When you are going through a separation or divorce, how financial assets will be split is a common query faced by our clients. In this article, we explore what happens to your superannuation when you divorce.
Divorce and superannuation entitlements: how superannuation is treated in a divorce
In divorce, superannuation is treated in a similar way to property. But there are separate rules and regulations around how superannuation can be dealt with.
As part of the family law process, generally speaking, the first step a Court would undertake is to identify and value the property pool. This includes the assets, liabilities and superannuation interests of the parties. So, superannuation forms part of the property pool that is capable of being divided between separating couples.
One of the key differences between superannuation and non-superannuation assets is that there are strict rules around when it can be accessed, which is generally only when you meet retirement conditions.
For the purposes of calculating an overall division of assets, liabilities and superannuation, it is treated in the same way. For example, $1 of superannuation is the equivalent to $1 of non-superannuation assets such as cash or property in dollar terms. So, if one person was to have a hundred dollars in cash and the other person was to walk away with a hundred dollars in superannuation that would be an equal division of the property pool. This would be the outcome if, of course, the cash and superannuation are the only assets in the property pool and the split was determined to be 50-50 (which is not always the case).
It is possible as part of a family Law property settlement for there to be a superannuation split from one party’s superannuation to another party’s chosen fund. However, before a superannuation split can occur, an order or a Binding Financial Agreement needs to be made. That is, a formalised agreement between the parties or ordered by the Court under the Family Law Act. The agreement details exactly what that split is going to be and can normally be couched as being a percentage based split or calculated by using a base amount.
That order or agreement is binding only on the parties of the proceedings. It is not automatically binding on a third party, and in this particular instance, an external superannuation fund, is the third party to the order. Generally speaking, they are not bound to do anything.
This is why there is a strict process that before the Court will make any superannuation splitting Orders. In most instances, there is usually a requirement to put the trustee of the superannuation fund on notice of the parties’ intention to apply to the Court to seek superannuation splitting Order and once made, requiring the superannuation fund to take certain steps to give effect to any agreement.
Normally, what that involves is writing to the superannuation fund and providing them with a copy of the draft Orders and asking for them to confirm whether they require any specific changes to the Orders.
Generally what happens is the superannuation fund then writes back and says they do not have any objection to the proposed Orders. Following this, we can ask the Court to make the Orders, and we provide the confirmation from the superannuation fund.
Superannuation fund types and divorce
It is also important to have an understanding of the type of superannuation interest that are applicable because there are different types of superannuation funds out there. There are different types of superannuation interests, including accumulation interests, self-managed funds, and defined benefit funds.
The other important aspect is when we are working out what the type of superannuation interest is and how it is to be valued. Different superannuation interests have different values. For example, if you go somewhere like a standard super fund, like Sunsuper, you can generally just get a screenshot of the daily balance and how it is invested. So, it might tell you it is worth a hundred dollars at that point in time.
But there are other types of superannuation interests out there. For example, defined benefit super funds. There are also a lot of people who come through our doors and have what is called ‘military super’, and it is not always as straightforward as looking at a statement and looking up the value of the fund. So, sometimes it is worth having an expert value that interest.
There are also people who have self-managed super funds and for these we generally need to look at the deed that governs that fund to ascertain the trustee of the fund, as well as who the members are, as well as financial statements. Sometimes valuations of the assets owned by the fund are required. Consideration also needs to be given to what the parties intentions are moving forward for the fund.
Misconceptions about superannuation splitting
It is important to know that it is possible as part of a family law matter for your superannuation to be split. There are often some misconceptions about what all of that means because of the different nature of superannuation compared to other assets.
People sometimes think that if someone has a hundred thousand dollars in a superannuation fund and they want to have a superannuation split of 50% that they will receive fifty thousand dollars cash.
But it is not possible to get fifty thousand of that superannuation and convert it to cash. It can only be transferred from one superannuation fund to another superannuation fund, to be accessed only once conditions of release (usually reaching retirement age), are met.
Your superannuation also cannot be split without an order of the Court or a Binding Financial Agreement. There are also more requirements that have to be met before those steps can be undertaken.
There is also no obligation for there to be any superannuation splitting Orders. Parties also do not have to end up with the same percentage of superannuation as non-superannuation assets.
For example, if the agreement is that there is a 55/45 division of the overall property, it doesn’t have to be a 55/45 of non-superannuation assets and 55/45 of superannuation assets. It is about looking at the entire picture and what is ultimately fair based on each person’s circumstances now and into the future.
There can also be strategic advantages to people having funds in a superannuation environment where there are different taxation consequences. And depending on the parties’ ages, when they may be able to draw on those benefits, it might have more importance to them.
Some superannuation funds are not capable of being subjected to superannuation splitting Orders. For example, some military funds. If the fund is less than $15,000 in value, then it is also not capable of being split.
Seeking advice about superannuation and your divorce
It is crucial to seek out specialist advice about superannuation and your divorce and not just thinking it is straightforward or make any assumptions about its importance. This is because it is important to look at the bigger picture when considering your financial settlement.
There are ways of gathering information about superannuation interests and the value of it as well. Sometimes you can get basic information through the Australian Tax Office website. Otherwise, it is possible to issue particular forms to superannuation funds or the trustee of the fund and ask for information.
Because there are different types of superannuation and everybody’s circumstances are different, it is vital you seek specialist legal advice from a family lawyer to ensure you cover all bases. Because there are all sorts of things that if you might not turn your mind to, that can have unintended consequences later on.
By seeking specialist legal advice early on in the process, you can ensure that you are receiving accurate information regarding what will happen to your super in a divorce proceeding.
Related: What is financial disclosure in divorce and how can I manage it?
How to get the most out of your first appointment with a family lawyer
About to separate? 5 key considerations you need to know
Processes to get to an agreement after separation: property and finances
Phillips Family Law is an award winning Family Law practice serving clients across Australia and abroad. Regardless of where you are in your property settlement process, we can make you aware of your options. To discuss your situation confidentially phone (07) 3007 9898 or secure a time by clicking here.
Disclaimer: The content in this article provides general information however it does not substitute legal advice or opinion. Information is best used in conjunction with legal advice from an experienced member of our team.
