A divorce or separation can be a highly trying time. It is worse when children are part of the equation. With all the emotional stress involved in the process, it can be difficult to keep track of all the material and financial assets to be divided between the two parties and the financial assets include your superannuation too. Hence, you and your ex-partner must reach some sort of resolution regarding how your super fund will be divided upon the finalisation of your divorce.
There are many factors based on which property is divided between the two people who were married or in a de facto relationship, including expected financial circumstances after the divorce, sources of income and child custody. While the settlement of the tangible and liquid assets may take up most of your attention, dividing your superannuation needs some solid expertise in family law.
In simple terms, a superannuation or super refers to a retirement pension program wherein employers must contribute to a trust fund for each employee based on their salary. After the employee fulfils one of the stipulated conditions for inability to work, like retirement, terminal illness or incapacity to work, they may utilise the fund as their source of income.
In Australia, the amount to be contributed to the fund by the employer is a set percentage of the employee’s salary. It is easy to deduce that a super fund on maturation can yield anything from a few thousand to a hundred thousand dollars. Hence, it is important to divide it suitably upon divorce or separation.
Even though superannuation is treated as a form of property in the division of assets during a divorce settlement, it differs from other forms of conventional property. While real estate, bank account balances and other material possessions are divided, distributed and received in hand with the completion of the legal procedures, superannuation cannot be received as cash or in other forms at that moment. It is held in a trust and can only be withdrawn once one of the conditions of release is met. Such a condition could be reaching the preservation age or one of the special conditions of release as per the prevailing rules.
As with all other assets, how you decide to agree on the splitting of your super fund depends on you and your former partner. There are three avenues that you can explore here:
As mentioned before, your super fund is treated as an asset that requires to be decided upon during the settlement of your divorce or separation. There are usually three common ways in which you can choose to act on your super funds. These methods are listed below:
Another common reason why people choose to do it this way is when one of the ex-partners is near retirement age and is likely to reach so before the divorce settlement is completed. In that case, they may withdraw their funds and deny you your share in the settlement. To prevent that, you can make a flagging agreement, where no payout can be made until the flag is lifted.
However, it is still considered within settlement evaluations since the amounts will determine the financial conditions of the ex-spouses after retirement. This applies especially if there is a wide difference in the super amounts of the two and one will need sufficient assets from the settlement to tide over the difference. It had also been the only choice for de facto couples in Western Australia until recently, where superannuation funds were not considered property for settlement purposes in a separation.
It must be kept in mind that there is no one-size-fits-all solution in a divorce settlement. Every couple and every financial situation is different and must be treated so. A solution tailored to the specific case must be applied for the fairest settlement. If you feel that you cannot do that yourself, you should consult a family lawyer or take the help of the court for a just settlement. In fact, it is advised to always take legal help in super division since a lot of factors are involved, many of which you may not even be aware of or know the right way to include into the equation.
For example, you will need to consider the age of both you and your ex-spouse (as in, the proximity to preservation age), the size and nature of the fund, the contributions made by each party, the wages, current and future expected, of each, the manner of division of the rest of the assets, children or other dependents, if any, that either or both may be responsible for as well as the length of the relationship. Of course, these are only the most common factors and there might be other variables to be considered too.
In any case, the first step is to know the aggregate of the super fund or funds that you are dealing with. In fact, you are entitled to this information regarding your ex-partner’s super account and take legal steps for the same. You can do so by filling out a form to obtain this information from the super fund trustee body of your former partner. The form is available on the Federal Circuit and Family Court of Australia website as the Superannuation Information Kit. There is also an online version of the form you can fill out and submit for the same.
Once you know the amount of super in question, it is time to reach an agreement on how to split it. Whether you do it between yourselves or through the avenue of the court, you must make sure that all direct and indirect financial implications are discussed. After you receive the legal agreement or order papers, you must send them over to the trustee outfit of the super account. Do keep in mind that there will be administrative fees for any actions that the fund trustee might be required to take, starting from the request for information to the splitting of the payment. Implementing, terminating or lifting a flag will also incur charges.
