While not a particularly happy topic, the breakdown of a relationship between partners is a reality in the modern world. An estimated one in three Australian marriages will end in divorce.
With super balances becoming more sizable, it is only appropriate that we look at what happens to our super if our relationship breaks down.
Since December 2002, super forms part of those assets that are divisible amongst partners on relationship breakdown.
The current laws apply to married and de-facto couples and extend to same-sex relationships.
Generally, splitting super can be dealt with in one of two ways:
- By a superannuation agreement – Whereby the partners decide how super benefits of each will be dealt with on the breakdown of a relationship. A superannuation agreement can be made before, during, or after the breakdown of the relationship.
- By court order – The Family Court will consider the super savings held by each partner and will make an order as to how they are to be split. This is often relied upon where the parties cannot agree on the split.
There are a number of ways in which the basis of a split is determined.
The split may be expressed as:
- base amount
- percentage of a person’s super interest
- by application of a formula
- by actuarial valuation
The actuarial valuation is used for defined benefit super schemes.
Once the basis of the split has been determined, either the super interest affected will have a flagging order attached to it or the benefit will be split. Flagging may be used to ‘freeze’ a member’s benefit before a physical split can occur.
With more and more super funds being ‘defined contribution’ schemes, where a member’s account balance can be readily identified, the benefit may be spilt by either creating a new account in the same super fund for the spouse to receive split super benefits, or the ‘receiving’ spouse may simply request their share of their former partners super to be transferred (rolled over) to their own super account with their current super fund.
Most superannuation benefits are ‘preserved’. This means they cannot be ‘cashed’ until such time as a ‘condition of release’ is met. In some cases, a person may have benefits that are both preserved and unpreserved. The preservation components of a super benefit are split proportionally. That is, if a member’s benefit comprised of 60% preserved and 40% unpreserved benefits, and a portion to their benefit was to be spilt with their spouse, the receiving spouse would receive their share of the same preservation components.
Likewise, with the tax components. Split super benefits are split in proportion to the taxable and tax-free components held by the original spouse.
Dealing with super benefits on relationship breakdown can be complex. It is important for both parties to seek appropriate legal and financial advice.
By Peter Kelly, Superannuation, SMFS and Retirement Planning Specialist
If you have questions about any of the issues raised, please don’t hesitate to contact us on (03) 6344 3899 or send us a message below:
The information contained in this article is of a general nature only and does not take into account your particular objectives, financial situation or needs. Accordingly the information should not be used, relied upon or treated as a substitute for specific financial advice.
While all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither BND Financial Services, Centrepoint Alliance Limited nor its employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.