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What Happens to Superannuation if I Separate or Divorce?

What Happens to Superannuation if I Separate or Divorce?

The regulations governing superannuation splitting permit divorcing couples to appraise and distribute their super benefits after their marriage has ended.

According to the legislation, after a separation, one partner may divide the balance in their superannuation fund and contribute to the superannuation fund of the other partner.

Superannuation is treated as property under the Family Law Act, despite the fact that it differs from other types of property in that it is kept in trust. The super funds are still governed by superannuation legislation and the customary conditions of release; splitting superannuation does not turn it into a cash asset.

What is taken into account when splitting super?

Because every divorce or separation is unique, it is a good idea to get professional guidance from a family lawyer. If not resolved privately, any property division, including superannuation, is likely to be based on the grounds outlined in The Family Law Act of 1975. (Cth).

This may take into account your individual financial and non-financial contributions throughout your relationship, your individual financial requirements and situations following your separation or divorce, any additional assets you’re likely to divide, and a host of other things.

To ensure that any potential tax implications are taken into account, it is crucial to receive guidance on arranging any superannuation settlement.

Please be aware that there is a deadline for submitting a super split application. A smart tip is to make sure you discuss the time restriction with your family lawyer because it differs depending on whether you were married or in a de facto relationship.

Do I qualify for a split of my superannuation? Or do I have to give my ex-partner super?

If you were married or in a de facto relationship before separating, you might be eligible for a superannuation split or you might be required by law to split your superannuation. According to the Family Law Act, a couple is “living together on a true domestic basis” if they are not legally married to one another, are not related by blood, and have a romantic relationship. Unless there is a child or children of the relationship, the party seeking superannuation orders must have been in a de facto relationship with the other party for at least two years. The two-year limit does not apply if there is a child from the partnership or if one person contributes significantly, and an application can be made for superannuation orders even if the relationship ended earlier than two years.

How can super be handled during a separation or divorce?

In a separation or divorce, one of the following three choices is typically available for managing superannuation funds:

  1. Divide the super
    The complete superannuation fund may be divided between the former couple, whether by private agreement or by court judgement. In a split, one person’s superannuation is typically divided and shared with the other person; a 50/50 split is uncommon. What each party receives will depend on a number of variables.When super is divided up right away during a divorce or separation, it stays in the superannuation system and isn’t turned into a cash asset. A person is only eligible for a payout if they have reached retirement age or met the requirements for release.
  2. Postpone making a choice
    The divorcing or separating spouse may postpone making a decision about how to administer a super account. A flagging agreement is involved, which essentially precludes the super fund from making a payment until the flag is removed.This flag may occasionally remain in place until one of the couple members reaches retirement age, but it is typically employed to guarantee that no withdrawals from the fund are made until a property settlement has been reached.This is not a typical practise, and it is more likely to be observed if one of the pair members is close to retirement age.
  3. Super is taken into account but left alone
    In this case, the ex-couple may divide their assets equally, taking into account their superannuation pool, but leaving their super accounts alone and undisturbed. Instead, they may divide their other assets while keeping the superannuation amounts in mind.

How much superannuation do I get from my ex-partner? What possible superannuation obligations might I have?

Parties will often calculate a superannuation split that equalises their superannuation interests in a long-term partnership if neither party had significant superannuation at the beginning of the relationship. In order to do this, the value of the superannuation interests of both parties must be added up, divided by two, and then split between the two parties, with one party’s superannuation interest being used to pay the other party’s fund of choice. As a result, superannuation is distributed equally to both parties.

This isn’t always the case, though. Parties may be able to negotiate a superannuation split customised to their circumstances as part of a larger package of property settlement, either between themselves or with the help of legal representatives. For instance, one party might want a larger portion of the monetary assets in order to buy a house, while the other side might be close to retiring and would prefer to keep their retirement savings. In order to obtain a larger share of the cash assets at settlement, the party seeking the cash assets may give up its superannuation entitlements.

