Since 2003 in Australia, superannuation assets have been able to be counted as part of the total financial assets in a property pool during a financial settlement after a divorce or separation. In the early days, the process could be quite arduous, relying upon full and frank disclosure from both parties or being aware of the name of the super fund account held by your former partner.
Part VIIIB and Part VIIIC of the Family Law Act 1975 allow family law courts to handle the superannuation interests of spouses, including de facto spouses.
If superannuation was not disclosed during property settlement, an application could be made through the family law courts to the trustee of your ex-partner’s superannuation fund (a Form 6 Declaration) during divorce or separation proceedings to declare the value of the super account. This was obviously a complicated process if either partner was unaware of where super was held or when multiple super accounts existed.
Superannuation Splitting Laws Updated for Family Law Proceedings Allowing Super Fund Balances To Be Accessed During Separation & Divorce Proceedings
On 1 April 2022, significant amendments to the Family Law Act 1975 (Cth) and taxation legislation were introduced, enhancing transparency in superannuation assets during family law proceedings. Property settlement superannuation laws and processes were updated, allowing more transparency in accessing information about the super interests of both parties. This new law allowed easier access to information to value superannuation as part of the asset pool.
These changes allow the Federal Circuit and Family Court of Australia, as well as the Family Court of Western Australia, to access a former partner’s superannuation information directly from the Australian Taxation Office. This information can only be released when the person requesting it was legally married or in a de facto relationship with the member spouse. This access helps to ensure full and frank disclosure, preventing parties from hiding or under-reporting their superannuation assets during property settlement proceedings.
How Is Superannuation Split in a Divorce or Separation Property Settlement
Dividing property and assets can be complex when a relationship breaks down, whether it involves marriage or a de facto partnership. One of the critical elements in such settlements is to split superannuation in the same way other property is divided. In Australia, superannuation is considered a form of property and is subject to division between the parties. Here’s an overview of how superannuation splitting works and what to consider when separating or divorcing.
Superannuation splitting laws allow superannuation entitlements to be divided between former spouses or de facto partners as part of a property settlement. This process can be done through a court order, consent order, or a binding financial agreement. The Family Court of Australia and the Federal Circuit and Family Court oversee these matters, ensuring that the superannuation division is fair and in line with Australian family law.
Court Orders and Consent Orders
If both parties agree on how to divide their superannuation, they can apply for a consent order. This is a formal agreement approved by the court that legally binds both parties. If there is no agreement, a court hearing may be required, where the judge will issue a superannuation splitting order. This order dictates how the superannuation will be divided, considering each party’s financial and non-financial contributions.
The Family Court of Australia (the Federal Circuit and Family Court) manages these cases, apart from in Western Australia, where The Family Court of Western Australia handles such matters. It’s essential to seek independent legal advice when pursuing a super split, as the laws can be complex, and procedural fairness must be ensured.
Factors Influencing Superannuation Splitting
Several factors influence how superannuation is divided. These include:
- The Total Property Pool: The court will assess the entire property pool, combining all assets and liabilities. Superannuation may make up a small or significant amount of the settlement. During a property settlement, superannuation is included in assets and forms part of the total asset pool. It is considered alongside cash assets, bank accounts, and the family home.
- The Future Needs of Both Parties vs Their Ability To Meet Their Needs: Balancing future needs with both parties’ ability to meet them
- Financial Contributions: The court considers each party’s financial contributions, including income, savings, and investment contributions to the superannuation fund.
- Non-Financial Contributions: Non-financial contributions, such as homemaking and child-rearing, are also considered. These are recognised as significant, particularly in long-term relationships.
- Superannuation Account Type: The type of superannuation account—whether a self-managed or defined benefit fund—affects how it can be split. For instance, defined benefit funds might require a different approach than accumulation funds.
- Superannuation Balance and Financial Position: The current super balance and each party’s overall financial situation are vital considerations. The court ensures that the division reflects both parties’ financial needs and future security.
