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Your super is likely to be one of your most valuable assets, so it’s worth having an idea of how your nest egg could be impacted if you’re going through a separation or divorce.
The end of a long-term relationship can be a difficult and emotionally charged time. It can also have a serious impact on your financial wellbeing, as the assets you have built as a couple – possibly including super savings – are divided between you.
But special rules apply to super in a settlement, and it’s worth getting an idea of where you might stand, should your relationship hit the rocks.
What happens to super in a divorce or separation?
The first thing to realise is that the property you and your ex own, both jointly and individually, all goes into the pool of assets to be split between you. Importantly, your super goes into this mix – it’s not limited to things like the family home.
There’s no hard and fast formula around who gets what in a property settlement, and it often depends on what you and your ex can agree on, either on your own or as part of a mediation process.
But if it’s left to the courts to decide, they will generally take a four-step approach that works something like this:
Step 1: Work out your combined ‘net assets’ – this involves tallying all the assets you own together and individually, including your super, then deducting the total debts you have – both in your own names and together – to come up with a ‘net’ figure to be divided.
Step 2: Decide each person’s financial contribution – from here the courts will look at the financial contribution made by each person. It’s not simply about who earned the bigger pay cheque: non-financial contributions like raising children count as well.
Step 3: Identify individual needs – the court will likely consider each person’s current and future needs. One person, for instance, may be the main caregiver for children and so could be entitled to a bigger slice of the settlement.
Step 4: Come to a ‘just and equitable’ arrangement – taking all of the above circumstances into account, the court will seek to make an order that it sees as fair and reasonable in the circumstances – this won’t necessarily be a 50:50 split, as the court will focus on the overall equity of the outcome rather than the percentages being equal.
Bear in mind that most divorces don’t end up in the courts. If you can manage it, reaching a fair agreement with your partner that you’re both happy with can spare you the time, cost and stress of heading to court – a process that’s likely to benefit your lawyer, but not necessarily you.
Why super can be unique in a divorce settlement
At this point, you and your ex should hopefully have an idea of how your total assets will be divided.
What makes super different is that unlike a house or, say, a share portfolio, super savings can’t simply be cashed in and divided to make up the balance of a property settlement. You still can’t access your super until you reach preservation age or meet another condition of release – not even divorce changes this.
That said, super is likely to play a valuable role in your future wellbeing, so it shouldn’t be overlooked in your settlement.
What will happen to my super during a divorce or separation?
According to Industry Super, when it comes to a divorce settlement, your super can be handled in one of three main ways:
- Divide super now: You can agree to split the total pool of super in whatever proportions you choose – maybe 60:40 or 70:30. Or if you can’t agree, you can seek legal advice and leave it to a court to decide. Either way, the super you each end up with will still only be accessible once you meet a condition of release.
- Make a decision in the future: You and your ex can opt to wait until a future event, like retirement, to work out how to split your super.
- Skip super altogether: You can agree to leave each other’s super untouched, and focus on dividing up other assets.
What’s the most common approach to splitting super in a divorce?
Most couples choose to divide their super at the time of separation. This gives everyone a clean break and a chance to control your own retirement savings without the need to have ongoing contact with your ex.
The rules around this can be complex, so the key is to talk to your lawyer about the strategy that’s best suited to your needs.
Industry Super notes that super funds may charge admin fees when it comes to splitting super in a property settlement.
For example, fees can apply if you request a payment split, or flag a fund to be divided or withdrawn from at some point in the future instead of when this would normally occur.
What if my ex tries to hide their super in a divorce?
Since 1 July 2021, new super splitting laws have been introduced, aimed at making it harder for separating couples to hide super savings during a property settlement.
It’s now possible in some circumstances for separating spouses to ask the Tax Office for details of their ex’s super fund(s) to be provided to a family law court. The idea is that this will make it harder for people to hide or under-disclose their super, thereby cutting down on the time, cost and complexity that one spouse can face if their ex decides not to reveal their full hand of super in a settlement.
Kathy Evans, Senior Partner – SMSF at Findex, told Canstar: “The changes will make it harder for parties to hide or under-disclose their superannuation assets in family law proceedings. It will also make it easier for the parties involved to get access to the accurate superannuation information they require.
“The changes will help people who are going through family law proceedings to access accurate superannuation information more easily and with greater support from the courts.
“This should result in reduced time and complexity and lower costs when obtaining superannuation information, which could help women going through difficult separations or escaping abusive relationships to receive a fairer split of superannuation assets.
“Having accurate and complete superannuation details listed in family law property settlements will help ensure that assets are split fairly. This can help improve the financial hardship and unequal retirement income outcomes that people, particularly women, often experience after separation.”
What are the key legislative impacts of the changes?
The legislative changes involve amendments to both the Taxation Administration Act 1953 and the Family Law Act 1975, and allow information held by the Australian Taxation Office (ATO) to be used for family law purposes, says Evans.
“Parties to family law property proceedings will be able to apply to the relevant court (usually the Family Court of Australia, Federal Circuit Court of Australia or Family Court of Western Australia) to request information from the Tax Office about the identity and value of a former partner’s superannuation accounts,” she adds.
The changes will apply to both married and de facto relationship break-ups, with the exception of de facto couples in Western Australia, as we’ll explore below.
What information will be provided by the Tax Office under a family law request?
Evans explains that the superannuation details provided by the ATO are likely to include:
- the name and last reported account balance of each superannuation interest
- whether each superannuation interest is in a retirement or accumulation phase
- whether each super interest is an account-based or defined benefit interest.
Can ex-de facto couples in Western Australia split their super?
For separating de facto couples in Western Australia, different rules apply around super splitting. De facto partners are currently not able to split their super, although the Family Court of Western Australia can still take super into account when it makes a decision around a couple’s property settlement.
In December 2020, the Australian Parliament passed laws to extend federal super splitting laws to de facto couples in WA. However, these laws have not yet come into effect, and at the time of writing there is no set date for when they will.
How a self-managed super fund can be split as part of a divorce
If you and your ex are members of a self-managed super fund (SMSF), the situation can be a lot more complex when it comes to dividing your super.
Industry Super advises that the end of your relationship doesn’t absolve you or your ex of your responsibilities as trustees of the fund. You both still need to act in the best interests of fund members at all times, and in accordance with super laws. Given the complexities surrounding SMSFs, it makes a lot of sense to speak to your lawyer about the best way to manage your super as part of a divorce.
Main image: ByADragan/Shutterstock.com
This content was reviewed by Sub Editor Tom Letts as part of our fact-checking process.
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