Australians understand how important superannuation is in providing for their retirement. Statistics show that superannuation for Australians over the age of 35 could be in the hundreds of thousands of dollars. The balance in your super account could make all the difference to how much you enjoy life when you stop working.
Considering most of us will spend our entire working lives building up our super, it’s natural to feel protective of it. If you’re going through a divorce or separation, you might worry that your relationship breakdown could force you to lose some of these hard-earned funds.
It is true that superannuation is considered part of the property pool of a relationship and can be an important and quite substantial asset. Just as other assets are typically divided between parties, depending on the factors at play, your and your partner’s superannuation could ultimately be divided between you as well. Of course, every situation is unique, and the way that superannuation is divided between you, if at all, will
depend on the particular facts of your case.
What happens to superannuation in divorce?
Under the Family Law Act 1975, superannuation is treated as a type of property. This means that during a property settlement, the Court might decide that it should be included in the shared pool of assets and liabilities and divided in the same way.
If so, both parties’ super would first need to be valued and could then be split between the parties as part of the property pool. This will be done according to factors like the value of both parties’ super benefits, the financial and non-financial contributions of each party and the future needs of the parties, including the needs of any dependents.
Previously married couples have one year from the date of divorce to make an application for the division of assets, liabilities and super. De facto couples have two years from the date of separation.
Unlike other assets, when super is ‘split’ during a property settlement, it will not automatically translate into a cash payout. That’s because superannuation is a retirement fund, so they’re generally not accessible until the plan member has reached the age of retirement.
There are various options to split super, including:
- If you and your partner agree, you can enter into a Binding Financial Agreement (BFA) before or during a de facto relationship, or marriage to determine what should happen to your super in the event of your separation.
- If you’re able to reach an agreement with your ex after separation, a legally binding consent order can be filed with the Federal Circuit and Family Court setting out that agreement or you and your former partner can enter into a BFA to formalise your agreement.
- If you are not able to reach an agreement with your ex, and you’ve attended mediation or some other form of dispute resolution, you can apply for a court order to have your property, including your super, split.
If the super funds are ultimately ‘split’ between the parties, then typically a payment is made from one party’s superannuation fund, and rolled over into the receiving party’s fund. The funds received will not be accessible in most cases until the receiving party reaches retirement age. The method of splitting, however, can differ depending on the rules of your fund and/or whether one party is already in receipt of an income stream from their super.
It’s important that you get legal advice and a formal agreement or court order in place for the division of superannuation. If you don’t get legal advice, the splitting agreement won’t be binding on the trustee of the super fund. And without a formal agreement, you could leave yourself open to the risk that your ex may get access to retirement funds that aren’t legally theirs.
How to protect your superannuation in divorce
If you’re splitting from your partner, it’s important to know how to protect your superannuation in divorce. The Australian Family Lawyers team has shared some tips to help you achieve an equitable outcome.
1. Understand your legal rights
Family law can be complex. It’s essential that you understand how superannuation is treated under the Family Law Act before the settlement process begins so you can take any proactive steps necessary to protect yourself and your assets.
A qualified and experienced lawyer will be able to advise you on your entitlements. Choose a legal representative who focuses on family law and is familiar with the property settlement process.
2. Obtain a superannuation valuation
Before your super can be divided, it needs to be valued. It’s important to obtain an accurate valuation, as this will affect how much you end up with.
In most cases, valuing your super fund is fairly straightforward because most superannuation accounts are what are known as ‘accumulation accounts’. Accumulation accounts are very simple to value (and therefore split) because the money in them accumulates until retirement.
Some types of superannuation accounts are known as defined benefit interest funds. Dividing these up can be more challenging because the entitlements aren’t actually in place until retirement and are based on factors such as the duration of employment and the member’s final salary. These funds are valued using different fund-specific factors and methods.
In both cases, a family lawyer can help you to obtain superannuation valuation for both parties.
3. Consider a binding financial agreement
A BFA is a legally binding agreement that clearly articulates financial arrangements following a relationship breakdown. These can be made before (prenuptial agreement), during or after (postnuptial agreement) the relationship.
A BFA may not feel romantic in the early days of a relationship. But it can save both parties a lot of time and upset down the track. Particularly in the case of a prenup, as it allows you to discuss finances without the additional emotions of a separation.
Entering into a financial agreement before or during a de facto relationship or marriage is the best way for you to actively protect your super. A BFA can also save you time and money by allowing separating partners to avoid litigation.
4. Negotiate splitting agreements
Whenever possible, it’s a good idea to try to negotiate amicably with your ex to reach a splitting agreement. This saves time, reduces stress and avoids costly legal battles. Your lawyer can certainly help you with your negotiations, and mediation is always a great and cost-effective option to get the agreement over the line.
Negotiating with your former partner, either through lawyers or directly, also allows you and your ex to retain control over what happens with your super. If you are unable to reach an amicable agreement, then it will be a Judge who determines the outcome and generally parties are more able to live with an outcome if they have agreed to it by way of a compromise with their former partner.
5. Seek professional legal and financial advice on how to protect superannuation in divorce
It is important to follow the guidance of a family lawyer and financial adviser throughout the settlement process.
A family lawyer can advise you on factors that may affect the super split. For example, one party having a reduced opportunity to earn super because they contributed to the household in other ways, e.g. childcare obligations. They can also help during the negotiations.
A financial adviser can talk you through the process, help you to obtain information on your or your ex’s super, and understand the impacts a super split might have on your future finances.
More tips to consider:
- Keep accurate records of your super contributions.
- Make a note if there were any reasons why you weren’t able to earn as much super as your ex-partner (e.g., raising children, caring for relatives)
- Consult a trusted lawyer and financial adviser.
- Be wary of emotional decisions during negotiations.
- Consider mediation to reduce legal costs.
- Be cautious of early withdrawals, such as for financial hardship.
superCharlotte Wilkin is senior associate at Australian Family Lawyers.
