When a marriage or de facto relationship ends it usually requires the resolution of various financial matters, such as the division of assets.
Also known as a property settlement, the division of assets is often a contentious and complex part of the dissolution of any marriage or de facto relationship. An aspect that can make it even more complex and contentious is how superannuation is to be treated during the process.
Superannuation is an important part of future planning and for many Australians, their superannuation represents a significant portion of their property and asset pool, and in some cases is of a higher values that many of their other assets.
Understanding how superannuation should be dealt with as part of a property settlement is important and, in this article, we will address the intricacies of how superannuation is to be treated in the event of a marriage or de facto relationship ending.
How is superannuation impacted by a divorce or separation?
Upon the breakdown of a relationship, whether it is a marriage or a de facto relationship, the parties to the relationship are entitled to a property settlement.
A property settlement is the division of the assets and liabilities of the parties to the relationship and includes property such as:
- Family home
- Real estate
- Savings and money
- Mortgage loan
- Personal loan
- Credit card
In addition to the above property and liability types, superannuation is also considered to be a type of property that should be considered as part of the property settlement.
Superannuation is often one of the most valuable assets of an Australian adult and its inclusion in a property settlement is important as many factors may influence how much superannuation a person has been able to accumulate, such as taking time off work to raise children.
While superannuation is a type of property under the Family Law Act 1975, it is different to other types of property as it is held in a trust and remains subject to the superannuation preservation laws. This means that it cannot be converted to a cash asset and cannot be released unless you meet the criteria for release of the super fund.
What does the law say about splitting superannuation?
As superannuation is a type of property it should be considered as part of the total asset pool during a property settlement. This means that the superannuation of one party could be adjusted, transferred, or divided between the parties of a property settlement.
The laws around superannuation splitting are the same for both de facto couples and married couples throughout Australia.
When are you entitled to a superannuation split?
You may either be entitled to a superannuation split or potentially be legally required to split your superannuation if you were married and have separated or divorced or if your de facto relationship has ended in separation.
To be considered to have been in a de facto relationship, you need to have been in the relationship for at least 2 years or to have had a child of the relationship. There may be exceptions to this, however, it will be dependent on your unique circumstances.
Who decides how superannuation will be split?
Like many other family law matters, there are a few different options when it comes to who gets to decide how the superannuation is handled when a relationship breaks down.
The parties to the relationship can decide together and come to an agreement privately, the couple can enlist the help of legal professionals like family lawyers and/or mediators, to facilitate negotiations and communication, or if an agreement cannot be reached in any way, an application for a property settlement order can be made to the Court.
The Australian family law system encourages people to make decisions themselves or at least outside of Court, as it is often more efficient and allows the parties to have more control over the outcome.
The right option for you will be dependent on your circumstances, in some instances former partners are able to come to an agreement, while for others the lines of communication are strained and reaching an agreement is just not possible.
Even if you are able to reach an agreement, we recommend seeking legal advice to ensure that you’ve considered all relevant aspects and your settlement agreement is fair.
How can superannuation be split when you separate?
When it comes to deciding how superannuation should be handled and split in a property settlement, there are a few options.
Option 1: Split the super.
One person’s superannuation may be split, and this in itself can be done in various ways. For example, the total value of both parties’ superannuation accounts could be valued and then split, which would likely result in funds being transferred from one person’s super account to the others. The split could 50/50, it could be 70/30 or it could be another value and will be dependent on a variety of factors, which we will discuss shortly.
Option 2: Take the superannuation into consideration.
In this option, the superannuation is considered as part of the overall property settlement and the remaining assets are split to account for the differences in the superannuation, so that each party is left with their agreed upon portions without having to make transfers between superannuation accounts.
Option 3: Defer the decision.
A decision of how to split the superannuation can be deferred and a flagging agreement is applied. Rather than making an immediate decision about how to split their superannuation entitlements, couples can choose to “flag” this aspect for future consideration.
Under a flagging agreement, the couple agrees not to split their superannuation at the time of their property settlement. Instead, they defer the decision to a later point in time. This could be when one or both parties reach their retirement age or when specific events, such as the sale of a property or the conclusion of child support payments, occur. By doing so, couples can avoid rushed decisions and gain a clearer understanding of their financial needs as circumstances change over time.
This is not a commonly used approach but is a possible option.
How much superannuation am I entitled to, or will I have to pay?
Calculating a superannuation split and a property settlement is not easy, and many different factors will influence the outcome. The Australian family law system requires that the division of property is just and equitable, but this doesn’t necessarily mean that both parties should be getting the exact same amount or that they are entitled to a 50 50 split.
Factors such as the length of the relationship, the contributions of the parties to the assets and relationship overall, and the ongoing needs will all play an important role in determining how superannuation and the other assets should be split. Other factors, like the age and health of the parties, dependent children, and the ability of each party to earn an income in the future will also have a significant impact.
When considering the superannuation element of a property settlement in particular, factors such as the need for cash assets for one party could play a role. For example, if one party wishes to purchase a property, they could benefit from having a higher proportion of the cash assets rather than superannuation. Or if someone is nearer to retirement age, it may be in their best interests to retain their superannuation.
Whether you can reach an agreement with your former partner or you’re not sure where to start in the superannuation splitting process, we recommend seeking legal advice.
Has splitting your superannuation become a sticking point in your separation?
If you are currently involved in a property settlement dispute or you’ve recently separated and you’re concerned about how your assets will be split, you can talk to us here at Dorter Family Lawyers and Mediators.
Our family law team is well versed in property settlement matters, including splitting superannuation and ensuring that your property settlement agreement is just and equitable. Discuss your situation with us today in a no obligation consultation.