Your superannuation could be one of your biggest assets, particularly if you’ve been in the workforce for a while.
In fact, for Aussies over the age of 35 it could be in the hundreds of thousands of dollars (or more!). That’s why it’s so important to take it into account when you’re divorcing, as it will certainly be a part of the property pool under the Family Law Act 1975.
Unfortunately, many couples overlook super when going through a divorce. And this can result in a financial disadvantage to the half of the couple that hasn’t received their proper share of retirement funds. In many cases, this is the party who spent more time as the homemaker or stay-at-home parent and who may not have as much superannuation in their own name.
For all these reasons, splitting superannuation in divorce is very important. So if you’re in the midst of a divorce or separating, here’s everything you need to know about divorce and superannuation.
How is superannuation split in divorce?
Under the Family Law Act, superannuation is treated as property. However, unlike your home or cars, your super is a unique form of property.
When it comes to ‘splitting’ a superannuation account on divorce, this is done according to superannuation splitting laws. In most cases, the super account of one party will be divided when the other party has significantly less superannuation. Typically this is the case in long marriages or relationships.
Methods of splitting
Superannuation can be split in two ways:
- By seeking an order of the Federal Circuit and Family Court; or
- By a financial agreement that deals with superannuation interest, known as a superannuation agreement.
It’s always best to speak to a lawyer to find out which is the best option for your situation.
How superannuation is valued – accumulation versus defined benefits
The Family Law (Superannuation) Regulations 2001 sets out the methods for valuing super interests. Most superannuation accounts are simple to value because they are ‘accumulation accounts’. This means the money in the account accumulates or builds up until retirement, similar to a bank account or investment account. This valuation of these accounts is very straightforward, and that also makes splitting them simpler during a property settlement.
There are other types of superannuation accounts that are known as defined benefit interest funds. In a defined benefit fund, the retirement benefit is determined by a formula rather than on your investment into the fund.
Defined benefit funds are typically corporate or public sector funds. Dividing these up is a bit trickier because the entitlements are based on factors such as duration of employment and the member’s final salary.
There will be different fund-specific factors and methods for valuing these funds. Many of these can be found in The Family Law (Superannuation) (Methods and Factors for Valuing Particular Superannuation Interests) Approval 2003 and Family Law (Superannuation) (Provision of Information – NSW State Authorities Superannuation Scheme) Determination 2010.
Factors for splitting super
When the Federal Circuit and Family Court need to split superannuation, it is not usually a straight 50/50 division. Instead, it will consider a number of factors, which could include:
- The value of both parties’ super benefits at the time of cohabitation and at the time of the property settlement
- The financial and non-financial contributions of each party to the relationship
- The future needs of both parties
- The needs of any dependents
The Court will consider these factors and then assign the non-member spouse a certain amount to be paid to them from the super fund.
When will payments be made?
Prior to any order or financial agreement being made to split superannuation, procedural fairness must be given to the Trustee of the superannuation fund. This means you must provide the draft wording for the superannuation split to the Trustee no less than 28 days prior to making the order or agreement, to allow them to object to the wording and to amend the wording to suit their needs, and to ensure the ‘paying spouse’ has enough funds in their superannuation account.
After procedural fairness has been granted to the Trustee by one of the parties, the superannuation split can happen immediately. This would be done by a payment-splitting agreement or order, which might create a new interest in the funds for the non-member spouse (known as ‘interest splitting’). They can also roll out the superannuation split to another superannuation fund if they wish to.
In some cases, the splitting is deferred to a later date, usually retirement. This deferral is done through a ‘flagging agreement’. A flagging agreement flags the account so that when the member reaches retirement age, each party will receive the correct amount due to them. It also stops one person from taking money out of the account before the split has occurred. Super payments that are assigned to a non-member spouse (the receiving spouse) are typically only made when the superannuation becomes payable to the member spouse (other than in the case of interest splitting). So typically the non-member spouse will have to wait until their ex reaches retirement age before receiving any of the money from the super. This ‘split payment’ will first be made to the non-member spouse, and the remainder then goes to the member spouse.
It may also take the super fund a few weeks to effect any changes to the super, whether that’s an interest-splitting arrangement or a flagging agreement.
How long after divorce can you claim superannuation?
If you’re applying for a super splitting order with the Court, you will generally need to file an application with the Court within 12 months of your divorce order. You can apply later than that, but you will need to seek special permission from the Court, which is not often granted.
Divorce superannuation process – the legal steps to follow
Step 1: Valuation of superannuation
The first step is to have the superannuation funds valued. You will either need to apply to the Court to request information about the value of the super from the ATO, or you may need to contact the trustee of the super fund directly.
Forms and information are available in the Superannuation Information Kit from the Federal Circuit and Family Court. Your lawyer can also help guide you on this process.
For an accumulation interest, you can also log into your superannuation fund’s online portal to obtain a current balance.
Step 2: Reaching an agreement
Like all property division, it’s always quicker and less expensive if you can come to an agreement with your ex on how to treat superannuation. Your lawyer can help you through these negotiations if needed, and mediation is always a good option. If you do agree, this can then be formalised in a superannuation agreement or a Consent Order.
If you aren’t able to come to an agreement, you will need to apply for an order from the Federal Circuit and Family Court.
Step 3: Finalising the superannuation split
The final step is to formalise the superannuation split with a superannuation agreement or a court order. Prior to the formalisation, the fund must be notified in writing about the intention to split the super (procedural fairness). Once the orders or agreement is made, the fund must also be provided with a certified copy of those orders to make the superannuation split.
Professional guidance will help safeguard your interests
Superannuation is a significant asset, and so it deserves careful consideration during any divorce proceedings. That’s why it’s always a good idea to get expert legal guidance on splitting superannuation in divorce. Our team can help support you and make sure that you’re getting what you deserve.
