Australia: How superannuation is dealt with in your property settlement

Under the Family Law Act, superannuation is treated as property which can be divided or "split" on the breakdown of a marriage or de facto relationship, either by agreement or a "splitting order".

The superannuation splitting law treats superannuation as a different type of property. It lets separating couples value their superannuation and split superannuation payments, although this is not mandatory.

Splitting does not convert superannuation into a cash asset. It is still subject to superannuation laws in that it is usually retained until a party reaches retirement age.

While the Family Law Courts consider superannuation as property, there is a subtle differentiation between non-super assets (bricks and mortar assets, bank accounts, etc) and superannuation assets (all the different types of superannuation that a person may have).

Superannuation is treated as property but of a different kind

When two people separate and divide their assets, the Family Law Courts consider all the contributions of each person to the pool of assets, including superannuation.

Judges have a lot of discretion in terms of how to divide a couple's superannuation beyond financial contributions so as to achieve what they consider to be a just and equitable outcome in all the circumstances.

And each couple's circumstances are treated differently on a case-by-case basis.

One approach adopted by the Family Law Courts is to consider superannuation together with the other assets in the "pool" of assets for distribution. This is usually called a "global approach".

The other, more common approach, is to put the parties' superannuation interests into a separate "pool". This is sometimes called "a two pool approach".

For example, a superannuation splitting order may not be required if the two major assets are the former matrimonial home which the wife wants to retain and the husband's superannuation, if the husband is approaching retirement age and the value of his superannuation is significant compared to the value of the former matrimonial home.

The global approach is common where the parties' superannuation interests are both in the growth phase. The balance sheet will include the superannuation interests of the parties in the net assets for distribution between the parties to the effect that the percentage outcome will include the superannuation.

The drafting of a splitting order or agreement is critical to its acceptance by the trustee of the superannuation fund and to its enforceability by the Court.

A two pool approach might be adopted where there is superannuation in the payment phase, namely a pension, or where one party has a much larger superannuation interest contributed prior to the relationship, or in circumstances where the superannuation interest can be commuted in whole or in part. In such a case there would be a percentage apportioned from the non-super pool (for example 50/50), then a further percentage adjustment of the super pool (for example 70/30).

The drafting of a splitting order or agreement is critical to its acceptance by the trustee of the superannuation fund and to its enforceability by the Court.

The trustee of the fund must be provided with notice of the proposed wording of the splitting order or agreement as a condition of their approval (known as procedural fairness). The splitting order or agreement will not be valid without the consent of the trustee of the relevant fund.

Superannuation splitting: the nuts and bolts

Separating couples may either:

  • enter into a formal written agreement to split superannuation by way of a Binding Financial Agreement;
  • seek consent orders to split superannuation, by way of an Application for Consent Order; or
  • seek a court order to split superannuation, after initiating property proceedings, if you cannot reach agreement with your former partner.

In order to start the process of splitting your superannuation, you need to obtain information to value the superannuation. We can do this by providing the trustee with your:

  • Form 6 Declaration: this satisfies the trustee of the fund that you are entitled to get the information for this limited purpose; and
  • Superannuation Information Request Form (accompanied by the appropriate Superannuation Information Form).

The information from the trustee may be enough to value the superannuation. However, the valuation of some superannuation interests can be complex. An expert may need to provide a further valuation. We can assist if this becomes an issue.

Of course, there are different types of superannuation. The superannuation splitting legislation sets out methods for valuing most types of superannuation, but there are exceptions, including:

  • self-managed superannuation funds – they are generally valued with the assistance of an expert such as an accountant
  • where the Attorney-General has approved a fund using a different valuation method.

The trustee of the superannuation fund has to be involved

If you intend to make a splitting agreement or seek a splitting order, you must tell the superannuation fund trustee about the agreement you are making or the orders you are seeking.

The trustee will need to know all about and approve of the wording of the agreement or the orders and the trustee will need to outline any objections or give their approval as the case may be in writing.

The trustee may also be given an opportunity to attend the court hearing and object to the orders that you are seeking, although this is rare.

Once a splitting agreement is signed of by the parties or the superannuation order is made it is critical that the trustee be served with a certified copy of the agreement or a sealed copy of the order. The trustee must then process the payment split within the "operative time", usually four business days of service of the agreement or order.

Within 28 days of the "operative time", the trustee must give both parties a payment split notice, and the person in whose favour the split is to be made can give the trustee instructions in the prescribed form as to how the splitting agreement or order is to be achieved.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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