Navigating a separation or divorce can be an overwhelming experience, especially when it comes to financial matters. One significant aspect that often arises is superannuation or retirement savings. This article delves into whether superannuation can be split after a separation in Australia, how it works, and what you need to consider during this process.
Understanding Superannuation in Australia
Superannuation is a compulsory savings scheme designed to help Australians save for retirement. Employers contribute a percentage of an employee’s salary to a super fund, which grows over time. In the context of family law, superannuation is treated as a financial asset and can be considered in property settlements.
Key Facts About Superannuation
- Compulsory Contributions: Employers are required to contribute a minimum percentage of an employee’s earnings to their super fund.
- Types of Super Funds: There are several types of superannuation funds, including industry funds, retail funds, and self-managed super funds (SMSFs).
- Investment Growth: Superannuation funds grow through investments, which can significantly affect the amount available upon retirement.
Is Superannuation Split After Separation?
Yes, superannuation can be split after a separation or divorce. This process is governed by family law in Australia, and it can have a substantial impact on both parties’ financial futures.
Legal Framework for Superannuation Splits
Under the Family Law Act 1975, superannuation is considered a property asset, and the court has the authority to split it during property settlements. This means that the superannuation interests accumulated during the relationship can be divided between the parties.
When Can Superannuation Be Split?
Superannuation can be split if:
- You Are Legally Separated: The parties must be legally separated or divorced.
- Financial Agreement or Court Order: A formal agreement or a court order is required to effect the split.
- Superannuation Interest Exists: At least one party has accrued superannuation.
How is Superannuation Split?
The splitting of superannuation can be done in several ways, primarily through a superannuation split order or a superannuation agreement.
1. Superannuation Split Order
A superannuation split order is issued by the Family Court and outlines how the superannuation entitlements should be divided. The court will consider:
- The duration of the relationship.
- The contributions each party made to the relationship.
- The financial circumstances of each party post-separation.
2. Superannuation Agreement
A superannuation agreement can be made outside of court, known as a Financial Agreement (also known as a Binding Financial Agreement). This agreement outlines how superannuation, and other assets will be divided and must be signed by both parties. It is essential to seek legal advice when drafting such agreements to ensure they are binding and enforceable.
The Process of Splitting Superannuation
Step 1: Identify Superannuation Interests
The first step in splitting superannuation is identifying all superannuation interests held by both parties. This can include:
- Employer-sponsored funds
- Industry funds
- Retail funds
- Defined benefit funds
- Accumulation funds
- Self-managed super funds (SMSFs)
- Any other superannuation policies
Step 2: Obtain Superannuation Information
Once the superannuation interests are identified, both parties need to request information from their respective super funds. This includes the current balance, type of fund, and any other relevant details.
Usually, a Form 6 information request is used in Australian family law to request detailed information about a party’s superannuation interests during property settlements following a separation or divorce. This form helps ensure transparency by obtaining essential details about superannuation funds, including balances and account information. Accurately completing a Form 6 is crucial for equitable asset division, and seeking legal advice can assist in navigating this process effectively.
Step 3: Assess the Value of Superannuation
After obtaining the necessary information, the next step is to assess the total value of the superannuation assets. This assessment can be complex, especially for self-managed funds, and may require the assistance of a financial advisor or accountant.
Experienced accountants can provide superannuation valuation services for family law cases, focusing primarily on major Commonwealth funds, including the Commonwealth Superannuation Schemes (CSS) and others. Many superannuation trustees now include Family Law valuations as part of the Form 6 Information request, which typically eliminates the need for separate valuations from forensic accountants. The Family Law (Superannuation) Regulations 2001 set out the mechanisms and formulas for valuing superannuation interests, especially for defined benefit schemes. Usually clients only need to submit the completed Form 6 along with instructions for accurate valuations.
Accountants usually charge around $1,000 (excluding GST) for valuing Australian defined benefit superannuation interests, but there may be additional costs for valuations that cover multiple dates.
Step 4: Negotiate a Split
The parties can then negotiate how the superannuation will be split. This can be done informally or through legal representation. It’s crucial to ensure that the agreement is fair and takes into account each party’s future financial needs.
Superannuation can be split on a % basis, of base dollar amount.
For example, you can agree to split 35% of a spouse’s superannuation across to the other spouse. Alternatively, you can fix a base dollar amount. For example, $125,000 is fixed to be split from one spouse to another.
Step 5: Drafting the Agreement or Court Order
Once an agreement is reached, it should be documented in a Financial Agreement or submitted to the court for a superannuation split order. Both parties should seek legal advice to ensure the agreement is legally binding.
Before doing this, it is imperative that the parties give procedural fairness to the trustee of the fund. This is where the parties write to the trustee of the fund to seek their consent to the split of superannuation. Once the trustee indicates they do not object, this then ensures no issues once the Financial Agreement or consent order has been entered into. This is a tricky process and we recommend seeking legal advice on how to do this.
Important Considerations
Tax Implications
When superannuation is split, there may be tax implications for both parties. Generally, if a superannuation interest is transferred between spouses, it is done on a tax-free basis. However, consulting a tax accountant is recommended to understand any potential tax liabilities.
Impact on Future Financial Security
Splitting superannuation can significantly impact each party’s financial security in retirement. It’s essential to consider long-term implications and ensure that both parties are financially stable post-separation.
Seeking Legal Advice – Ramsden Family Lawyers
Navigating the complexities of superannuation splits requires careful consideration and often legal assistance. It’s advisable to consult with a family law solicitor who specialises in financial settlements to ensure that your rights and interests are protected. Addressing superannuation early in the separation process can lead to a smoother resolution for both parties. Our team of family lawyers are well experienced with handling superannuation in family law matters. We can guide you through the process and provide you with solutions tailored to your personal needs. If you would like to discuss your matter further, please do not hesitate to contact us to arrange an initial consultation.
Resources for Further Information
- Family Court of Australia – Superannuation: Family Court Website & Finances and Property: Superannuation
- Australian Government – Australian Tax Office Superannuation and relationship breakdown: Superannuation Website
- Australian Government – Attorney-Generals Department: Superannuation Splitting
Posted in: Divorce, Latest News, Property
October 31 2024