- Condition of Release and Retirement Age: The court also considers the condition of release, which determines when the superannuation can be accessed, typically at retirement age.
The Process of Superannuation Splitting
The first step in dividing superannuation is to gather information about each party’s entitlements. This can be done by requesting the superannuation fund’s trustee using the Superannuation Information Kit provided by the Australian Taxation Office. A Form 6 Information form is available to request information.
Once the information is obtained, the parties can negotiate how to divide the superannuation directly or through their legal representatives. A draft order or a binding financial agreement is then prepared, outlining the agreed-upon terms.
If a court order or consent order is required, an Application for Consent Orders must be submitted to the court. The court will review the application to ensure that the division of superannuation is just and equitable. If approved, the trustee of the superannuation fund is notified to implement the payment split or flagging agreement.
Independent Legal Advice
Obtaining independent legal advice is crucial when dealing with superannuation splitting in divorce or separation proceedings. A family lawyer can help you understand your rights and obligations, ensuring that any superannuation split or financial agreement complies with the Family Law Act 1975. This advice ensures that the agreed terms are fair, legally binding, and reflect your best interests, especially when considering the complexities involved in super splitting, such as tax implications and long-term financial impacts.
Seeking Information Through the Federal Circuit and Family Court of Australia
If you’re involved in family law property settlement proceedings, you can request your former spouse’s superannuation information directly through the Federal Circuit and Family Court of Australia or the Family Court of Western Australia.
By submitting the Superannuation Information Request form via the Commonwealth Courts Portal, the court can obtain the necessary details from the Australian Taxation Office. This process, which typically takes about seven days, streamlines the division of superannuation, ensuring that all relevant assets are accurately disclosed.
What If It’s a Self-Managed Super Fund?
Due to their unique structure, self-managed superannuation funds (SMSFs) require special consideration during a divorce or separation. Unlike other super funds, SMSFs allow members to control the investment strategy, which means the division of assets must be carefully managed. Valuing the SMSF’s assets is the first critical step, followed by a negotiation process that considers both financial and non-financial contributions.
A binding financial agreement or court order will outline how the SMSF assets will be split. If one spouse wishes to exit the SMSF, their share can be rolled over into another complying super fund, but tax implications and compliance issues must be carefully managed.
Full and Frank Disclosure
Since the 2022 amendments, parties involved in family law property proceedings have greater access to their former partner’s superannuation information. Individuals can obtain superannuation details directly from the Australian Taxation Office by applying to the Federal Circuit and Family Court of Australia or the Family Court of Western Australia.
This process ensures full and frank disclosure, reducing the likelihood of hidden assets and streamlining property division. It also ensures that settlements are based on accurate, up-to-date information, promoting fair and equitable outcomes in the division of superannuation entitlements.
How is Super Split?
Superannuation can be split either by a court order from the Federal Circuit and Family Court of Australia or the Family Court of Western Australia or through a superannuation agreement, a financial agreement explicitly dealing with a superannuation interest.
These legal instruments ensure that superannuation assets are divided fairly between parties, reflecting their respective financial contributions and future needs. Whether through a court order or an agreement, the super split process must comply with superannuation laws and consider the long-term financial security of both parties.
The changes introduced in 2022 ensure that superannuation splits are transparent and equitable, providing separated couples with the tools they need to achieve a fair division of assets.
How Is Super Split if You Have an SMSF?
When a couple with a self-managed super fund (SMSF) decides to split their superannuation due to a relationship breakdown, the process involves several steps to ensure a fair division of assets. The first step is valuing the SMSF, which includes all assets within the fund, such as property, shares, and cash assets. The valuation determines the total superannuation benefits that must be divided. Once the value is established, a binding financial agreement or court order is required to outline how the superannuation will be split between the parties.
In cases where one spouse wishes to remain in the SMSF and the other wants to exit, the exiting spouse’s share of the SMSF is typically transferred to a retail superfund or another SMSF. The transfer must comply with superannuation laws and avoid triggering tax liabilities or penalties. For de facto couples, the process is similar, with the division based on financial contributions and other factors. It’s crucial to seek independent legal advice and work closely with the superannuation fund trustee to ensure the split is handled correctly and fairly.
