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What happens to my superannuation when I divorce?

The Australia Family Law Act 1975 treats superannuation as if it were property, however it differs from other types of property as it is held in trust and subject to legislation which places restrictions on how and when it can be accessed.

22 June 2023

By: Stephanie Reid

What happens to my superannuation when I divorce?

The superannuation splitting laws in the Australia Family Law Act 1975 allow separating couples to divide their superannuation as part of their family law settlement. A ‘superannuation split’ occurs when one party’s superannuation interest is divided and ‘split’ so that a payment is made from their fund to a fund nominated by their former spouse or partner in satisfaction of a settlement agreement or a Court order.

The Australia Family Law Act 1975 treats superannuation as if it were property, however it differs from other types of property as it is held in trust and subject to legislation which places restrictions on how and when it can be accessed. One effect of these provisions is that splitting superannuation does not convert it into a cash asset, instead the funds are invested in a superannuation fund and remain subject to the conditions of release set out in the legislation.

Am I entitled to a superannuation split or will I need to pay super to my ex?

You may be entitled to a superannuation split or be obliged to split your superannuation if you were married or in a de facto relationship and have now separated.

A party seeking superannuation splitting orders must:

Be a party to a marriage; or,
Have been in a de facto relationship for at least 2 years; or,
Have a child to a de facto relationship; or,
Have made substantial contributions during a de facto relationship of less than 2 years.

How much of my ex-partner’s superannuation am I entitled to? How much superannuation will I have to pay?

In a long relationship, where neither party had substantial superannuation at the beginning of the relationship, superannuation interests are typically ‘equalised’. An equalisation of superannuation is a relatively simple process where:

Documents are exchanged to evidence the balance of each fund held by each party;
The value of each fund is agreed;
The balance of the funds are added together and divided in two;
Orders or a Financial Agreement are drafted to provide for such amount as is required to effect an equal division to be split from one party’s fund and transferred to a fund held by the other party;
The proposed orders or Financial Agreement are sent to the superannuation fund which will be required to effect the split for review and approval (this step is referred to as ‘procedural fairness’ and is required by legislation).

However, it is open to parties to negotiate a superannuation split tailored to their specific needs as part of an overall settlement package. For example, one party may seek a greater share of the cash assets in order to purchase a property, while the other party may prefer to retain their super. The party seeking the cash assets may concede their superannuation entitlements in order to negotiate a greater share of the cash assets at settlement.

How long after a separation or divorce can I make a claim for superannuation?

Time limits apply to parties who need to apply to the Court for orders splitting superannuation.

Parties who were married must apply to the court for superannuation orders within 12 months of the date on which their divorce order took effect. Parties who were in a de facto relationship must apply to the court for superannuation orders within 2 years of the date of separation.

Beyond these limitation periods, the Court may grant leave to a party to a marriage or de facto relationship to proceed out of time where that party can establish that they will experience hardship if leave is not granted. This can be a very expensive and complicated process and there is no guarantee that the court will grant the leave, so it is important for parties and their lawyers to be aware of time limits.

What documents do parties need to exchange? What if my ex-partner doesn’t disclose their superannuation entitlements?

The Federal Circuit and Family Court of Australia (Family Law) Rules 2021 require parties to a marriage or de facto relationship to make full and frank disclosure of their financial circumstances, including their superannuation entitlements. At a minimum parties must exchange their superannuation member statements, however if their superannuation entitlements are held in a self-managed superannuation fund the following documents will need to be exchanged:

The Trust Deed;
The financial statements for the last three (3) years;
The Member Statements for the last three (3) years;
A Register of Complying Superannuation Funds (RoCS) Search report.

If your ex-partner refuses to make full and frank disclosure, you or your lawyer can apply directly to the fund’s trustees for information about their entitlements provided the request is made in order to enable you to properly negotiate a superannuation agreement, or to assist in connection with family law proceedings relating to the superannuation interest.

At Empower Family Law & Mediation we understand the value negotiating a settlement that suits your unique circumstances. We have the experience to help you tailor a settlement that takes proper account of superannuation entitlements and achieves the best outcome for you.

What about defined benefit superannuation funds?

Some employers offer defined benefit superannuation schemes which guarantee a specific amount on retirement. Despite being increasingly rare, there are some corporate and public sector superannuation funds which still offer defined benefit schemes to employees.

Defined benefit funds provide benefits to members in accordance with a pre-set formula which is specified in the fund’s trust deed. The formula accounts for the member’s length of employment and their salary level at retirement. The purpose of a defined benefit fund is to offer fund members a guaranteed amount of superannuation income in retirement.

Because of the complex rules which apply to calculating contributions and benefits, defined benefit funds are difficult to precisely value. Parties seeking to split a defined benefit superannuation as part of a settlement will require expert accounting advice and, most likely, a valuation to ensure the value of the fund is properly accounted for.

What about self-managed superannuation funds?

Self-managed superannuation funds are private funds which are managed by the parties themselves, usually with the assistance of their accountant. Self-managed superannuation funds are established under a trust structure and are required to operate for the sole purpose of providing retirement benefits for its members. Self-managed superannuation funds can be comprised of numerous different assets and investments, making the valuation process complex.

