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For many couples, superannuation is likely to be their major asset outside the family home. But because super is locked away until retirement, it’s often overlooked when couples divorce in favour of more readily accessible assets.
While that’s understandable, ignoring super can result in serious financial disadvantage in the long term.
Why super matters
Statistics show that the effects of divorce on superannuation are very different for men and women. According to an AMP-NATSEM study, divorced women with children had 37% less super than divorced dads from similar age groups and socio-economic backgrounds, and 68% less super than married mums.
Super can be divided between you and your partner if your marriage or de facto relationship breaks down and you permanently separate (including couples in same-sex relationships). However, there are specific rules that need to be followed in all situations to ensure compliance with both Australian super legislation and family law.
What happens to super benefits in the event of a divorce?
It’s important to understand that superannuation is treated as a special type of property under family law because it’s an asset that is held in trust until you have met a condition of release. Super can’t be split as cash unless you have already met a condition of release.
Generally, you can access your super once you are:
- Aged over your preservation age and retiring. Your preservation age is between the ages of 55 and 60, depending on your date of birth
- Aged over your preservation age and starting a transition-to-retirement income stream (TRIS)
- Aged over 60 and ceasing an employment arrangement
- Aged 65 or over.
You can only tap into your super before reaching your preservation age in limited circumstances, such as if you’re experiencing severe financial hardship.
If you can’t access your super yet
If you haven’t met a condition of release and you can’t access your super, you and your partner can reach a formal written agreement about how your super will be split when you do meet a condition of release.
The agreement must be prepared by a lawyer who must certify that you have both received independent legal advice about it. This agreement is then used to obtain a consent order from the Family Court to split you and your partner’s super accordingly. You won’t be required to attend court if you’re applying for a consent order.
If you and your partner can’t agree on how to split your super, you can seek a court order from the Family Court to make the decision on your behalf. Under the provisions of the Family Law Act, a court must be satisfied that any super split is just and equitable for both partners. You will be required to attend court if you’re seeking a court order.
Whichever method you use to split your super (mutual agreement, consent order or court order), the trustees of your super fund (including those of self-managed super funds) will be bound by the payment terms of the order.
If you can access your super
If you have met a condition of release and you can access your super (or are already accessing it), a mutual agreement or court order can be arranged to facilitate the splitting of you or your partner’s funds immediately (including any super pensions that you may be receiving).
Once again, the trustees of your super funds are legally bound by the payment terms of the agreement or court order.
How do you split superannuation?
There are four steps you need to follow to split super. It may be worthwhile getting legal assistance to help you complete these steps.
Obtain a current valuation of you and your partner’s super. You are legally entitled to obtain your partner’s super information from the trustees of their fund/s. To do this, you need to provide your partner’s funds with three of the four forms that are available for free download in the Superannuation Information Kit at the Family Court of Australia’s website. The third form will differ depending on whether your partner has an SMSF or is a member of an APRA-regulated fund.
Some super funds may charge for this information.
If you’re seeking a court order about your partner’s super, you must inform their super trustee/s accordingly. This provides your partner’s trustee/s with an opportunity to attend the court hearing and object to the order if they deem it necessary.
File an initiating application online with the Family Court, along with a financial statement and affidavit. The Family Court requires this information to grant your consent order (if you have come to a mutual agreement with your partner) or a court order (if you haven’t reached a mutual agreement).
Once you have filed your documentation with the Family Court, your partner will need to provide a response to your initiating application, along with their own financial statement and affidavit.
Once your Family Court consent order or court order has been issued, you should provide the trustees of your super fund/s with a sealed copy of the order as soon as possible (if it will affect your payment arrangements when you have met a condition of release).
What happens if you’re in a self-managed super fund (SMSF)?
If you or your partner are in a self-managed super fund (SMSF), the members of the fund are its trustees. In this situation, the valuation of your super should be determined by an accountant or actuary as SMSF trustees normally don’t have the financial expertise to make accurate fund valuations.
Are the rules the same in every state and territory?
The rules are uniform across the country, with one exception. Western Australia is the only state where different rules apply to de facto couples. Individual de facto partners are only entitled to walk away with their own super entitlements when a relationship breaks down.
But that is about to change. The Family Law Amendment (WA De Facto Superannuation Splitting and Bankruptcy) Bill 2020 was passed by the Australian Parliament in December 2020, but it has not yet commenced. At the time of writing, the WA Parliament still needs to pass further legislation to support the reform as it remains the only state with its own family court system.
The Bill will also enable de facto couples in WA to have bankruptcy matters heard concurrently with their family law proceedings, avoiding the need for separate hearings in separate courts.
Splitting superannuation when there is a relationship breakdown is an increasingly important financial decision for both partners. For most people, it will be necessary to seek independent professional advice based on your individual circumstances and needs.
The information contained in this article is general in nature.