Splitting superannuation after separation: What will happen to your super after you split up?

Part VIIIB of the Family Law Act deals with superannuation interests after separation from a marriage or de facto relationship.

In most cases, superannuation is treated separately to non-superannuation assets. Usually, when splitting superannuation after separation, the superannuation is divided equally between the parties, with possible adjustments made for superannuation that each party held prior to the commencement of the relationship.

Valuing superannuation

The first step is to analyse the value of each parties’ superannuation interests. Each party may have one, or even multiple superannuation funds. In order to determine its value, we need to ascertain the superannuation type. There are many types of superannuation funds, including the following:

1. Accumulation funds – This is the most common type of superannuation fund, and the value is as stated in the annual or biannual member statement;
2. Defined benefit funds – This type of superannuation fund is much less common. Its value is determined in accordance with a formula, taking into account employment length and salary amount. To obtain a value of the fund, one of the parties needs to complete a Family Court Form 6, and send it to the Fund for their completion;
3. Self-managed fund – A fund that parties have set up themselves, with the assistance of their lawyer and accountant, and invest the money themselves, such as in property, shares, etc. The self-managed fund is valued by adding up the value of all assets that are owned by the entity that is the Trustee of the self-managed fund;
4. Partially vested accumulation interest;
5. Percentage-only interests;
6. Retirement Savings Accounts (“RSA”);
7. Approved deposits;
8. Superannuation annuities; and
9. Small superannuation investments.

Splitting superannuation

Once the value of each parties’ superannuation fund, or funds, has been determined, then calculations can be conducted to determine what amount needs to be split after you have separated.

Splitting orders provide for a superannuation interest to be split so that the nonmember spouse obtains a proportion of the other party’s superannuation, either immediately or upon the member becoming entitled to it.

There are different types of splitting orders:

1. Superannuation in the growth phase – This is the most common order sought. It requires a defined value amount to be transferred from the member’s fund to the non-member’s fund;
2. Superannuation in the payment phase – This type allocates a defined
   percentage to the non-member spouse;
3. Percentage only interests – This type is much more rare, as it is limited to recipients of Commonwealth judicial and senior public service pensions.

How to decide on the amount for a superannuation split after separation?

Often, we come across clients that do not think that a superannuation split should take place. It may be that the person who has earnt a lower income during the relationship, does not feel entitled to share in the other person’s superannuation that they have earnt.

However, the rationale is that while parties are in a relationship, they are working as a team. It may be that the parties have decided that it would be best for their family if one person works full time, while the other party is a full time homemaker/parent, or works part-time.

Therefore, both parties are working in one way or another for the benefit of the relationship, and therefore, the superannuation earnt by the higher income earner was always anticipated to be shared by them both.

Generally, most people will calculate a superannuation split which gives the overall effect of equalizing superannuation between the parties. Therefore, the method is to calculate the value of one party’s total superannuation, compared to the other person’s superannuation, and then work out the amount to be transferred so that both parties retain an equal amount.

However, this does not have to be the case. The Family Court and Federal Circuit Court have a very wide discretion as to what might be deemed just and equitable, in a particular case. It can take into account some of the following factors:

1. Whether or not there are children, with whom they will live in, and if varying the super split amount might assist one party to retain the former matrimonial home;
2. Age of the parties;
3. Fund type;
4. Each party’s need for cash, versus need for superannuation;
5. Future income earning capacity; and
6. Tax implications.

How to arrange the superannuation split

In order to activate a superannuation split, you need your lawyer to prepare either Consent Orders, that are approved by the Family Court, or a Binding Financial Agreement (BFA). Either document will include the superannuation splitting provisions.

Before a superannuation split can take place, we must first obtain procedural fairness from the Trustee of the superannuation fund that is going to be split. To do that, we must send the fund a copy of the intended Orders or Binding Financial Agreement. The legislation allows the Trustee of the Superannuation Fund to have 28 days to consider. The fund will provide written correspondence to either grant approval to the drafting, or they will request that drafting changes be made.

Division of a self-managed superannuation fund

Arranging a split within a self-managed fund is a little different. After valuing the fund, we then need to look at each parties’ individual member balance. This is usually best done after a taxation return is completed, as it forms part of the taxation return. We can then draft Orders within the Consent Orders or BFA to alter the respective member balances of the parties.

There also needs to be careful planning as to how the split will be affected, in terms of the assets. If one person is retaining the fund, and the other person is rolling their interest out to an alternate fund, then sufficient investments need to be liquidated, so that the cash is available to be transferred out of the self-managed superannuation fund. This may involve the sale of shares or real estate, with potential sales costs, and capital gains tax to also be considered.

Flagging Orders

A flagging order prevents the Trustee of a superannuation fund from being able to make any future payments to their member until the flag has been lifted. This can be a useful interim measure if it is currently unclear what a superannuation funds value is, but it is likely to become more clear in the future. For example, this could be the case if a member is nearing retirement.

If you are separated and need assistance to deal with your superannuation, we would be happy to help you. Please telephone us on 03 5623 5166 to make an appointment to see one of our family law solicitors.