Superannuation, divorce and family law can be difficult enough to navigate on their own, but things can get especially complex when they’re bundled together.
If you’re going through a divorce, or think that one may be on the horizon, it’s important to know what the rules are when it comes to super.
While super is considered property under the Family Law Act 1975, it’s treated somewhat differently to other kinds of property since it’s held on your behalf in a trust.1
Generally, couples will have a few options available to them when deciding what to do with the super pool:
- Work together to determine how super should be split (and formalise the agreement)
- Apply to the Court for orders
- Agree to leave each other’s super untouched
- Defer your decision
If you and your spouse can come to an agreement
In any break up, the ideal scenario involves both spouses agreeing from the outset how their super will be split, however, such an agreement will need to be legally formalised. The two main ways to do this are via a consent order or a Superannuation Agreement.2
To obtain a consent order, you and your spouse will need to file your agreement with the Family Court. It will then be considered by a registrar, who will make the orders if they deem your agreement fair and equitable.3 Except in limited circumstances, consent orders will be final, and any breaches can have serious consequences.4
A Superannuation Agreement serves a similar function, but it’s prepared by lawyers and doesn’t need to be submitted to the Courts. It’s also mandatory that each party receive independent legal advice before entering the agreement.5 If drawn up correctly, this should prevent the Court from making orders inconsistent with what you two have proposed.
If you and your spouse cannot agree
For couples who can’t reach a mutual agreement, it may be necessary to get a court order. The Family Court is committed to splitting the super pool fairly, so it will consider a number of factors. These might include what each person has contributed to the relationship, their capacity now that it has ended, and whether there are any commitments to children or dependents.
Make sure you speak to a lawyer before going down this route as it’s important to understand what’s expected of you. Depending on your situation, they might even be able to help you and your partner reach an agreement without going to court.
Leave your super untouched or defer the decision to split it
It’s not compulsory to split your super with your ex-spouse if neither of you see fit to do so. You can focus instead on how your other assets will be divided while agreeing to leave each other’s super untouched.
There’s also the option to defer the decision by entering a flagging agreement. This type of arrangement prevents your super fund from making any payments out of your account until an event such as retirement is reached. Flagging agreements are somewhat uncommon — you might consider one when dealing with a defined benefit account, where the retirement benefit is determined by a formula rather than investment return.
What happens once you split your super?
If one partner is required (by court order or agreement) to split their super with their spouse, what that will actually look like depends on which phase the super is currently in.
If it’s still in the pre-retirement phase, all the usual super laws will still apply, meaning the amount won’t automatically be converted to cash. Generally, the funds will be retained until the recipient has met a condition of release, at which point they’ll receive the amount they’re entitled to.6
If an account-based income stream has already commenced, the portion payable to the former spouse can generally be commuted to a lump sum or rolled over to purchase a new income stream for the spouse.7
As for lifetime and defined benefit accounts, these are typically more complex and your options will usually depend on the fund’s governing rules.
Family law can be quite complex, and even if you and your spouse expect to resolve things amicably, it’s generally a good idea to speak to a lawyer. They will inform you of your rights and responsibilities, and hopefully help you to embark on this new chapter in life with confidence.
