When a couple separates or divorces, or a de facto relationship[i] ends, property must be divided. Property includes all of the assets – houses, cars, jewelry, furniture – and all of the liabilities, like loans and mortgages. Superannuation – the money individuals set aside to have when they retire – are now also included in those assets that need to be divided fairly between a couple, whether married, de facto heterosexual or de facto same sex. In the past, superannuation was considered a financial resource, similar to salary or other income. Today, however, most couples weigh superannuation funds as if they are marital assets or property.
Part VIIIB of the Family Law Act, 1975 (FLA) covers issues dealing with superannuation and families. The law requires that the superannuation benefits due to one spouse or de facto partner must be divided with the other spouse or partner. But there are several difficulties with dividing superannuation. Firstly, if a couple divorces before retirement, the superannuation funds are not yet available. So while a couple may divide up their property at the age of 45, they may not see funds from superannuation for another 20 or 30 years. Other problems…..
The law recognizes these problems and offers three ways a divorcing couple can divide superannuation interests.
- “Split”. The first method is to split the interest into two accounts or benefits. This can be done either by a payment split, when the superannuation becomes due (say, at retirement) or through an interest split, which means each partner receives a superannuation interest. With an interest split, the partner receiving the new benefit can keep the money in the original account until it comes due, or open an entirely new account. Nobody receives an actual cash payment – the money remains in a superannuation fund. Tax issues must be calculated before the payment or interest is split.
- “Flag”. The second approach to dividing superannuation is to flag the benefit for a later date. In this scenario, the couple marks the benefit and the trustee of the superannuation fund is not allowed to touch it until the “flag” is lifted, either by agreement of the parties or with a court order. The couple can then decide what happens to the fund only later, after the person who owns the superannuation account retires.
- Leave it alone. In this case, couples consider the superannuation a financial resource. When dividing up their assets, superannuation is only included in the calculation as a source of income, not as an asset.
Splitting the Superannuation Now
Typically, divorcing couples split their superannuation. Most couples choose this approach because it enables them to know exactly how much money they are receiving and allows them to make a clean break, without having to return to financial issues ten, twenty or thirty years later.
There are several steps needed to split the superannuation:
Step 1: Request information from the partner’s superannuation fund.
There are two forms that a spouse must submit to the trustee of the superannuation fund:
- Form 6 Declaration, which proves to the trustee that you are entitled to see the information and
- the Superannuation Information Request Form. These forms can be obtained online
You must be “eligible” to receive the information from the fund. An eligible person is:
- The member of the fund or
- The spouse of the member of the fund or
- If (1) or (2) died, the deceased person’s legal representative or
- Someone who plans to enter into a superannuation agreement with the member
Step 2: Evaluating information from the superannuation fund.
The law requires the fund to provide information to the member of the fund and his or her spouse. The fund may provide information regarding the value of the superannuation or information that helps the person requesting information determine the value of the fund. The trustee should also notify the requester whether or not the fund may be split. Once this information is obtained, the numbers must be calculated using specific formulas, depending on the type of fund. An expert in family law or accounting can help determine the correct formula to use in order to obtain the correct amount of interest each party is entitled to from the superannuation.
Step 3: Turn to the courts for an order.
Couples may sign their own splitting agreement and take it directly to the trustee of the superannuation fund. Alternatively, couples can turn to the courts with their own financial agreement already signed. Finally, if a couple can’t agree, they may obtain a court order.
- If both sides agree about the value of the fund and it’s division, they can submit an Application for Consent Orders, which includes their agreement regarding superannuation. This agreement is binding only if both parties signed it AND both received independent legal advice. This is the case regarding all financial agreements between couples divorcing.
De facto couples terminating their relationship may also submit a financial agreement regarding superannuation, but only if they were residents of New South Wales, Victoria, Queensland, South Australia, Tasmania, the Australian Capital Territory, the Northern Territory or Norfolk Island when the agreement was made.
- If the parties cannot come to their own agreement, they may turn to the court for Orders.
In either case, the trustee of the fund must be notified that the court is being asked to give orders. This is to ensure that the request being made complies with the fund’s rules. Also, the trustee is entitled to attend the court hearing and oppose the orders.
Step 4: Send a copy of the agreement or court order to the superfund trustee.
Once the court gives orders, the superannuation fund must be sent a sealed copy of the decision.
Step 5: Split the superannuation benefit.
Generally, the superannuation benefit will be split into two funds, one for each partner. There may be administrative costs for splitting the fund.
[i] Laws on the splitting of superannuation do not apply to de facto couples from Western Australia.