In the event of a divorce, your’s and your partner’s superannuation is one of the assets you may need to consider.
It might be the last thing on your mind, but it’s essential to realise that complex laws can apply. Walking away with superannuation untouched is not always possible in a divorce.
Superannuation splitting laws allow separating couples to value and divide their superannuation after a relationship’s breakdown or divorce.
Under the Family Law Act 1975, superannuation is treated as property. However, it is different from other property types as the investments are in trust for a beneficiary’s retirement. So, different super splitting rules are available (unless you are a de facto couple located in Western Australia).
Your ex-spouse is likely to be entitled to receive a portion of your superannuation assets and vice-versa.
The superannuation splitting laws apply to:
- married (or formerly married) couples who had not finally settled their property arrangements, by a court order under section 79 of the Family Law Act or an agreement approved by a court under section 87 of that Act, before the laws commenced on 28 December 2002,
- De facto couples, in most States and Territories, whose relationship broke down on or after 1 March 2009 (and South Australian de facto couples, where their relationship broke down on or after 1 July 2010).
The laws do not apply to de facto couples in Western Australia
Super splitting laws offer three options that you and your ex-spouse can take to make a superannuation agreement. This agreement forms part of your ‘binding financial agreement’ and outlines what will happen with the superannuation interest involved.
The options available for dealing with your super in the event of divorce or a relationship breakdown include:
Interest Or Payment Split
A common approach is to have a portion of your super benefits immediately split and paid to your ex-spouse.
You can pay the superannuation in one of three ways. Provided that you have met a condition of release, The agreed amount has the option for withdrawal from your super. Alternatively, you can create a new interest for the non-member or transfer payment to their super fund.
Payment Flagging
You can choose to flag the interest in your super until a particular event occurs down the track (i.e., retirement). If you cannot determine the value of the superannuation, payment flagging may be a good option. In this way, you and your ex-spouse can wait until the event occurs to determine how you will split the interest involved. By flagging your super, you will require a flag-lifting agreement signed before payment.
No Split Or Flag
This option requires considering the value of the superannuation benefits involved but leaving them untouched. The divorcing/separating couple will divide other property assets fairly. For instance, your super benefits remain untouched while your ex-spouse receives a larger share of the remaining property assets. No split or flag is also the only option available for de facto couples in Western Australia.
What If You Have A SMSF?
Super splitting laws only become more complicated when it involves a self-managed superannuation fund (SMSF). During your divorce, you will still need to continue your duties as trustee, including acting in the best interests of all members even if your ex-partner is also a trustee, i.e., not excluding them from the decision-making process. Similar to the above, both parties should obtain independent legal and financial advice.
Going through a divorce or relationship breakdown is emotionally challenging. Add in financial stress and additional challenges, and it becomes more important than ever to ensure that your superannuation splitting occurs correctly.
You can form an agreement about super-splitting before, during or after the relationship has ended. If you do not have an agreement in place, you can obtain a court order. Regardless, the details involved in super splitting laws are quite tricky to comprehend and to make the best decision, independent legal and financial advice for each party must be sought to be legally binding.
