Have you reviewed your super lately? While superannuation is an important financial resource in our lives, it is often overlooked during the property settlement process. Splitting superannuation can be a tricky and complex area, but if it is done appropriately, it can go a long way to securing your future after a relationship.
What is a superannuation split?
In the event that a marriage or de facto partnership breaks down, figuring out what to do with superannuation interests as part of an overall property settlement is important. While superannuation is treated as property under the Family Law Act 1975, it differs from other forms of property because it is held in trust. This makes the process of dividing it different to other assets like bank accounts.
A superannuation split can be performed in a couple of ways:
- by transferring a portion of one party’s superannuation entitlement into their former partner’s super fund; or,
- once the conditions of release have been met by one party, ordinarily through retirement, a portion of their superannuation is paid out to the other party.
Superannuation interests of less than $5000, or that pay out less than $2000 per annum, are considered unsplittable by the Family Law super regulations as it would not be cost effective to do so.
How much are you entitled to?
In the eyes of the court, the entitlement of either party to the available pool of superannuation is ultimately decided by what is just and equitable for both partners. This could mean that an even 50/50 split may not be appropriate.
To assess what constitutes the most appropriate way to divide a pool of superannuation, the court uses the four step process it applies to matters of property settlement generally. This process is as follows:
Gather all relevant information regarding the nature and value of the assets and liabilities of each party.
Determine the contributions made by each party to the total assets subject to the property settlement. This covers financial contributions as well as non-financial contributions such as child rearing and maintenance of the home.
Assess if there is a financial disparity between the parties going into the future that needs to be adjusted for. This may be a particular concern for women who have been absent from the workforce for an extended period of time due to family obligations.
Decide if the resultant division of property will be just and equitable for both parties.
This four step process is only relevant in the event that a superannuation split is sought through the courts. The parties may come to an agreement outside the court which sidesteps the requirement that the agreement be ‘just and equitable’, potentially providing greater flexibility. In this case, what you are entitled to is defined by what both parties are willing to sign off on.
Applying for a superannuation split
There are three ways to apply for a superannuation split:
Financial agreements, commonly referred to as binding financial agreements (BFA), may be entered into by private individuals without the need for a court’s approval.
Certain criteria must be met for a financial agreement to be legally binding. Firstly, both parties must seek legal advice independently and receive a certificate of independent legal advice from their solicitor before signing a BFA. This certificate verifies that the person has been advised on their rights and how the agreement impacts their interests by a legal representative.
Super funds also have very specific requirements for what information should be included in a BFA and how they should be worded in order to be valid. An information sheet on what needs to be included in a BFA should be available on your super fund’s website.
Super funds will require 28 days to review and comment on a proposed financial agreement before the agreement is signed to ensure it meets their criteria. Being afforded this review period is referred to as ‘procedural fairness’.
If the parties have come to a prearranged agreement as to how their superannuation should be split, they can seek to have the agreement formalised by the court through a consent order. Before the court ratifies the agreement, it must determine if it is just and equitable via the aforementioned four step process.
The parties should supply the court with a valuation of their superannuation interests as part of a consent order. A person can obtain a super fund member’s information if they are the member in question, the member’s spouse, or someone intending to enter into a superannuation agreement with the member.
New legislation coming into effect 1 April 2022 will enable someone to apply to the Australian Tax Office through the Family Court registry for their former partner’s superannuation information. This should reduce the cost and complexity of obtaining relevant information.
Before the court can formally recognise the consent order’s legal status, the super fund should be served with a draft of the proposed order so they can register any comments or objections in accordance with their right to procedural fairness. Evidence of this can be shown by attaching an affidavit that includes:
- The letter sent to the trustee of the super fund;
- The trustee’s response;
- A statement showing the value of the fund.
If the parties are unable to come to an agreement, they may apply to the court to decide on the best way to split the superannuation interests. As with consent orders, the court is guided by the principle of a just and equitable outcome for both parties through the four step process. This option obviously affords the least flexibility as you are waiving your right to have a say in the result, placing your faith entirely in the court to come to a decision that is acceptable to you.
This may all seem like an overwhelming process. But, with an expert estate lawyer on your side, it doesn’t need to be. Contact us at Life Law Solutions so we can assist you with your estate planning needs.