Superannuation is often one of the biggest assets that a person has. Upon the breakdown of a marriage or partnership, an important consideration is how superannuation is dealt with in a property settlement.
The first step in a property settlement is to compile a list of assets and debts. In fact, the usual approach is to compile two lists. One pool comprises the non-super assets. The other pool comprises the super. This is because super is different to other assets, being there for retirement.
Ascertaining the value of super depends on the type of interest.
- Accumulation interest: if the person has an accumulation interest in an industry or retail fund, then the value is usually obtained by them going online and getting an up to date figure.
- Defined benefit: if they belong to a defined benefit fund (e.g. State Superannuation Scheme) then an application will need to be made to the fund to provide a valuation. It is important to note the figure (often figures) on the latest statement is not the family law value.
- SMSF: if they have a SMSF then, depending on the assets held, the individual assets may need to be valued.
You always need to know the current value of the super. A court can divide the assets which exist at the date of the hearing. Sometimes a person will argue that the increase in value from separation to the current date is a contribution by them which needs to be considered in the division. In most cases, this increase in value is not going to result in a better outcome for the person with the super.
The second step in the property settlement involves working out the appropriate division of assets. One of the important considerations is the contributions that each party has made to the relationship. When it comes to working out the appropriate division of the super, this could include a consideration to the amount of super that each party brought to the relationship.
Can you trade off super and non-super?
One person might want more of the non-super assets. They may have a modest income and a modest borrowing capacity. So, if they want to keep the house (or buy a house) they may need as much of the non-super assets as possible. If their partner has more super, there may be an agreement that there won’t be a super split to the person with the lesser amount of super, in return for them receiving more of the non-super assets.
Of course, the opposite can apply… a person might want to keep more of their super. Particularly if they are receiving a defined benefit pension. See the article Separation and super splitting – a case study for an example of a person taking less of the non-super assets in return for keeping more of their super.
This is an area where a financial planner can give advice to the person about what assets they should seek to receive in the property settlement.
How a super-splitting order works
If there is a super-splitting Order, then the following happens:
- prior to the making of the Order, the trustee of the fund needs to be given notice of the proposed Order to find out if it has any objections to it e.g. because the proposed split is greater than the person’s entitlement, or the wording of the proposed Order does not comply with the legislation
- once the Order is made, it is served on the trustee, along with some other information about the person receiving the split
- the trustee then implements the Order – this generally involves the split amount being transferred to a superannuation fund of the choice of the person receiving the split.
If you would like further advice on how superannuation is dealt with in a property settlement, please contact us on (02) 4929 3995.