer a decision
A decision regarding how a super account is going to be managed can be deferred by the divorcing or separating couple. This involves a flagging agreement, which essentially prevents a payment being made by the super fund until that flag is lifted.
Sometimes this flag may be in place until a member of the couple reaches retirement age, though it is most often used to ensure no payments are made from the fund until a property settlement has been agreed upon.
This is not a commonly used practice and is more likely to be seen if one member of the divorcing/separating couple is nearing retirement age.
3. Super is taken into consideration but not touched
In this scenario, when dividing assets, the former couple may take their superannuation pool into consideration when splitting all of their assets, but decide to leave their super accounts as they are and split their other assets with the superannuation amounts in mind.
Which option is most common?
While everyone’s separation or divorce situation is entirely unique, splitting the superannuation between the parties is a very common outcome of a property settlement.
The share you or your former partner receive of the split superannuation is dependent on a variety of factors, which is why it is important to ensure you seek relevant legal advice from a lawyer experienced in divorce and separation proceedings.
How is a super split calculated?
At this point, you’re probably wanting to know the answer to questions like “how much of my super am I going to be giving to my ex?” or “how much super am I entitled to from my ex?”. Well, as much as we would like to be able to give you an exact figure, it’s not really possible – because the circumstances surrounding your relationship are totally unique.
What we can tell you though are the factors that need to be considered when working this split out. These include:
- Your age and the age of your former partner
- Each person’s contributions to the super account, household, and other assets
- The length of the relationship
- If either party has children and dependants
- Current wages
- Future earning capabilities
The reality is that when you’re going through a divorce or separation, you need to be thinking about your future, which largely includes your superannuation and retirement planning.
If we’re going to split the super, what do I need to do?
In order to work out how you’re going to split your superannuation you need to ensure you have a full picture of the total value of the superannuation benefits of both you and your ex-partner.
Parties involved in a family law matter have an obligation of full and frank disclosure under the Family Law Rules 2021. This requires parties to provide each other with complete disclosure of the entirety of their current superannuation entitlements.
Parties involved in family law proceedings are also able to request the superannuation information of their former partners from the Australian Taxation Office to aid in family law proceedings, like a divorce or separation.
A property settlement family lawyer can help you in a variety of ways during this disclosure and splitting process, including answering any questions you may have, providing you guidance regarding the various factors you need to consider, as well as ensuring you understand your entitlements and obligations from a legal perspective.
Even if you and your former spouse have come to an agreement as to how you wish to split the superannuation, we still highly recommend seeking legal advice before formalising anything.
How do we formalise our superannuation split agreement?
If you’ve managed to come to an agreement about how you’re going to split the superannuation with your former partner, then it’s time to formalise the agreement.
This can be done by either:
To apply for a consent order with the Court you will need to file an Application for Consent Orders along with a minute recording of the agreement to the Federal Circuit and Family Court of Australia. If the Court finds your agreement to be just and equitable, they will make the agreement a legally binding Order that is enforceable on both parties as well as the super fund.
A financial agreement is known as a Binding Financial Agreement and is a binding and enforceable agreement that doesn’t need to be filed with the Court. For the agreement to be binding and enforceable, each party must have been provided with independent legal advice that ensures the party understands the benefits and disadvantages of the agreement they are entering into. The Agreement must also be carefully drafted, complying with the requirements of the Family Law Act.
What if we can’t come to an agreement about how we split our superannuation?
If an agreement cannot be reached by the parties involved in a separation or divorce, then you will need to apply to have your asset pool divided by the court.
The Court will divide the assets, including your superannuation, in a “just and equitable” manner, and to do this they take a wide variety of factors into consideration, including:
- The length of the relationship (marriage or de facto)
- Valuation of the superannuation of each party
- Financial contributions of each party during the partnership
- Domestic (and other) contributions made during the partnership
- The welfare of children or dependents
- Differences in income between the parties
- The financial responsibilities of each party
When an agreement has been reached or court order has been made, how is the super actually split?
Once a decision about how the superannuation will be split, the actual process of splitting the superannuation benefits will usually involve the transfer or roll-out of the funds into the nominated super fund of the person receiving the benefits. Another option is for a new interest (super account) to be created in the super fund that the person paying the superannuation has.
Other things you should know about splitting superannuation
As you may have come to realise, splitting superannuation is quite a complex process that can be done in a variety of different ways. Here are some more things that are certainly worth knowing about splitting superannuation.
1. Not all super funds are eligible to be split
If a super fund has a withdrawal benefit of less than $5,000, it is not able to be split. This is because it is not cost effective to do so. While it’s not often the case, if neither party has more than $5,000 in either of their superannuation accounts, then it won’t be split.
2. A self-managed super fund adds a layer of complexity to splitting
Self-managed superannuation funds are private superannuation trust funds where the members can manage and make investment decisions regarding how the funds in the trust are used. These are still subject to superannuation and taxation laws, with the aim of planning for your retirement.
Most self-managed super fund members are also trustees of that account, which means that they have control and responsibility over not only the investment decisions, but also ensuring the fund is managed in accordance with its legal responsibilities too.
A trustee must still act in the best interest of all members of the fund, even if that includes your former partner.
If a self-managed super fund is involved in your divorce or separation, you should speak to a family lawyer or a financial adviser.
3. You may be required to pay fees when you split your super
Some super funds may charge administrative fees for splitting payments and moving the benefits around. You can always speak with your super fund to find out if they do have fees for this and what they are.
When should I get legal advice?
Whether you’re already in the process of separation and splitting your assets or you’re only just starting to think about separating, it’s never too early to talk to a family lawyer about your situation.
Ending a relationship can be complicated and difficult for all parties involved, and that’s without taking your legal rights and responsibilities into consideration.
A family lawyer who is experienced in divorce, separations and asset splitting can guide you to ensure your rights are protected, your questions are answered and to help you move forward.
Here at Unified Lawyers, we are familiar with a wide variety of family matters, including splitting superannuation when separating or divorcing. We are here to help you and guide you through this process. We offer your first consultation free, so you can ask us questions and see if we’re the right fit for you.
Call us today on 1300 667 461 or book a consultation using the button below.