29 Aug Splitting Super after Divorce
How is superannuation dealt with in family law?
Superannuation is treated as property and can be divided between the parties after the breakdown of a marriage or the breakdown of a de facto relationship. Rather than cashing out the super is “split” and assigned to the spouse who is entitled to a top up.
Superannuation interests can be divided either through a judge made court order, a consent order without appearing at court, or by a binding superannuation agreement (either stand-alone or part of a financial agreement).
Can any super fund be split after divorce?
The answer is no. There are some funds that cannot be immediately split due to the nature of the fund or certain restrictions on the fund. You can still enter into an agreement to divide it to come into effect once the fund’s restrictions change.
If the superannuation interest cannot be divided at the time orders are made, “a payment flag” can be imposed by either a court order or a superannuation agreement. Superannuation flags were more common shortly after the 2002 amendments as not all interests could be split. The reality in most family law cases is that superannuation interests can be split and the use of superannuation flags is not commonplace. In some circumstances, the super fund characteristics have changed so much that it cannot be considered property to divide and only a financial resource to be taken into consideration. For example, if the super is in the form of a pension that cannot be converted to cash at any time, then it will usually be considered a financial resource and relevant more in terms of income and spousal maintenance.
What’s the formula to split up super funds after separation?
Because super has so many different manifestations it is impossible to formulate an overall approach to be taken in determining the role either party’s entitlements are to play in the division of the asset pool. There are two general approaches that may be taken when dealing with superannuation:
A. The two asset pool approach involves identifying two separate assets pools: (1) non-superannuation assets and (2) superannuation. Each of the pools is divided in accordance with the considerations in the Family Law Act in s 79 or s 90SM for de facto couples. This approach will usually result in a superannuation split to give effect to the appropriate division of superannuation.
For example, Sally and Peter have separated and the children are living with Sally. They have a non-superannuation asset pool of $500,000 which includes an unencumbered property worth $350,000, cash of $50,000 and a share portfolio of $50,000. Peter has superannuation of $200,000 and Sally has $50,000 super. Sally wants to retain the house if possible as she isn’t working and can’t service a mortgage if she has to encumber the property to pay Peter out. The agreed division is 60% to Sally and 40% to Peter. Under the two pools approach, the outcome would be:
Sally retains her $50,000 superannuation and receives $112,500 from Peter’s superannuation to result in her retaining 60% of the superannuation pool.
Sally is entitled to $300,000 of the non-super pool and Peter is entitled to $200,000. Sally cannot pay Peter out and therefore the house is sold and the parties divide the proceeds, the cash and the share portfolio to give effect to the agreed split.
B. The alternative approach is where there is no difference drawn between superannuation and non-superannuation assets. This approach may be used if one party wants to retain the non-superannuation assets and the other party has a larger amount of superannuation. Applying this approach to the above example, the asset pool including superannuation is $750,000. Sally is entitled to 60%, being $450,000. She keeps the house and the cash along with her superannuation. Peter retains his superannuation and the investments. This is not the likely approach which the court would take because in many ways this is unjust to Peter as he retains superannuation but little else to re-establish himself. However, this may be a negotiated outcome if the party retaining the superannuation had a significant income and therefore didn’t have the same need for a cash settlement as the party who is earning little or no income.
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