The Courts have a lot of latitude to decide how to divide the parties’ superannuation interests in a fair and just manner. The Family Law Act treats superannuation as property, so if the dispute were decided by a Court, the following four steps would be used to assess each party’s entitlement:

  • Superannuation must first be valued;
  • Second, it’s important to evaluate each party’s financial and non-financial contributions to the creation, preservation, and advancement of the superannuation fund;
  • Thirdly, the Court shall take into account the following factors listed in Sections 75(2) or 90SF(3) of the Family Law Act:
    • the parties’ ages and physical condition, their ability to earn a living, if they have children together, and where those children reside.
    • the parties’ current financial obligations and liabilities.
  • Finally, it is determined if the settlement is fair and just given all the facts.

How soon after a divorce or separation can I file a superannuation claim?

If you were a spouse, you must file a superannuation order request with the court within 12 months of the day your divorce decree became final. If a divorce order has not been obtained, you may file a claim for superannuation at any point following your separation.

If you were a de facto partner, you have two years from the date of separation from your partner to file a court application for superannuation orders.

If a party to a marriage or de facto relationship can demonstrate hardship, the Court may grant the party permission to file for a superannuation order after the 12-month or 2-year limitation period. As the party must submit a special application to the Court for permission to proceed outside of the allotted time, this can be a highly costly and difficult process. It is crucial for parties to be aware of deadlines because there is no assurance the court will grant the leave.

What if my ex-partner has a self-managed fund or a defined benefit super fund?

Defined benefit funds provide members benefits in line with a predetermined formula that is laid out in the trust deed establishing the fund. The length of service and retirement wage level of the member are taken into consideration in the formula. It may be necessary to hire a forensic accountant to assess the superannuation interest because these funds are difficult to evaluate precisely.

Private funds that are organized and maintained by the parties themselves, frequently with the help of a lawyer and/or accountant, are known as self-administered super funds. The parties are in charge of investing the fund’s money by buying stocks, bonds, real estate, and other items to raise the fund’s worth. By summing up the value of the assets held by the fund, one can determine the worth of a self-managed super fund. An accountant may need to be hired to help with this process.

We have reached an understanding of how to divide our superannuation interests. How can our agreement be made official?

By signing a Financial Agreement or requesting Consent Orders from the Court, parties can formally ratify their agreement about the split of superannuation.

You can file an application for consent orders and a minute documenting the agreement with the Family Court of Australia. The Orders are enforceable by both parties and the trustee of the superannuation fund once they have been approved by a Registrar of the Court.

A Binding Financial Agreement is another option for parties to formalize their agreement. There is no requirement that a Financial Agreement be submitted to the Court. But before the agreement is signed, each party must have independent legal counsel in order for it to be enforceable and binding. The advice must cover how the agreement will affect the parties’ legal rights as well as the arrangement’s benefits and drawbacks at the time the advice was given. Financial Agreements must be properly structured in accordance with the Family Law Act’s provisions in order to be enforceable and legally binding.

Other things to consider

Superannuation interests can typically be divided. However, in general, any interest with a $5,000 or less withdrawal benefit is not split because it would not be financially advantageous.

Making a choice regarding how to divide a superannuation interest can be delayed or put off. To restrict the superannuation trustee from releasing or handling the superannuation entitlements until a decision is made and the flag is raised, you can create a flagging agreement in this situation.

You must inform the trustee of the superannuation fund of any court orders you are requesting regarding superannuation. The trustee must be given a chance to appear in court and contest the orders you are requesting.

A sealed copy of the superannuation order must be given to the trustee as soon as one is made, whether by consent or following a hearing.

Summary

When a marriage or de facto partnership dissolves, dealing with superannuation in a property settlement may be a challenging procedure. In addition to legal issues, splitting superannuation may have tax repercussions, and the process can be challenging, confusing, and time-consuming.

An adept family lawyer will assist in making the application as precise and effective as feasible and will aid in your comprehension of the procedure and whatever facts you are provided.

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