When a couple’s relationship breaks down, one of the more difficult and complex issues between them will be how superannuation is treated in any property settlement.
Under the Family Law Act, when a marriage or de facto relationship ends, superannuation is treated as property which can be divided or ‘split’, either by agreement or a ‘splitting order’.
When this happens, one half of the couple does not receive a share of the other’s super as a cash asset in a settlement. Instead, the amount is transferred to the receiving party’s superannuation account and is subject to the usual rules around superannuation only being accessed upon retirement age.
What are the steps involved in splitting superannuation in a property settlement?
When a couple’s relationship ends, the ways in which they can divide superannuation include:
- Doing so under a Binding Financial Agreement (BFA) made before, during or at the end of their relationship, and which sets out the terms by which superannuation will be split as part of a property settlement.
- Seeking orders to split superannuation, by way of an Application for Consent Order; or
- Seeking a court order to split superannuation as part of a property settlement when you can’t reach agreement with your former partner.
While family law treats superannuation as ‘property’, it is considered differently to non-super assets such as a house, bank accounts, shares, etc. Couples who are separating can value their superannuation and split it, although this is not mandatory. In determining a property settlement, the court considers the contributions of each party to the total pool of assets, including superannuation, and retains a lot of discretion in dividing the pool to achieve a just and equitable result for both parties.
In terms of the steps listed above, the first requirement for splitting super is a valuation of the super interest that is to be divided, and the method used will depend on the particular superannuation scheme.
The division then needs to be documented through an order of the courts (including orders made by consent) or by way of a BFA. Expert legal advice is highly advised throughout this process as it can be complex and must comply with certain laws. A BFA, for example, can’t be entered into without both parties having first received independent legal advice.
Once the proposed order or agreement has been drafted, a copy of the document will need to be sent to the relevant fund who are then able to request changes to the wording so that it complies with the fund’s specific rules governing pay-outs and transfers. The splitting order or agreement will not be valid without the consent of the trustee of the relevant fund.
Once a consent order or BFA is approved, or an order is made by the court, a copy of the document must be given to the fund or its administrator for the super division to occur. The trustee must then process the payment split within the ‘operative time’, usually within four business days of receiving the agreement or order.
Within 28 days of this time, the trustee must give both parties a payment split notice, and the person in whose favour the split is to be made can give the trustee instructions in the prescribed form as to how the splitting agreement or order is to be achieved.
Two different approaches
Splitting superannuation in a property settlement, like most legal matters, is dependent on your specific circumstances. The court has generally approached this subject using either a ‘global’ or two-pool’ approach.
The global approach sees superannuation included with other assets (house, cars, etc.) in a pool to be distributed between the former couple in a just and equitable way. This approach is more common where a working couple who are still making regular contributions to their superannuation, for example, decide to end their relationship.
The two-pool approach sees the parties’ superannuation interests placed into a separate pool. This will often be the case where one half of the couple – a wife, for example – wishes to retain the matrimonial home and the husband’s super is a significant amount when compared with the value of the home and he is approaching retirement age. It is also the likely approach where superannuation is already being paid out as a pension, or where one party has a much larger superannuation interest contributed prior to the relationship. In such cases, the settlement may include a percentage split of non-super assets as well as a separate percentage split of the superannuation pool.
How are different types of superannuation treated?
The relevant laws governing superannuation in Australia set out the ways most types of superannuation can be split but there are also exceptions, including:
- Self-managed superannuation funds, which are generally valued by an accountant or financial adviser to the party or parties;
- where the Attorney-General has approved a fund using a different valuation method.
How can a legal professional help?
On its own superannuation is notoriously complicated so working out how to split it in a property settlement adds extra complexity. Consulting a legal professional with expertise in this area is the wisest course of action to ensure the process can be completed in the smoothest and most efficient manner.
At McNamara Law we help you go through the process of splitting super, obtaining the information on your behalf from the trustee of your super fund in order to provide a valuation. We can also advise on BFAs, apply for consent orders, and represent you in any court case about property settlement which involves splitting super.
We are recognised as experienced, effective and efficient family lawyers, and offer a free consultation upfront to discuss your family law matter in order to canvass your best options and look at the likely costs of any proposed action. Call us today on 1300 285 888 for further information.