Superannuation Splitting in a Family Law Property Settlement: The Basics
It is now over 20 years since the Federal Government first made it compulsory for every employed worker in Australia to contribute to a superannuation fund. As a result superannuation is often now the most significant asset of many families, after the family home.
For over 10 years now, the Family Law Court has treated superannuation entitlements as an asset of the parties to be considered when dividing the family property. This means that, amongst other things, the Court can make orders to 'split' a superannuation interest that belongs to one of the parties so that their spouse can receive a portion of the superannuation entitlements of his or her partner. The law relating to splitting superannuation entitlements when a family breaks up is complex and a number of matters have to be considered to determine whether a superannuation split is appropriate.
What types of superannuation interest exist, and what is the value of those interests?
Generally, there are three types of superannuation interest –
- accumulation funds,
- defined benefit funds, and
- self-managed superannuation funds (SMSF).
Determining the value of the superannuation interest will depend on the type of fund. If it is an accumulation fund, the value on the latest member statement will provide a close indication of the value of the interest. If it is a defined benefit fund or SMSF, then the interest will have to be properly valued by the super fund to determine the actual value before any advice can be given as to splitting that interest.
A solicitor representing a party can make an application to a superannuation fund seeking information about that party's interest in the fund or the interest of the party's spouse to assist in ascertain the superannuation interest and the value of that interest.
If the superannuation interest has a withdrawal benefit of less than $5,000 then the interest is regarded as 'unsplittable', and the Family Court will not make a splitting order in relation to that interest.
How should the superannuation be split?
There are two ways that a superannuation interest can be split – either as a specific dollar amount (base amount) or as a percentage of the balance of the party's superannuation fund. A base amount payment will guarantee the amount that a party will receive from the split, while a percentage split may be higher or lower than the estimated value of the interest, depending on the value of the interest when the Trustee of the Fund gives effect to the Order made by the Court. The circumstances of each matter will determine whether a base amount or a percentage split is more appropriate.
Superannuation can only be split by paying the amount of the spilt into a new superannuation account or rolled-over into an existing account. The superannuation split cannot be received as a cash payment and the entitlement that is received by way of a superannuation split can only be accessed by the receiving party in accordance with the usual eligibility criteria for superannuation benefits.
What needs to happen for the superannuation split to be effective?
If a superannuation split is to form part of a property settlement, the Trustee of the superannuation fund must be given 28 days notice of any proposed Order splitting the fund to ensure that the details are correct and the proposed Order complies with the fund's requirements. Once the Order has been made by the Court, a copy of the Order with the Court's Seal is provided to the Trustee of the Fund, and generally the splitting order becomes operative four days after that time. Both parties to the agreement should have also received legal advice in relation to the proposed Order for the superannuation split.
Will there be any financial implications from a super split?
Most superannuation funds charge a fee for complying with a Court Order for a superannuation split. This amount is usually deducted from amount being split in accordance with the Order. There may also be taxation and financial planning implications, and a party considering a superannuation split should speak to an accountant or financial planner in relation to these matters.
To ensure that a party's rights are fully protected it is essential that expert legal advice be obtained prior to entering into any agreement to split the family's asset. Lamrocks has an experienced team specialising in Family Law property settlements.
If you have questions about how your superannuation entitlements could be affected, or any other matter relating to relationship breakdown, speak to one of our experienced family law solicitors on 02 4731 5688.