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When it comes to property settlements after a separation or divorce, there’s no denying that the family home, cars, and bank accounts are often top of mind. But let’s not forget one of the most important assets that can be easily overlooked in the emotional turmoil of divorce: superannuation.
Superannuation may not be something you can access immediately, but it can be a crucial part of your financial settlement. And, just like other property, it can be divided between a separating couple. So, what exactly is a superannuation split? How does it work in a family law context? And why is it so important to get right?
Let’s take a closer look at superannuation in family law and what you need to know when navigating this often tricky area.
What Exactly is Superannuation?
Superannuation is money set aside for retirement, accumulated through contributions from your employer, yourself, and any investment earnings. Since it can’t typically be accessed until you reach retirement age, it’s classified as a “deferred asset.”
Now, while you may not be able to access that cash anytime soon, that doesn’t mean it’s not a critical asset when it comes to dividing up the assets and liabilities owned by a separating couple. Superannuation has a real value, and it needs to be taken into account when figuring out a fair split between you and your partner.
How is Superannuation Treated in Family Law Property Settlements?
Under the Family Law Act, superannuation is treated as property, much like your home or bank accounts. However, it’s treated a little differently because it’s not immediately accessible.
Under the Family Law Act, superannuation must be considered during a property settlement, but it’s not always split automatically. Unlike other assets, superannuation remains held in trust and is subject to specific splitting rules. It’s up to you and your ex-partner to decide how to divide it (if at all), either through a formaln agreement or through a court order. If there’s no agreement, the court can make a ruling on how the super should be divided.
Valuing Superannuation
Before dividing superannuation, its value must be established. In Australia, there are two main types of super funds:
- Accumulation Funds: These are the most common type. The value is straightforward and is based on contributions made by both parties and any investment earnings. A Form 6 and Superannuation Information Request are often used to determine the value.
- Defined Benefit Funds: These funds are more complex, with the value calculated using a formula based on factors like salary, service length, and age. These usually require an expert’s assistance to accurately value.
Additionally, some couples may have a Self-Managed Superannuation Fund (SMSF), where the fund is controlled by the members. The value of an SMSF is based on the total balance, including investments and cash, at the time of separation. A formal valuation is often necessary to determine the exact value of an SMSF, given the structure is different to say an interest with a retail fund and it is highly advisable to receive both legal and financial advice when dealing with an SMSF to ensure compliance with tax laws and fund regulations.
How is Superannuation Divided?
Unlike cash or property, superannuation can’t be accessed immediately. This makes dividing it a bit trickier. However, there are a few ways to deal with superannuation during property settlements including:
- Superannuation Splitting Orders: This is the most common way to divide superannuation. The court (or both parties by agreement) will issue a splitting order instructing the trustee to transfer a portion of one person’s super into the other’s account. This ensures that both parties retain superannuation, which is important for long-term financial security.
- Offsetting Superannuation/Non-Superannuation Assets: Offsetting superannuation involves one party with a significantly larger super balance agreeing to retain more of it while the other receives a larger share of non-super assets, such as the family home. Alternatively, one party may choose to keep their super intact while the other takes a larger share of non-super assets like investments or the family home, which can be beneficial when one party needs immediate cash or prefers to retain their existing super balance. This approach must be carefully assessed to ensure a fair division of property for both parties.
Considerations When Dividing Superannuation
There are several key factors to consider when deciding how to divide superannuation:
- Age and Access to Super: Since super is locked away until retirement, the age of each party is crucial. If one person is closer to retirement age and can access their super sooner, it may impact how the super is divided (and may mean that a super split is of more value to them!)
- Contributions to Super: If one party made larger contributions to the super, whether from higher earnings or additional contributions, this should be considered when determining the overall division of the asset pool and how the super in particular should be dealt with.
- Tax Implications: It is important to be aware of potential future tax implications once the super is accessed in retirement. You should seek tax advice in relation to this if you think this may be an issue for you.
You’ve Agreed to Split Super, What Now? What Does Procedural Fairness Mean for the Trustee?
Once you have reached an agreement that involves a superannuation split, it’s essential to formalise this agreement through an Application for Consent Orders (or a Binding Financial Agreement). You can find out more information about how to formalise a property settlement via an Application for Consent Orders on the Court website here. If you are seeking to finalise your property settlement by way of a Binding Financial Agreement, we would recommend seeking legal advice about this.
Importantly, before any orders are made/agreements are entered into, you need to ensure you complete the process of ‘procedural fairness’. This process ensures that the trustee of the superannuation fund is given notice of the proposed orders. Procedural fairness gives the trustee (ie. the superannuation fund you are wanting to split from) the opportunity to review and respond to the proposed split before it is enforced. This step helps ensure that the division complies with the rules of the super fund and that all parties involved are treated fairly.
It’s highly recommended to seek legal advice when drafting these orders (and is required if you are entering into a Binding Financial Agreement) to ensure they’re accurate and reflect the agreed-upon division.
Ultimately, once you have received approval from the super fund, have signed and filed your Application for Consent Orders with the Court, and have received back sealed orders from the Court outlining the details associated with your property settlement (which of course include superannuation splitting orders), your agreement will be legally binding!
If you enter into a Binding Financial Agreement, your agreement will come into effect upon you and your legal representatives signing this document.
What Happens After Superannuation Splitting Orders Are Made?
Once the superannuation splitting order is made/Binding Financial Agreement is signed, you need to provide the fund with a copy of the sealed orders, along with the personal details of the person receiving the superannuation, so that the trustee can open an account with their fund in that persons name and transfer the agreed-upon portion from one party’s super fund to the other’s.
Since superannuation is not accessible until retirement, the split won’t result in immediate cash for either party. Instead, the transfer will be made into the recipient’s super fund, where they can access it upon retirement. The super fund may either roll this superannuation into your own account or make an account with that same fund for the person receiving funds. If the latter happens, you will need to work with that super fund to roll over that super into your own account, if you wish.
When dealing with superannuation splitting orders relating to an SMSF, you should work with your accountant to ensure that the funds/assets are transferred strictly in accordance with the orders. Seek advice about this before and
It’s important to follow up with your super fund to ensure everything is processed correctly and without delay. If issues arise, it’s crucial to address them promptly to avoid complications down the road.
Final Thoughts
Superannuation is a significant asset in any property settlement and can often be overlooked when considering what you’d like not achieve. Whether you agree on a superannuation split or the court steps in to make an order, it’s vital to understand the process and how it fits into your broader property division. Careful consideration of all factors, including the value of the super, the method of division, and your goals for the future, is essential for achieving a fair settlement.
At Brisbane Family Law Centre, we’re here to guide you through the complexities of superannuation splits and property settlements. If you’re facing separation or divorce, our experienced team can help you navigate these issues and ensure you reach a fair and equitable outcome.
