Superannuation splitting: the possible gold bar of a family property settlement
Just like other property, such as the family home, superannuation is treated as property that is available for division under the Family Law Act 1975 (“the Act”).
For the majority of Australians, superannuation is held in a retail or industry fund. These funds receive the superannuation contribution guarantee from an employer, with the money being held by the superannuation fund until the member reaches retirement age.
As the majority of Australians hold their superannuation in either a retail or industry fund, such as Australian Super, it is relatively simple to work out the value of their interest. This is readily obtained from either:
- The last superannuation statement, generally provided at the end of each financial year; or
- The Australian Taxation Office (“the ATO”) MyGov portal.
If a self-managed super fund (“SMSF”), or other interest, such as a defined benefit interest, is involved, this may require an expert experienced in superannuation laws to ascertain the value of the superannuation interest.
Either way, it is fundamental at an early stage of a matter that the value of each person’s superannuation is known so that a just and equitable settlement, of all of the property of the relationship, can be achieved.
Since 1 April 2022, parties to family law property proceedings can apply to the Federal Circuit and Family Court of Australia (“the Court”) to request their former partner’s superannuation information, held by the ATO. The process is relatively straightforward and provides greater transparency to ascertain the value of a person’s superannuation interest for family law purposes.
Part of the asset pool
Superannuation forms part of the asset pool available for distribution between a separating couple. Once the value of each person’s superannuation is identified, further exploration and discussion takes place to ascertain what a just and equitable settlement will be.
How superannuation is divided
As superannuation is treated the same as other property of a relationship, it is available for division under the Act.
To determine what a just and equitable settlement is following the breakdown of a relationship, an analysis addressing the following factors occurs:
- Is it just and equitable to order a property settlement at all? If it is, the following four steps are addressed;
- Identifying the asset pool – including assets, liabilities and superannuation interests – and the value of these at the time of a hearing;
- Identify each person’s contributions to the asset pool (including financial contributions, non-financial contributions, and contributions as homemaker and parent);
- Consider each person’s future needs; and
- In light of the above, are the orders themselves, which are proposed, just and equitable.
Generally, for a long-term relationship, where the couple shared their assets and finances, superannuation will be equalised between them. For example, if party A has $200,000 in superannuation at the end of a relationship and party B has $100,000, a superannuation split of $50,000 will be made from party A’s superannuation fund to party B’s superannuation fund, leaving both people with $150,000 in their respective superannuation funds.
The payment from one person’s superannuation fund to another person’s superannuation fund is known as a superannuation split.
When there are other types of superannuation interests, such as a SMSF, a shorter relationship where one party brought in much more superannuation than the other or the superannuation of the couple is similar, a different analysis, and then outcome, may be warranted.
It is essential, no matter what the circumstances, that you obtain specialist legal advice to ensure that your property, including superannuation, is dealt with appropriately.
Types of agreement
There are only two methods in Australia to formalise, and make binding, a superannuation agreement, namely:
- A Court ordering a superannuation split, this can be achieved by consent or being ordered by a Judge after a trial; or
- In the form of a superannuation splitting agreement, most commonly included in a financial agreement.
Before any agreement is finalised, the superannuation fund that is being asked to pay out superannuation from one person to another must be provided with a copy of the proposed agreement or consent orders. This is known as procedural fairness. This step gives the superannuation fund an opportunity to check the wording of the agreement to ensure that they comply with the superannuation split.
If the superannuation fund has been given notice of 28 days, however, and has not objected to the proposed consent orders, an application for consent orders may be lodged with the Court.
Effect of a superannuation split
Once an agreement, in the form of either a Court order or superannuation splitting agreement, is finalised, the non-member spouse, or the person receiving the superannuation from their former partner, is able to contact the superannuation fund of their former partner to implement the superannuation split.
This process involves the receiving party providing the superannuation fund with their identifying information and a direction of where to make the payment split. Most people choose to have the payment split made into their existing superannuation fund. You should seek financial advice before deciding how to split your superannuation and how to hold it as a result of the split.