When separated couples are considering a property settlement, superannuation can be one of the biggest assets they have. Many individuals choose to invest in their superannuation for their future. So, what happens when a couple separates, and they are looking at splitting or dividing their property, and in particular their superannuation?
There are lots of misconceptions concerning superannuation and what can happen with superannuation after a couple separates. The most common myth in family law in relation to superannuation and property settlements is:
It is possible that superannuation be split as part of a property settlement.
This article explores some of the common questions and myths concerning superannuation and property settlements.
What is a property settlement?
A family law property settlement is a formal, legal agreement between separated couples to finalise and sort out their assets, liabilities and superannuation.
If parties reach an agreement, a property settlement can be formalised legally by consent (for example Consent Orders or a Binding Financial Agreement), or if they cannot agree, the Family Law Courts can make a determination by application of one or both of the parties.
MYTH: We have an agreement, so we do not need to formalise it
It is important that you formalise a property settlement legally to ensure that your interests are protected. An informal agreement with you and your former partner is not sufficient to protect your interests.
A family law property settlement ends the parties’ financial relationship and neither party may bring an action against the other in the future.
How long do I have to obtain a property settlement?
There are special time limits to formalise a property settlement. This is a special clock that starts ticking after you obtain a divorce or separate (depending on whether you were married or in a de facto relationship):
- If you were married – you have 12 months to formalise a property settlement/make an application to the Court after your divorce becomes final.
- If you were in a de facto relationship – you have 2 years from the date of separation to formalise a property settlement/ make an application to the Court.
If you do not apply within these time limits, you will need to obtain special permission from the Court to apply. This permission is not always granted, and you should legal advice unique to your circumstances in this regard.
Is superannuation really property?
Yes – superannuation is a form of property for family law purposes. The superannuation splitting laws treat superannuation as a different form of property that can be divided or split as part of a property settlement.
“Apples and Oranges”
Not all superannuation benefits are the same. There is a clear distinction between defined benefits funds and accumulation base funds.
Normally, defined benefits funds have better benefits and conditions and the superannuation interests, such as a pension, may last for life. The ultimate benefit a member is entitled to will be based on a formula taking into account, among other things, the member’s salary at retirement. Normally, the type of defined benefits pensions are public service funds but not all of them. There may be other funds such as defense personnel funds and employees in funds such as Telstra Super, Qantas Super and Rio Tinto Staff superannuation funds may have defined benefits.
Accumulation based funds are private funds. Basically, the value of the fund is the benefits accumulated by the member at any particular type: “What you see is what you get”.
When dividing the parties’ superannuation entitlements as part of a family law property settlement, it is important for the parties to be aware about the type of superannuation funds each party has and to compare the benefits. A fair split after a long marriage may be that each party splits each other’s funds equally as otherwise, it is difficult to compare “apples and oranges”. It is important that you seek your own legal advice to determine what is appropriate for your situation.
What is a superannuation split?
A superannuation ‘split’ is the term used in family law to describe dividing superannuation as part of a property settlement. A base amount (ie. a set dollar value) or a percentage amount can be split.
Different superannuation funds have different rules about accessing superannuation funds and whether the interests can be split. It is important that you seek legal and financial advice unique to your individual circumstances to determine if this is right for you.
MYTH: a splitting order will give me the cash asset now
Splitting superannuation does not convert the superannuation interest into a cash asset, rather the superannuation is still subject to superannuation laws. For example, there may be limitations on when you can access the superannuation based on your age and account fees/ charges payable to the fund.
Depending on the type of fund and the superannuation interests that each of the parties have, there may need to be a separate interest in the fund established or the superannuation may be transferrable to another fund.
MYTH: we have to split our superannuation even though we both agree to each keep our own
Whilst there is no mandatory requirement that superannuation is split as part of a property settlement, a superannuation split may need to occur as part of the property settlement.
What about superannuation family law valuations?
If either you or your former partner have a defined benefit superannuation fund, such as PSS or CSS, you may consider obtaining a superannuation family law valuation. Defined benefit funds calculate and consider member’s interest differently to accumulation funds, such as PSSap and REST. Therefore, the dollar value that you see on a defined benefit superannuation fund may not necessarily be the true value of the interest.
A family law superannuation valuation can calculate the exact value of the fund at a particular point in time. There is no requirement that you obtain a valuation if there is an overall agreement about how to split the superannuation entitlements , you may wish to consider this.
What else do I need to consider?
Superannuation is only one component of a property settlement. Assets and liabilities are also considered.
When considering a property settlement, it is also important to obtain financial advice and considering the long-term effects, such as your retirement plans and financial goals.
There are also special rules about the wording of the superannuation split and legal requirement about the process and providing notice to the fund.
What do I do next?
If you or a loved one would like legal advice in relation to a property settlement, superannuation split or a family law matter, please contact our Family Law Team to arrange an appointment with one of our experienced family law solicitors.
This article does not constitute legal advice and Elringtons is not responsible for any reliance upon its contents. It is important that you seek legal advice to your unique situation.