People may wonder what are the superannuation and divorce entitlements of separated couples. But, firstly, what is superannuation? Superannuation is basically an employee’s money that has accumulated over his working life. An employer holds super funds and the more employees save, the more money they will have after retirement.
However, it is known that when a couple marries, they get possession of their partner’s property and assets. Superannuation is also a form of an asset. So, couples who went through a relationship breakdown may think of their former partner’s superannuation fund. Read on to find out more about how to split superannuation during a divorce.
Superannuation Entitlements: The Couple’s Options
Option 1: Splitting Superannuation Assets
Firstly, couples may split their respective superannuation fund if they separate or divorce. They can do this through court orders or an agreement. Even if both the couples’ incomes differ, splitting a super fund can help them grow their own wealth. This can also help if one spouse in particular is earning less than the other. Some advantages of splitting a super fund are:
Maintaining insurance: Splitting contributions can help pay for insurance within their super account like life insurance. For instance, they want to keep the insurance but find it difficult to pay for premiums because of a low super balance.
Gain access to super earlier – Another option is to split contributions to an older spouse who has access to their super before their new spouse. This allows a couple to access tax-free money from their super sooner than expected. Furthermore, this also allows the older member to reduce their balance and potentially qualify for a higher age pension payment in Services Australia.
Keeping super balances under the ATO thresholds – Superannuation splitting can even out a couple’s super balances under the Australian Taxation Office (ATO) thresholds. For instance, keeping the couple’s balance under $500,000 means that each member can use the ‘carry forward’ rule.
This rule allows a person to make extra concessional contributions above the concessional contributions gap without having to pay tax. Splitting contributions to keep one or both members under the $1.6 million transfer balance cap could help couples get the most money tax-free in retirement. It’s important to seek independent legal advice. This is because superannuation and divorce settlements may go out of hand when splitting a super.
What’s The Most Common Approach?
Splitting a super is the most common approach when talking about superannuation and divorce entitlements. It’s known to be one of the most valuable financial assets that a person can accumulate in their lifetime. The majority of couples may choose to split their super during family law proceedings. This is unlike non-superannuation assets like family homes, valuables, or investments.
Distributing Superannuation Interests and the Family Law Act
The family court has a wide disposition in determining a just and equitable distribution of each parties’ superannuation interest. Indeed, superannuation is considered property under the Family Law Act 1975. Hence the court will use a four-step process to determine each party’s superannuation entitlements.
The Four-Step Process
1. Calculating the super’s value
In calculating the value of a super, a person is entitled to know how much is in their ex-spouse’s super account. But that person must first fill out a form on the website of the Federal Circuit and Family Court of Australia in order to do so.
Separating or divorcing couples may also make applications to the ATO in order to disclose the superannuation savings of their ex-partner. This prevents couples from hiding their assets before property settlement and exposes partners who have more than one super account or bank account. Property settlement is the division of assets and property between former spouses.
2. Financial and non-financial contributions
It’s important to assess each party’s financial and non-financial situation and contributions to the acquisition, conservation, and improvement of the superannuation.
3. Status of each couple
- Age and health of each party
- Income earning capacity
- Children’s living arrangements and their relationship with them
- Existing financial commitments and responsibilities
An evaluation is made as to whether superannuation and divorce entitlements are just and equitable.
Option 2: Waiting Until Retirement Age
A couple can choose to delay dealing with the super account until an event such as retirement occurs. They can enter into a superannuation agreement, which prevents superannuation funds from making a payment out of the superannuation account until the flag is lifted. This approach is uncommon but is appropriate if ex-spouses have a defined benefit account, where determining the value of the superannuation is more difficult.
Option 3: Taking Super Into Account but Leaving It Untouched
A couple may decide to divide their other assets but leave their superannuation benefits alone while considering the value of their super accounts. A person withdrawing their entire super account at once may be making poor financial decisions regarding superannuation and divorce entitlements.
People may want to leave their superannuation alone if they have enough income from other sources like additional assets. Withdrawing it only when necessary allows people to maintain a financial reserve that serves as both a savings and an emergency fund.
Self Managed Super Funds
An individual or family often starts a self-managed super fund in order to manage their own retirement money. Every member of an SMSF is a trustee and is in charge of selecting investments and ensuring that they follow and comply with tax and superannuation laws.
Important Tips About Superannuation Fund and Entitlements
Couples should remember that preservation rules continue to apply after splitting a super. The majority of the super in a fund will be in the form of preserved benefits. These must be kept in the fund until the law and the trust deed of your fund allow them to be paid.
Some people believe that if they receive a portion of their former partner’s super, they will be able to access it immediately and do whatever they want with it. However, this is not always the case. The majority, if not all, of the super you receive as part of the split, will be kept.
Why Is It Important to Seek Legal Advice?
Not only do divorce and separation cause emotional stress, but it also causes financial stress between couples. Couples can take these financial worries away with the help of JB Solicitors’ family lawyers. Our experience in family law can help couples decide which is the best option for them regarding superannuation and divorce entitlements.
Contact our legal representatives today for all your legal matters surrounding superannuation.