Going through a divorce or separation can be distressing and difficult. On top of the emotional stress, there are usually financial implications to consider, including what happens to your superannuation.
It’s common to have questions about what do first, how super can be split, and what’s the best approach to take. If you’re experiencing a breakdown of your marriage or de facto relationship in Australia, here are some considerations for splitting your super.
What happens to super in a divorce or separation?
Superannuation is essentially treated as property in a divorce or separation. It becomes an asset of the relationship and is taken into consideration when dividing up all assets. Be aware there may be different processes in every state, especially in Western Australia where de facto couples won’t benefit from super splitting laws. Find out more on the Family Court of Western Australia website.
Generally, there are three options to consider for super during divorce or separation.
There are several ways to do this:
- You and your ex-partner can split your or their super as part of a binding financial agreement.1
- You can consider filing an Application for Consent Orders2. This means you can formalise your agreement in court, without either of you needing to be present at the time.
- If you can’t reach an agreement together, you may consider obtaining a Financial Order3, where a court hearing will determine how super is to be split between the two of you.
Remember, splitting super does not necessarily convert it into cash. Unless you or your ex-partner are able to access super, after the agreed amount has been transferred to yours or your ex-partner’s super account, it must stay in a superannuation fund until a condition of release is satisfied, such as reaching preservation age.
In some cases, you might defer the decision around splitting super for another time, such as retirement. This option may be more appropriate when one or both parties have a defined benefit account, where it’s more difficult to establish the value of the superannuation. Or if one or both of you are close to retirement age. In these scenarios, a ‘flagging agreement’ could be put into place. This means the super fund can’t pay out any super until the flag is lifted4.
No super split or flag
Some couples choose to leave their super untouched. Instead, they factor in the value of their superannuation accounts while dividing up their other assets.
How much does it cost to split super?
Super funds may charge an administration fee for carrying out any requests concerning splitting super. These are separate to any costs for legal or financial advice, or court fees.
It’s always best to check with your super fund what they’ll charge for things like:
- a super split
- implementing a flagging agreement
- lifting a flagging agreement
- an application for information.
What happens if we have an SMSF?
About 93 % of SMSFs operate as one or two-member funds. Even if your relationship breaks down, you still have the same responsibilities as a trustee and must continue to abide by super and tax laws. In general, if you have an SMSF, it’s advisable to seek legal and financial advice.
What to think about first
Make sure you know the details of all your financial accounts, including your super fund. Many Australians have more than one super account. You can find and keep track of all your super accounts via the Australian Tax Office website and myGov.
It’s good to understand the value of the superannuation that will be split. You’re entitled to request information about your spouse’s super provided the request is for purposes of the separation. You can typically get this from their super fund. You may be asked to fill out different forms, which can be found in the Family Court of Australia’s Superannuation Information Kit.
Need more help?
It’s easy to feel overwhelmed when it comes to separating your finances. MoneySmart has a divorce and separation financial checklist that might help you feel more in control.
It’s usually a good idea to get independent legal advice, even if things are amicable. You might also think about consulting with your accountant or financial adviser so you can make informed financial decisions along the way.
4 www.ag.gov.au/sites/default/files/2020-03/Superannuation%20splitting%20frequently%20asked%20questions.pdf page 21
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