When a couple’s relationship fails and can’t be re-established, there is an obvious need to separate their joined lives. All that was once united has to be divided up.
One asset that can be allocated between a splitting couple is their respective superannuation money. In other words, super is simply considered an asset of the couple much like property or shares that might be personally or jointly owned by a couple. However, there are a small number of super arrangements that can’t be split (this won’t apply to many people in SMSFs).
It’s better to split your super
Some people find it difficult, or too expensive or emotionally fraught, to formalise the separation and so their old arrangements legally remain in place. This is actually quite a dangerous strategy because often your former spouse will remain your spouse at law which means they might still be your dependent for superannuation purposes.
You can split your super assets without formally divorcing.
You can’t hide money in your super
More than 10 years ago it was common for some people to “hide” some of their money in their super fund because those assets weren’t considered to be a joint asset of a couple. This strategy primarily no longer works.
The different ways to split super
There are three options:
- DIY – you can reach a private agreement on how your assets need to be split; once you’ve come to an agreement you should obtain formal legal sign off that both parties are happy
- Obtain “consent orders” – you reach an amicable agreement and ask the court to ratify the agreement
- Get the Family Court to decide – when agreement can’t be amicably reached, you ask the court to make a decision on your behalf
Adversarial court system
It’s useful to remember that all Australian courts are adversarial. Your former partner’s legal advisers are obligated to do the best for your former partner. If this is significantly detrimental to you, then that isn’t their problem.
You need to test everything to ascertain if it’s best for you now and into the future.
For example, there is no legal requirement demanding that the value of super interests is based on prevailing market value. You need to determine for your own benefit what value is in your interests to use and why.
The super splitting process in summary
- Share information about your respective super interests – this is a formal discovery process and time limits have to be observed when providing this information; in this information you should learn a range of data including the value of your spouse’s super and whether or not it can be split with you;
- You must obtain legal advice before any agreement can be finalised (this is a legislative requirement);
- Your splitting agreement – these must specify a “base amount”, how it has been calculated and the percentage that is to be split. There are two types of percentage agreements that can be set here and you need to be careful. One percentage can be used to determine the split at the time of separation, and the other can specify the split that occurs when a benefit is paid from a super fund;
- You then complete one of the three different ways of splitting super mentioned above (this involves the exchange of further information in required timeframes) as well as negotiation;
- If relevant you present your split agreement to the court which formally approves it;
- Once approved you then present this to your super fund as soon as possible so it can be implemented; and
- For most SMSFs, agreements that demand a transfer between former spouses will see a change in account balances of respective members. Former couples often want to unwind their two member super fund with one of them leaving to join another super arrangement. At this point you need to negotiate the transfer of assets and associated transaction costs.
Flagging agreements
Suppose for some reason one or both of you wish to delay making a splitting agreement about your superannuation interests. When this occurs, you can issue a super fund trustee with a “flagging agreement” which prevents a trustee from making a payment from super until this flag is lifted.
These agreements can be made by mutual agreement or by the court.
Please note that flagging agreements can’t be used for pensions.
They can be lifted at anytime either by mutual agreement or by seeking a court order.
Costs of super splitting
Most of the time your super fund administrator will want to charge you for the time it takes to prepare information for your negotiations or formal court documents.
Also as noted above, there may be transaction costs that have to be factored into splitting your super. You need to make sure you’re not being ripped off.
Defacto arrangements
Similar arrangements to those outlined above also apply to defacto arrangements except those based in Western Australia.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.