When parties separate, whether married or in a de facto relationship, navigating the complex terrain of property settlement can seem a little overwhelming, that is why we often get asked the question of “does my spouse get half my super in a property settlement?”
In Australia, not only are assets such as the family home and motor vehicles divided but also the division of superannuation must be considered as part of reaching an overall agreement between separated couples.
The question of whether your spouse will get half the super in a property settlement is often raised.
Let’s explore that question further in this article.
What Is Superannuation?
Superannuation is essentially a form of retirement savings that Australian citizens accumulate during their working life.
It is made up of the mandatory contribution made by employers on behalf of their employees and particularly in later life, individual personal contributions to superannuation made from their earnings.
Generally, two types of superannuation funds exist known as either an accumulated fund or a defined benefit fund.
An accumulated fund is made up by the contributions made by the employer and potentially the employee which are then added with interest earned on those contributions to make a total value of superannuation held.
A defined benefit fund, which is less common, is made up of both the contribution by the employer and/or employee but then a multiple of the employee earnings is applied to those contributions to give a total value of the superannuation.
These types of funds were once common in government or public service, but these schemes are now being wound down.
When Is Superannuation Valued For The Purpose Of A Property Settlement?
In simple terms superannuation is valued at the time the parties reach agreement about division of their property assets or, if the Court ultimately determines the division of assets between separated parties, it will look at the value of the superannuation at the date of the hearing.
Valuation at a date after separation seems a little unfair particularly if there has been a significant increase in value since separation.
However, in reaching an agreement that growth can be considered particularly if one party has made a special or extra contribution to the growth.
As a practical example if one party’s superannuation has increased from $300,000 to $500,000 in the four years post separation and prior to the parties then reaching their agreement, if the party who has the superannuation was contributing significantly from their personal earnings each year, then it may not be fair to fully factor in the growth in dividing the superannuation at that stage.
If the increase was solely due to employer contributions and interest growth then it may be perfectly fair to take the increase into account.
Does Superannuation Have To Be Divided As Part Of A Property Settlement?
The simple answer is that superannuation does not have to be divided when separated couples decide to divide all their assets including superannuation.
For example, one party may decide to keep the family home while the other will retain a much larger superannuation balance.
This occurs quite regularly when parties are closer to retirement age.
For younger separated couples, the equal division of superannuation may give a fairer result.
This is consistent with the intention of the Family Law Act which requires a just and fair distribution of assets taking into account each party’s financial contributions, non-financial contributions and the future needs of both parties.
So, How Do We Work Out How Much Superannuation Is Divided?
The division of superannuation can be a little complex.
The most important first step is to establish how much superannuation each party has.
For an accumulation account this can be as simple as looking at the existing balance.
There is a process that will allow a formal valuation of superannuation, and this is quite commonly used when there is larger super balance or there is defined benefit fund held by one or other party.
The second step is to look at how much superannuation each party had at the commencement of the relationship, how long was the relationship and how much the superannuation balance has changed post separation.
These are contribution issues which can impact how much superannuation each party retains.
As an example, in a shorter relationship of say three years, if one party had a considerable superannuation balance when they commenced the relationship then the court may not consider it fair that the superannuation be divided equally after a relatively short period together.
Sometimes superannuation is not being accumulated but rather is in the payment phase.
What this means is that a party is of an age where they can access the superannuation and rather than accessing a lump sum, they are receiving an ongoing payment drawn from the superannuation for the rest of their lives – this may be indexed to increase with inflation.
What occurs quite commonly when superannuation is in the payment phase is rather than treat it as a lump sum held by that party that the court will treat it as an income stream which impacts on the division of the remaining assets – this is commonly called the two pools of assets approach.
This may mean that of the whole of the income stream is retained by one party and that the rest of the assets are divided more favourably to the other person.
An alternative approach is that the parties can agree to divide the income stream where the superannuation fund allows for this to occur.
Then, they can reach agreement as to the division of the rest of their assets.
On rare occasions, the parties can agree to leave one party’s superannuation intact until a certain age is reached and then the superannuation is divided.
This would only usually occur where there is some benefit or bonus that will be achieved by holding on to the superannuation intact for that extended period.
The court can then order a “flagging order” over the super to stop it being accessed by one party pending the division at the time agreed.
When Do We See An Equal Division Of Superannuation In A Property Settlement?
There are generally two situations where an equal division of superannuation occurs by agreement or through a court process.
The first situation is where the parties are comparatively young and will not be able to access their superannuation for many years.
If both parties were working and even if one earned more than the other, it would be fair for both of them to have an equal amount of superannuation going forward provided one party did not start out with a much larger amount.
The second situation is the more classical long marriage.
In marriages of 20 years or more it is quite common to see quite a difference in the superannuation held by each party.
This usually arises because one party earns more than the other or alternatively one party has been the primary carer of children of the relationship and did not work as much as the other.
In a long relationship it is quite common that the fair distribution would be an equal one.
This does not mean that all the assets must be divided equally in a long relationship because other factors such as inheritances or other lump sums received may be in play.
Also, the parties can agree not to divide superannuation equally and one party may retain other assets to “square the books”.
What Are The Practical Steps To Divide Superannuation?
When an agreement is reached to divide the assets of a relationship including the superannuation it is preferable to document this agreement in writing.
There are two methods of documentation which includes a Binding Financial Agreement which is a written agreement between the parties in a form approved by the Family Law Act and for which independent legal advice is required by both parties.
The other alternative is to file consent order documentation with the Court.
Where superannuation is to be divided between the parties it is compulsory one of the two methods above is used otherwise the superannuation fund will not be compelled to move super from one party to the other.
It is not possible simply to contact the super fund and give them a declaration or ask them to move super from one spouse to another.
It is therefore important to get some legal advice if you are looking at dividing superannuation so that the proper paperwork can be prepared to make the superannuation division occur.
There are a series of steps to get the superannuation trustee consent from the super fund.
Full details of this process are set out in our E-book which can be downloaded HERE
Some Further Comments
The division of superannuation by separated couples is interesting from a human behaviour point of view.
From our many years of experience males tend to have a view that if they were the ones working that they should have a right to retain a greater share of the superannuation even if their spouse was engaged in home duties and/or raising the children.
There is also a reluctance by some males to divide superannuation at all and they would rather keep or “hoard” their superannuation away until retirement age.
Ultimately, the agreement to divide superannuation or other assets in a fair manner needs to take into account the fundamental principles of initial financial contribution, length of the relationship, unusual financial contributions during the relationship such as inheritance or personal injury payment and lastly the future needs of the parties taking into account their income, their health and the need and expense to manage the raising of children.
If there is some uncertainty about what the fair approach is, then the parties should take legal advice at an early stage.
If the matter is more straightforward and the parties want to document a superannuation division then Your SuperSplit can produce the documents necessary to enable this to occur quickly, and at a reasonable cost.
Their application form can be found on the HERE ON THE WEBSITE
If you want to learn more about superannuation division then watch the videos below.
This is how Brian and Grace manage their divorce and division of superannuation
See below how Jill and Tom went about their division agreement