Retirement savings in the form of superannuation funds have become an increasingly important form of family wealth in Australia. But did you know that most separating couples fail to consider splitting superannuation when dividing property after a relationship breakdown?
This article will help bring you up to speed with everything you need to know about splitting superannuation contributions with your spouse.
What is super splitting?
In all states except Western Australia, the Family Law Act 1975 (Cth) makes provision for splitting superannuation assets between separating couples. For couples residing in Western Australia, the recently passed Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Act 2020 applies instead.
When applying to split your superannuation assets, you agree to transfer or roll over a portion of your interests to your spouse’s super account. This portion can be expressed as either a lump sum or a percentage.
It is important to note that when you split your super it cannot be withdrawn from an account and converted into cash. Any amount transferred into your spouse’s account must still adhere to superannuation preservation laws. The superannuation must generally remain ‘locked away’ until a condition of release is met, such as reaching retirement age.
Who can split super?
Importantly, it makes no difference if you are a married couple or in a de facto relationship (hetero or same-sex). You can still divide your superannuation just as you would any other asset.
Super splitting is most suitable for couples that have one high-income earning member and one low-income earning or unemployed member. It can help boost the receiving partner’s super balance to ensure they live a comfortable life once they retire.
When can you apply to split your super?
The good news is that you can choose to split your super when you are of any age.
However, your spouse must either be:
- Less than the preservation age – (i.e. the age you can access your super if you are retired); or
- Over the preservation age and under the age of 65, and not permanently retired from the workforce
What superannuation interests can be split?
You can split most superannuation interests with your spouse or partner; however, the law does set out a few exceptions.
According to the Family Law Superannuation Regulations (“The FLS Regulations”), any super interest with a withdrawal value of less than $5000 is considered an “unsplittable interest”.
The Family Court cannot make a splitting order concerning these types of interest because it would not be cost-effective.
If a separating couple enters into a binding superannuation agreement that relates to an ‘unsplittable payment’, a court also has the power to set aside the entire Agreement for failing to comply with the Family Law Act 1975 (Cth).
In addition, the FLSR Regulations refer to certain payments as “not splittable payments”. These include any payments made to a super member:
- On compassionate grounds;
- On the grounds of severe financial hardship;
- For permanent incapacity; or
- For temporary incapacity
Options for splitting superannuation
There are different options available to separating couples who intend on splitting their superannuation assets.
(1) Superannuation Agreements
A Superannuation Agreement is an agreement made in accordance with Part VIIIB of the Family Law Act.
Pursuant to s90XH of the Act, a Superannuation Agreement must form part of a broader Binding Financial Agreement. A Binding Financial Agreement will generally cover a wide range of additional matters, including property settlement and spousal maintenance.
Superannuation agreements will be binding if they comply with the requirements of the Family Law Act. The formal requirements are that they must:-
- identify the superannuation interest;
- be ‘in force’ at the operative time;
- not relate to an interest that is an unsplittable interest;
- be in writing and be signed by both parties;
- contain a statement that before the Agreement was signed, each party was provided with independent legal advice from a legal practitioner;
- include a statement by the legal practitioner that legal advice was provided;
- the original must be given to one party and a signed copy to the other; and
- when served on the Trustee of the fund, be accompanied by a separation declaration which is located at the front of your Agreement.
(2) Court Orders
Alternatively, if parties cannot reach an agreement between themselves, they may wish to apply to the relevant court for a consent order.
The court will typically request a valuation of each party’s superannuation interests before issuing an order which determines how to split the account.
What are the steps involved in superannuation splitting?
Before making the financial decision to divide your superannuation assets with your partner, it is important that you are aware of the process and what is involved in carrying out each step.
We’ve created a comprehensive guide to help simplify the complex process of splitting your super after divorce or legal separation. If you’d like to learn more, please visit the following link.
A Superannuation Splitting agreement is a written agreement which may be included as part of a Binding Financial Agreement made in accordance with the Family Law Act 1975 (cth) . Specifically, the agreement may include provisions dealing with the payment splitting or dividing of a superannuation interest.
This type of document is usually used after the relationship has ended but it can be used at any stage (before or during) to “flag an interest” in the superannuation assets.
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By Kirra Griffin
Kirra Griffin is a final-year law student at Melbourne Law School. As our resident legal assistant, Kirra uses her specialised knowledge of the law to translate complex concepts into easily digestible information.