What Are the Tax Implications of Super Splits in Divorce?
Superannuation splits in divorce can have significant tax implications, which must be carefully considered to avoid unexpected liabilities. When superannuation benefits are divided between the member spouse and non-member spouse, any taxable components of the superannuation are transferred proportionately. This means both parties must receive a balanced share of taxable and tax-free components. If the SMSF assets are sold as part of the split, capital gains tax (CGT) may apply, depending on the nature of the assets and how long they have been held.
It’s also essential to consider the potential impact on retirement savings. For example, if a large portion of the superannuation is withdrawn or transferred to another fund, it may reduce the overall growth potential of the remaining super balance. Seeking financial advice and consulting with a legal representative is critical to navigating these tax considerations effectively, ensuring that both parties’ financial positions are protected in the long term.
How Will a Super Split in Divorce Affect My Superannuation And Retirement Plan?
A superannuation split in divorce can significantly impact your retirement savings and overall financial situation. When superannuation benefits are divided, the member spouse’s super balance is reduced, potentially affecting the retirement savings available. This can be particularly concerning if the superannuation is a substantial part of your asset pool or you are close to retirement age.
The impact on your retirement will depend on the size of the superannuation split and how the remaining funds are managed. For example, if a large portion of your superannuation is transferred to your former spouse, you may need to make additional contributions or adjust your retirement plans to ensure you have enough savings to support your retirement lifestyle. Additionally, the division of superannuation can affect your eligibility for government benefits like the Age Pension, as your overall financial position, including superannuation assets, will be considered.
To mitigate the impact of a super split’s impact, seek professional financial advice and consider strategies to rebuild your superannuation balance. This might include making extra contributions, adjusting your investment strategy, or working longer to increase your retirement savings. The key is approaching the superannuation split with a clear understanding of how it will affect your retirement and taking proactive steps to protect your financial future.
Key Considerations
- Time Limits: There are strict time limits for applying for superannuation splitting orders, particularly in divorce proceedings. You will have one year after a divorce order is finalised to claim superannuation. De facto couples have two years from the date of separation. It is essential to act promptly to avoid missing these deadlines.
- Superannuation Orders and Agreements: It’s vital to ensure that any superannuation orders or agreements are legally binding and compliant with the Family Law Act 1975. This often requires the expertise of a family lawyer.
- Independent Legal Advice: Both parties should seek independent legal advice to fully understand their rights and obligations.
Superannuation splitting in a divorce or separation property settlement is a detailed process requiring careful consideration of various factors. From understanding the legal steps involved to obtaining the necessary court orders or agreements, it’s essential to approach this process with the guidance of experienced family lawyers. Whether dealing with a self-managed super fund or a standard superannuation account, ensuring a fair division is crucial for both parties’ long-term financial security.
Further helpful information:
- Try Using A Divorce Superannuation Calculator
A divorce superannuation calculator helps estimate how superannuation benefits will be divided during a relationship breakdown. It considers financial contributions, super balances, and the family home. - Getting A Superannuation Splitting Order
A superannuation splitting order may state that a specific percentage of the member spouse’s superannuation benefits will be transferred to the non-member spouse, ensuring a fair division of retirement savings. - Understanding Superannuation Splitting Rules
Superannuation splitting rules allow de facto couples and married couples to divide superannuation benefits during property settlements. These rules require court orders or legally binding agreements to ensure a just division. - Read The Family Law (Superannuation) Regulations 2001
The Family Law (Superannuation) Regulations 2001 govern how superannuation is treated in family law matters, outlining procedures for dividing superannuation benefits during a divorce or separation - Get Legal, Taxation and Financial Advice On How to Protect Superannuation in Divorce
To protect superannuation in a divorce, seek independent financial advice, consider a binding financial agreement, and ensure that superannuation splitting orders fairly divide superannuation benefits between each other.