Divorce and Superannuation - What Happens to Super After a Separation?
First published, 7th of November 2022
Superannuation interests can be divided between partners by agreement or by court order when a relationship breaks down. This includes marriage and de facto relationships, whether heterosexual or same-sex.
In the event of a divorce or separation, the most common path people choose is a superannuation splitting order. This is often easier and allows each person to take control over what they want for themselves regarding retirement savings.
Understanding the financial ramifications of divorce can be tough for most people, especially when relying on your superannuation for retirement. This article will provide insight into how superannuation is divided when getting divorced and what happens with your property settlement and retirement nest egg in those circumstances.
Divorce and Superannuation – How Funds Are Divided?
There are three options when it comes to dealing with your superannuation benefits at the time of divorce or separation.
Option 1: Superannuation Splitting
Superannuation splitting laws allow you to divide your superannuation when a relationship breaks down. Retirement funds are treated as property under the Family Law Act 1975 just like the family home. However, they differ because superannuation investments are in a trust, and there are specific rules governing how the superannuation is distributed.
Most couples will choose to split their super during the process of separation or divorce property settlement, this is known as super splitting and is the most common approach. This can be done by either a Financial Agreement or a court order.
In this situation, couples usually add up the value of both parties’ superannuation interests and divide it by two. Then one partner may split their super as to make a payment to the other partner’s superannuation fund. The result of this is that both parties have an equal amount of superannuation.
This arrangement might make sense for a couple that was married at the same age and worked for the same amount of time and didn’t have any major super contributions in one of the parties’ super.
However, there is no ‘one size fits all’ way to split super because every relationship is different and parties may choose to negotiate (either with or without legal representatives) a super split that takes into account their individual circumstances and needs.
For example, one partner may not have worked as many years as the other and may only have a small amount of super compared to the other partner, who was the primary income earner. In this case, a different superannuation split may be needed to ensure assets are divided fairly.
Option 2: Defer Your Decision
The other less common option is to defer the decision to another time such as retirement via a flagging agreement. The flagging agreement will prevent the superannuation trustee from releasing superannuation entitlements until a final decision is made and the flag is removed.
This option may be suitable if either party is in a defined benefit account.
Option 3: Take Super Into Account But Leave it Untouched
Some separating or divorcing couples may choose to leave their super alone, but take the value of their super accounts into when determining an equitable property settlement.
It’s always best to have legal advice from a family lawyer before making any decisions, to ensure you’re complying with relevant super laws and gaining the best possible financial outcome.
Superannuation Splitting Laws
The laws relating to dividing superannuation assets in the event of a relationship breakdown can be time-consuming and complex.
If couples choose to go down the path of mutual agreement, arranging the division of superannuation can be fairly simple if both parties have a fairly simple superannuation funds arrangement.
However, if you or your spouse have a self-managed superannuation fund, your financial circumstances are more complicated. In these situations, it is essential to gain legal advice to ensure you comply with superannuation laws.
Even amicable divisions of super may not comply with relevant law, and it is best to consult with an experienced family lawyer so that both parties understand their legal rights under Australian taxation legislation regarding this matter.
Amicable Superannuation Splits
The first step for both you and your former parter is to find out how much super is available, and decide what is a fair payment split.
If parties can amicably come to an agreement on how to split their super, there is no need for a court hearing and they can formalise the agreement in two ways.
- Going through negotiations with a lawyer who will prepare a binding financial agreement.
- Applying to the Family Court for Consent Orders. The Court must approve the agreement and then it will become legally binding. You won’t be required to attend Court if you applying for a consent order.
Couples can also enter into an informal agreement, but this is not legally binding and cannot be used in Court.
If you would like to seek independent legal advice about how a binding financial agreement can benefit the outcome of superannuation splitting, contact Sage Family Lawyers. Our friendly team of Melbourne divorce lawyers are ready to answer any questions you may have.
Superannuation and Court Orders
In the instance that parties cannot come to an agreement, then an application for a court order is required. Since superannuation is considered property under the Family Law Act, the Court will follow the standard four-step process to determine an equitable superannuation split.
- Identify & value all assets and liabilities.
- Determine both the financial and non-financial contributions of both parties.
- Determine the future needs of both parties i.e future earning capacity, care of children, health issues etc.
- Next, the Court will consider all of the above factors to determine an equitable super split. The first two steps are used to establish each party’s financial position.
Are There Any Restrictions on Splitting Superannuation?
There are no actual restrictions on who can split their superannuation; however, there are a few things you will need to know before you start superannuation splitting after divorce or separation.
- Any superannuation interest with a withdrawal benefit of less than $5,000 is not splittable as it is not cost-effective due to the fees incurred to complete the process.
- When splitting superannuation, you need to make sure you follow the correct procedures. In order to effect a split of you and your ex-partner’s superannuation, you must notify the superannuation fund trustee and any other parties who might object to or need information about this matter. This is called providing the trustee with ‘procedural fairness’.
- The superannuation fund trustee should be given at least 28 days to consider draft superannuation orders sought before they are filed with the Family Court. If necessary, the trustee can object and request changes, which will require an additional period of consideration by both parties involved.
It’s important to note that the preservation rules on super still apply even after the split. This means the superannuation assets cannot be accessed until retirement or in other special cases.
How is a Self Managed Super Fund Affected by Superannuation Splitting Laws?
Superannuation splitting in a self-managed superannuation fund (SMSF) requires the fund manager to restructure the super fund, which usually incurs additional management fees.
It is important that each person going through a divorce thinks about the various circumstances in their life and considers the changes needed. This includes making sure any wills, powers-of-attorney, binding death benefit nominations or shareholdings/directorships in companies are updated accordingly. All of the above must be reviewed when splitting superannuation in self-managed superannuation funds.
Superannuation and family law can be difficult to deal with when a marriage or de facto relationship dissolves. Splitting up one’s retirement savings may have tax consequences, and the entire process could be time-consuming if not handled correctly by an experienced family lawyer. If you need more information about super is split in divorce, we suggest talking to one of our friendly family lawyers today.
Frequently Asked Questions
How Long After a Separation Can You Claim Super Benefits?
Property settlement time limits vary for married and de facto relationships.
How long after divorce can you claim super?
Your former spouse will have up to one year after the divorce is finalised in which they can claim your superannuation.
How long after de facto separation can you claim super?
The time limit for de facto couples who separate is two years from the date of your separation.
What Happens if We Can’t Agree on How to Split Superannuation Funds?
If you and your former partner cannot agree on how to divide the superannuation fund, then it is recommended that family law proceedings be sought.
Can I Access My Super While Separated Before Divorce Proceedings?
You can make a superannuation claim anytime after separation, even if you have not obtained a divorce.
However, to access your super or to receive superannuation payable to you, conditions of release must be met, such as retirement.
How is Superannuation Calculated in Divorce Proceedings?
This is done by adding up the value of both parties’ superannuation interests, dividing it by two, and splitting the super funds to make payments equally. This way, each party will receive an equal amount in their respective accounts.
Of course, there are always exceptions to the rule. If you and your former partner can’t agree on how much money should go into each parties super fund, then it may be worth speaking with an experienced family lawyer to help negotiate on your behalf.
What If My Partner is Hiding Their Super?
Parties seeking information can make an application to the Federal Circuit and Family Court to request their former partner’s superannuation assets. This information is held by the Australian Taxation Office.
This makes it difficult for a spouse to under-disclose or hide assets relating to superannuation in family law property proceedings.