Superannuation Splitting Divorce Laws – Things You Need to Know
When a marriage or de facto relationship breaks down property can be divided between the parties.
In a divorce or separation, superannuation splitting means treating superannuation as property in the property settlement under the Family Law Act 1975, with the parties or the court deciding whether a super interest should be adjusted, transferred or divided to reach a just and equitable outcome. For people going through separation and the family lawyers advising them, the issue matters because super can be a significant asset but it is dealt with under specific rules and processes that differ from other property. This article explains how superannuation splitting works, including agreements, consent orders and court orders, how super interests are valued, what information trustees provide, and the practical legal effect of a split.
Although it should be noted that de facto couples in Western Australia are not subject to the superannuation splitting laws which is covered by the Family Court Act.
Superannuation is taken into account in the overall property settlement, and although it is different it is subject to the same principles that apply generally:
All superannuation is taken into account, irrespective of when it was acquired (before or during marriage or after separation).
It is not automatically subject to a 50/50 split. If the Court decides the assets should be apportioned 60% to one party, and 40% to the other party that, can also occur with their superannuation)
The court will decide based on what is “just and equitable”.
How is superannuation different?
Superannuation is different from other types of property because it is an asset that is held on trust.
A superannuation trustee controls the assets of the superannuation fund and therefore the process to transfer, divide or adjust superannuation is slightly different to the process adopted for assets such as bank accounts, cars or real estate.
Options for splitting superannuation and superannuation splitting orders
Separating couples may either:
enter into a formal written superannuation agreement to split superannuation; or
seek Consent Orders to formalise a superannuation split; or
if you cannot reach an agreement, seek a court order to split superannuation.
A financial agreement or binding financial agreement requires that both parties separately instruct a lawyer who must sign a certificate stating that independent legal advice about the agreement has been given.
Once this agreement is made you do not need to go to court. Interests in self managed superannuation funds can also be split under such an agreement. The agreement is not registered in court so you should be careful that each of you retains a copy.
Even when an application is made to a court, it is possible to reach an agreement at any stage, without the need for a court hearing.
The effect of splitting superannuation
A superannuation split does not immediately convert superannuation into a cash asset, and any transfer remains within the superannuation system until a condition of release is met.
A splitting agreement or order may divide the member spouse’s superannuation interest, after which the non member spouse receives either a new interest or a transfer or roll-out of benefits to another fund.
New Interest
This means that when a splittable payment from the member spouse’s superannuation interest becomes payable to the member spouse (usually because a condition of release has been met, such as retirement from the workforce) a certain amount will be paid to the non-member spouse and the remainder will be paid to the member spouse.
Where fund rules or interest splitting rules permit it for a defined benefit interest, the non-member spouse may instead receive immediate access through a new defined benefit interest rather than waiting for the member spouse’s payment event.
Roll out
The Trustee of the member’s super fund is effectively directed to divide and transfer a portion of the member spouse’s superannuation to another super fund of their spouse, who is then free to deal with their remaining superannuation entitlements in accordance with their own fund requirements. In an industry superannuation fund, this usually means the trustee transfers the split amount into the non-member spouse’s superannuation plan rather than paying cash directly.
What you need to do to split superannuation
Although the superannuation splitting laws do not require you to value the superannuation interest before making a payment splitting agreement this would still be a sensible thing to do, as superannuation splits must comply with specific valuation and procedural rules even where a private agreement is used.
If you are seeking a payment splitting order then the court is required to value the superannuation interest.
Under the superannuation splitting laws you can apply to the trustee of a superannuation fund for information about a superannuation interest, provided you have a genuine reason for needing the information. Both parties must provide complete disclosure of superannuation interests, including the other party’s superannuation entitlements where known. From April 2022, information access improved, and a party or their legal representative may seek details from the australian taxation office about a party’s superannuation entitlements.
You can get information about the value of the superannuation interest, or information that will enable you or the court to calculate its value. The ATO provides requested information within seven days, and that information can help identify an eligible superannuation plan or eligible annuity. Different superannuation funds may require various valuation methods. Along with other information that might be of assistance when you are considering what might be done with the superannuation interest.
Documents which will help you obtain this information are available in a Superannuation Information Kit at your nearest family law registry, or from the Family Court of Australia website.
The superannuation fund may charge a fee for providing the information, including administrative costs, and this is paid when you send the forms.
Valuing the superannuation fund and the role of the superannuation fund trustee
The information from the trustee may be enough to establish the value of the superannuation interest, although different superannuation funds may require different valuation methods. However, the valuation of some superannuation interests can be complex, and a defined benefit interest will often need more complex assessment and specialist evidence.
Other things you should know
Most superannuation interests can be split. However, interests with a withdrawal benefit of less than $5,000 are generally not splittable. Because superannuation is treated as property under the Family Law Act 1975, parties may instead offset it against other assets.
It is possible to defer or postpone making a decision about how to split a superannuation interest. In this case you can make a flagging agreement which prevents the superannuation trustee from releasing or dealing with the superannuation entitlements until a decision is made and the flag is lifted. Splitting superannuation can also affect long-term financial security.
If you are seeking court orders about superannuation, you must give the superannuation fund trustee notice of any proposed orders or superannuation splitting orders before the final order is filed. Trustees should receive the proposed orders at least 28 days beforehand so procedural fairness is met. This gives the trustee an opportunity to attend the court hearing and object to the orders that you are seeking, including being given notice and an opportunity to be heard.
Once the superannuation order is made, whether by consent or after a hearing, it is important to provide a sealed copy of the order to the trustee. Time limits can apply after divorce or separation, so parties should act promptly.
Summary
Dealing with superannuation in a property settlement when a marriage or de facto relationship breaks down can be a complicated process, apart from the legal considerations there may be tax consequences that flow from splitting superannuation and the process can be difficult, confusing and time-consuming. Any superannuation payments should also be fully disclosed as part of the property settlement.
An experienced family lawyer can help make the application as efficient and accurate as possible and will help you to understand the process and any information you receive. These matters are overseen by the Federal Circuit and Family Court of Australia under the family law superannuation framework.
More technical issues can arise where an eligible superannuation plan means a plan covered by the superannuation splitting scheme, and eligible superannuation plans parties may include a trustee or eligible annuity provider; in some cases defined benefit interest trustees and large defined benefit trustees may establish fund rules, and those fund rules can affect implementation, including an immediate split or creation of a new interest.
If you know someone who may need assistance get them to call us on 02 9792 1833 or email lawyers@bateys.com.au.