Accurately determining the value of the fund is a vital step. While the financial statements of the fund will confirm the values of the asset classes held by the fund at the time the report was produced, the financial statement may be out of date or inaccurate. As the values in the financial statements are based on advice provided to the fund’s accountant, usually by the holder of the fund, the values may not be accurate and disputes can often arise as to the true value of the assets in the fund. If a dispute arises as to the value of a fund, an expert valuer will need to be engaged to produce a valuation report.

Splitting a self-managed superannuation fund will typically involve restructuring the fund to comply with superannuation regulations and laws as well as splitting the assets. The asset transfers can be complicated and may present tax challenges, for example there may be tax implications arising from asset transfers or there may be Capital Gains Tax rollover relief provisions available. To ensure these complexities are properly accounted for, it is important to obtain expert advice when considering how to structure a settlement agreement.

At Empower Family Law & Mediation we regularly engage expert forensic accountants and valuers to assess self-managed superannuation funds and to advise on the taxation implications of settlements. We can put you in touch with our network of trusted professionals to assist in valuing and splitting self-managed funds.

Formalising the split

Superannuation splits can be formalised either by Court order or a financial agreement.

Once the superannuation interest becomes subject to a payment split, the non-member spouse generally has the following options:

To create a new interest in the same fund;
To transfer or rollover the interests into another complying fund including a new SMSF or industry regulated superannuation fund; or
Receive the amount as a lump-sum payment if the non-member spouse has met conditions of release under superannuation laws (this option will apply only where the non-member spouse can satisfy the fund’s conditions of release).

Superannuation splitting rules are complex and may require the advice of accountants, financial advisers and family lawyers working collaboratively to determine what options are feasible under the various rules and regulations, to determine how best to structure a proposed split from a superannuation law and tax perspective.

What if we cannot agree about how to divide superannuation?

If you and your ex-partner cannot reach agreement about how to divide your superannuation interests, you can apply to the Court for an order.

Under Section 79(1)(a) and Section 90SM(1)(a) of the Family Law Act, the Family Court and Federal Circuit Court of Australia are empowered to make orders altering the interests of the parties to a marriage or de facto relationship in property.

Contact us today for expert advice in relation to your superannuation entitlements and family law property settlement.

What if my ex-partner or I had substantial amounts of superannuation when we met?

Superannuation entitlements which existed at the commencement of a relationship must be taken in to account as a contribution made on behalf of the party who held the entitlement. If the value of the interest has increased during the course of the relationship, it may be necessary to take account of both its value at the commencement of the relationship and the value at the end of the relationship, and to assess the contribution in light of the myriad of other ways each party has contributed during the course of the relationship.

The Court’s preferred approach when taking account of superannuation entitlements is the two-pool approach which deals with superannuation entitlements as separate from non-superannuation assets. The two-pool approach allows courts to assess contributions differently to superannuation than to non-superannuation.

There is significant caselaw that guides the assessment of superannuation entitlements that existed at the commencement of a relationship. Prior to December 2002, when superannuation could not be split, courts and legal practitioners sometimes used formulas to calculate the amount of “extra” non-superannuation assets which the non-member would receive to adjust for the member retaining all of their superannuation. However, since the commencement of the superannuation splitting regime, the Court has been critical of formulaic approaches and has instead preferred approaches which “quarantine” pre-separation contributions to superannuation but also take account of:

The totality of the parties’ contributions to the superannuation and non-superannuation assets and any relevant ‘future-needs’ factors which are relevant and whether the overall outcome is ‘just and equitable’ to both parties;
The relationship between years of fund membership and cohabitation;
Actual contributions made by the fund member at the commencement of the cohabitation (if applicable), at separation and at the date of hearing;
Preserved and non-preserved resignation entitlements at those times; and,
Any factors peculiar to the fund or to the spouse’s present and/or future entitlements under the fund.

Assessing the weight to be given to pre-cohabitation superannuation entitlements is complex, however it is important to obtain accurate advice about your options. Contact us today for advice.

What about overseas superannuation and pension entitlements?

For many reasons, parties separating in Australia may have accumulated superannuation or pension entitlements overseas. Like Australian superannuation entitlements, overseas superannuation funds and pensions have a range of access requirements, for example some foreign super funds cannot be accessed unless a member is both a citizen and resident in the country of the fund at the time of retirement.

The Federal Circuit and Family Court of Australia’s jurisdiction in respect of splitting superannuation interests is limited to entitlements held within Australia. Overseas superannuation interests therefore generally cannot be the subject of splitting orders. This raises the issue of how they ought to be considered amongst the various other superannuation and non-superannuation assets.

The 2006 case of Lesbirel v Lesbirel suggests that foreign superannuation should be treated as a financial resource in the possession of the party who is entitled to receive it. A financial resource is something which is not considered property to be included in the asset pool. Instead, it is a factor to be taken into consideration by the Court as it offers future financial benefit to one party. An item that is classified as a financial resource may not be subject to division, however the Court may decide that it is fair for one party to receive a greater share of financial resources than the other party, and to adjust the remaining property and financial resources to achieve an overall division that is just and equitable to both parties.

Accounting for foreign superannuation entitlements and pensions is complex and contested. If you or your ex-partner hold overseas pension or superannuation entitlements, contact us today for advice.