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:
1. 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.
2. 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 split 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 partner's 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 split 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, SMSF and Retirement Planning Specialist