What happens to Superannuation after Separation?

superannuation after separation

By cropped Clara Suki

· Read time: 6 minutes

Superannuation is considered as an asset that potentially may be divided during a family law property settlement in the event of a divorce or separation. 

Put another way, superannuation balance can be split between former partners as part of the general division of assets, finances and property.

The division of superannuation can occur in several ways. It can be divided by an agreement between the parties, a court order (including Consent Orders), or through a superannuation agreement. 

Can I use super to buy out my former spouse from the family home?

Using your superannuation to buy out your former spouse from the family home is a strategy some individuals consider. When doing so, it’s important to appreciate that superannuation can only be accessed when reaching retirement age.

On the flipside, it is common for one member of a couple to give part of their Super to their ex in return for retaining another aspect of the asset pool (eg the home).

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For example, imagine a couple, Sarah and Mark, with a $1 million asset pool. The family home, worth $700,000, is essential to Sarah, while both have $150,000 each in superannuation. To let Sarah keep the home, they agree to transfer $100,000 of her superannuation to Mark. Sarah retains the home, and Mark receives an equitable share of the superannuation assets.

Do you have to split super in a divorce or separation?

The division of superannuation in a divorce or separation is not mandatory. It largely depends on the context of other assets in the property pool. 

Super is ultimately treated as one of a few potential assets, and the way these assets are divided is look at as a whole. Not on a piecemeal basis. 

As long as the result of a division of assets is made fairly, then super may or may not be divided as an individual item.

How long after separation can you claim superannuation in Australia?

The timelines that apply to claiming Superannuation are the same as for any financial settlement. For married couples, a property settlement should be commenced 12 months after divorce. Defacto couples have 24 months following their separation.

One can apply ‘out of time’, however this should never be relied on.

Delaying the division of superannuation may result in challenges, particularly if the value of the superannuation funds fluctuates significantly. In cases where one partner is nearing retirement age, it’s essential to expedite the process to ensure a fair distribution of assets.

Can I make a superannuation split? Or do I need to pay super to my ex-partner?

In most cases, a superannuation split is the preferred method for dividing superannuation after a separation or divorce. 

This means that a portion of the superannuation balance is transferred from one partner’s super fund to the other partner’s super fund. 

Alternatively, if both parties agree, they can opt for a payment, where one partner receives a lump sum or a series of payments from the other partner’s super fund. 

How are SMSFs managed after separation?

Self-Managed Superannuation Funds (SMSFs) add an extra layer of complexity to the separation process. Both parties often need to consider how to manage and potentially divide the assets held within the fund.

Some options for handling an SMSF post-divorce include:

  • Apportioning Splits in SMSFs
  • One Spouse remaining, with the other exiting
  • Dissolving the fund and rolling out the balance
  • Maintaining the SMSF together beyond separation.

See our article here on SMSFs after divorce.

How is Super valued?

Superannuation is valued under the Family Law Rules and the law provides formulae for valuing superannuation interest. 

As there are many different types of superannuation interest, the law provides a different formula for each type. 

Some large funds, such as government funds have had their own valuation formulas approved. Self-managed funds are the exception and do not have a set valuation formula. 

It’s important to note that the value may not be the same as the account balance. Superannuation funds may have various components, such as employer contributions, personal contributions, and investment returns. 

The components eligible for division will depend on the specific circumstances of the case.

What is a Flagging Order?

A flagging order can prevent a superannuation fund from paying out any money when an individual retires if the court has not yet decided how the money should be paid. 

It’s a useful tool to ensure that one partner does not make changes to their superannuation that could disadvantage the other party.

What is a Splitting Order?

A splitting order splits the superannuation interest so that a portion of one individual’s interest can be given to another.

The split can be a percentage or a specific dollar amount.

What is an Equalisation Order?

An Equalisation Order can be employed when one partner has significantly more superannuation than the other. Here an equalisation payment is necessary to balance the assets between the parties.

Other approaches the court can take

Judges can use their discretionary power in deciding how to divide a couple’s superannuation. 

An approach that the Family Court can choose to take involves combining both individual’s superannuation along with other financial assets, before splitting it. A more common approach involves separating the parties’ superannuation from other assets before splitting them. This is called a ‘two pool approach’. 

Each property settlement is decided on a case by case basis in order to ensure that a fair and equitable split is reached.

FAQs

Is my ex-wife entitled to half of my super?

The division of superannuation assets in a separation or divorce is based on a principle of fairness, not necessarily an equal 50-50 split. 

Multiple factors, including the length of the relationship, financial contributions, and individual needs, are taken into account. 

The goal is to achieve a just and equitable division of assets, which may or may not result in a 50% split.

Lastly

In conclusion, superannuation can be a considerable financial asset in any family law property settlement. And the division of superannuation assets requires careful consideration, and legal guidance.

If you would like to speak with one of our lawyers about your Super or any other component of a property settlement, then get in touch with us.

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