Australian family law treats super as a financial asset during divorce or separation. This means it’s subject to division between partners, similar to a house or car. There are three main ways this division can occur:
- Splitting by Agreement: The most amicable approach is reaching a mutual agreement on how to split your super. This can be formalized through a Binding Financial Agreement (BFA) drafted by a lawyer.
- Court Order: If an agreement can’t be reached, either party can apply to the Family Court for a superannuation splitting order. The court will consider various factors, including the length of the relationship, financial contributions of each partner, and the superannuation balances.
- No Action: While less common, it’s possible to leave super untouched during the separation process. This might be suitable if the super balances are relatively small or there are other assets to be divided.
Mechanics of Splitting Super
Splitting super doesn’t involve converting it to cash. The funds remain in your respective super accounts, subject to preservation rules. Here’s how it works:
- Superannuation Splitting Orders: The court (or through a BFA) issues an order specifying the percentage or fixed dollar amount to be transferred from one spouse’s super to the other’s.
- Valuation: Superannuation balances are valued on a specific date determined by the court order or BFA.
- Transfer Process: The receiving spouse’s super fund receives a rollover from the paying spouse’s fund. This transfer is tax-free, ensuring no financial penalty for splitting.
Key Considerations
There are several important details to understand when splitting super:
- Preservation Age: The transferred super remains subject to preservation rules. It cannot be accessed as cash until you (or your ex-partner) reach your preservation age (currently between 59-67 years old).
- Tax Implications: The transfer itself is tax-free. However, any future earnings or benefits on the transferred amount will be taxed according to the recipient’s marginal tax rate.
- Contribution Limits: The receiving spouse might reach their annual concessional contribution cap faster due to the transferred amount. This could limit their ability to make additional pre-tax contributions.
- Impact on Future Benefits: Splitting super can affect future benefits like death benefits or insurance coverage associated with the super account.
Seeking Professional Advice
Divorce or separation is a complex process, and superannuation is just one aspect. Here’s how to ensure a smooth and informed approach:
- Financial Advisor: A financial advisor can help calculate the value of your super and assess the potential impact of splitting it. They can also advise on strategies to rebuild your super balance after the separation.
- Family Lawyer: A lawyer specializing in family law can guide you through the legal process of splitting super, including drafting BFAs or navigating court orders.
Conclusion
Understanding how superannuation is affected by divorce or separation empowers you to make informed decisions. By considering the different options, potential implications, and seeking professional advice, you can ensure a fair and financially secure future. Remember, this article provides general information, and it’s crucial to consult with relevant professionals based on your specific circumstances.
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