Superannuation splitting during divorce property settlements can be a tricky subject to contend with. Many couples in Australia choose to split their superannuation and finances during the divorce process. Since divorce is a growing trend in the western world (and Australia is no exception) it became apparent to us that writing about superannuation and divorce would help many people.
When a marriage or de facto relationship breaks down, most couples choose to split their finances by going through a divorce property settlement process.
What is divorce property settlement?
A divorce property settlement is a legal process of dividing a couple’s assets when they become separated or divorced. Assets may include the family home, investment properties, ownership in a business, valuables, investments, savings, and superannuation.
A property settlement can be reached by mutual agreement, or where an agreement can’t be made, you can have the court determine the settlement.
Superannuation splitting and divorce
All or part of a superannuation benefit can be transferred from one spouse to the other.
Your spouse is someone you’re either legally married to or in a de facto relationship with, living together on a permanent, bona fide domestic basis (this includes same sex couples). A married couple living separately does not qualify. Both you and your spouse must also be Australian residents at the time the superannuation contributions are made.
Couples have the option of drawing up a financial agreement on how to split superannuation. This can be made before, during, or after the relationship.
It is important that you seek both financial and legal advice if you are considering splitting superannuation assets.
Understanding superannuation splitting
Property settlements decided by the courts go through four phases.
The first phase is an information gathering exercise in which all financial assets and liabilities of the couple are identified and valued.
The second phase assesses the contribution of each partner toward the couple’s total assets. This contribution is not solely based on who earned the money to acquire the assets; the role of child-rearing and home-maker is viewed as an equal contribution, particularly in longer relationships.
Thirdly, any disparity in the financial positions of the two parties into the future is considered, and an adjustment is made if it is justified.
This may occur where one partner has been out of the workforce raising children while the other partner has continued to build a career and is earning, or has the potential to earn, a higher income.
The final phase is a check to see if the final result is fair.
What superannuation products can be split?
Superannuation benefits (both accumulation and defined benefits), allocated pensions, complying pensions, and annuities. Accounts with a balance of less than $5,000 cannot be split under Family Law. If you are not sure which type of benefit you or your former spouse have to contact your superannuation funds.
Getting advice on superannuation and divorce is essential
The process of splitting superannuation is complicated but can be made easier with the right advice.
For most people, a relationship breakdown is extremely stressful and an emotional upheaval. The thought of making important decisions can be overwhelming. A financial planner can provide you with knowledge and guidance to help you feel more confident about the decisions you make.
Financial planners are experienced professionals, familiar with superannuation and investment issues. They have the expertise to provide you with information about the impact of a relationship breakdown on your superannuation entitlements, or those of your spouse.
In addition, they can:
- tell you what to expect once the settlement has been reached,
- let you know any obligations you may have towards the superannuation fund, and
- provide a recommendation about appropriate investments for your portion of the settlement.
Both spouses need to appoint a legal adviser to split a superannuation benefit of one of the parties. Even if you don’t go to court, certain parts of the superannuation splitting process require you to declare that you have received independent legal advice and also require your legal adviser to certify that they have provided advice.
For example, a superannuation provider will not split a superannuation benefit unless it receives confirmation of this or an order from the court.
A legal adviser will also have experience in relationship breakdown procedures and can assist you through the property settlement by:
- advising you on the relevant laws and how they apply to your situation
- providing you with guidance on the division of assets and your entitlements assisting you with any documentation that you may need during the process, and
- representing you in court if necessary.