The situation will be different if you have a self-managed super fund or SMSF. Whether your ex-spouse is a trustee in the account or not, you still have the responsibility of treating the SMSF as any other super fund. You must include the fund in the settlement process and respect the decisions reached or orders made towards it. You are not allowed to go against the rules of the Superannuation Industry (Supervision) Act 1993 or the trust deed in any actions you take.
Superannuation splitting is done according to the rules and regulations laid out in the Family Law Act 1975. Specifically, the parts that deal with each aspect of superannuation splitting are as follows:
These laws govern the superannuation splitting procedures specifically. In addition to these, Part 7A of the Superannuation Industry (Supervision) Regulations 1994 also lines the obligations of fund trustees to take the necessary actions for implementing court orders, including those in case of division of the super fund between ex-spouses. In the case of Commonwealth-regulated funds, the circumstances that allow options for super interest splitting are provided in the Superannuation Industry (Supervision) Regulations 1994 (Part 7A ) and the Retirement Savings Account Regulations 1997 (Part 4A).
It was mentioned before how Western Australia did not follow the same rules as the other Australian states when it came to superannuation splitting between ex-partners who were in a de facto relationship. However, the Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Act 2020 came into effect on 28th September 2022, which inserted Part VIIIC in the Family Law Act 1975. It provides the framework for the division of superannuation funds specifically for separating de facto couples in Western Australia, which was not possible before.
The question of receiving or giving super through splitting comes into question only if you are in a marriage or de facto relationship with your ex-partner. For the latter, the two people must have been in a de facto relationship for at least two years for superannuation splitting to come into question. However, in the occasion that the ex-partners have a child or one of them makes a significant contribution, the two-year cap can be overlooked.
The default case in a long relationship or marriage in which the superannuation funds of both members were not of significant value at the start of the relationship is that the funds must be so divided to ensure equal superannuation interests for both. This is done by evaluating the interests of both, splitting it 50-50 and then, forwarding the required amount from the super fund with the greater interest to the other to equalise the interests. However, in certain situations, the parties involved may agree to a different ratio of splitting, even giving up their claim entirely, if they wish to negotiate a greater share of other assets involved in the settlement.
As one of the ex-partners, you can file for a superannuation claim in court within 12 months of the divorce order coming into effect. If it was a de facto relationship, you can apply to the court within 24 months of separation. If you are currently separated in your marriage but have not obtained a divorce order yet, you can file a claim at any time with no limits.
If the time limits have been crossed, the only way to file a claim is to apply for special leave from the court on the basis of
hardship. However, the process is long, complicated and expensive and there is no guarantee that the court will grant the leave, so minding the time limit is your best option.
Defined benefits funds and self-managed super funds are both exceptions to the usual process of superannuation splitting. In the former, the fund value at payout is difficult to evaluate while in the latter, one must take into account the total value of all investments made from the fund and the outstanding liquid amount in the account. In both cases, it is advisable to hire an accountant for accurate evaluations.
The first step to be taken is to inform the fund trustee of your intention of super splitting. You must write to them providing them with information regarding the splitting orders you seek and the other party’s necessary details. This gives the trustee an opportunity to object and is termed ‘procedural fairness’. After the splitting is finalised, you must send the order to the trustee to put the split into effect accordingly.
In case you and your ex cannot reach a mutual agreement, you may apply to the court. The court will arrange a hearing and decide how best to split your assets based on the circumstance. It will then issue a binding financial order based on which the split will be made.
While the default is a split of 50-50 for super interests, many factors come into play that makes this equalisation unsuitable for ex-couples. The financial circumstances and responsibilities of the involved parties after the split, including incomes, debts and the assets and liabilities from the settlement, are the major elements to be considered. Besides that, the age of the ex-spouses, their dependents, their essential expenditures, etc. must also be taken into account. Moreover, if one party wishes for a greater portion of some other assets in the settlement, they may agree to a super split with a lower ratio for negotiation.