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Divorce and superannuation: Splitting retirement savings

What will happen to your superannuation following separation? How is superannuation division decided? How can you arrange to split super with your ex-partner? Find out more in this article.

 

Divorce or separation is rarely easy. On top of emotional hardship, organising the logistics of financial separation can be confusing. It’s important during times like this to remember to be kind to yourself and seek help when you need it.

In Australia, as many as 49,000 divorces are granted each year, and the median duration of marriage before separation is less than nine years, according to the Australian Bureau of Statistics. However, every separation is different – uniquely defined by the people, emotions and accounts involved.

If you’re experiencing a separation or divorce, there are a number of financial considerations that must be taken to protect your short-term and long-term wellbeing. Superannuation is just one of these concerns. In this article, we’ll address what needs to happen to your superannuation to ensure your future is protected.

 

If you would like to discuss your options and how you might manage it from a financial perspective, please get in touch.

 

What will happen to your superannuation following separation?

Separation typically leads to a division of your assets and debts, whether held separately or together. Superannuation is included in this and is considered a type of property. Even if one partner hasn’t contributed to superannuation for many years, they may still be entitled to some of the other’s super.

 

It’s important to know that the same rules apply to both marriage and de facto relationships, heterosexual or same-sex. However, Western Australian legislation doesn’t extend superannuation splitting laws to de facto couples, though the Commonwealth Government has announced its intention to amend this throughout 2019.

 

There are three main options for splitting superannuation upon separation:

  1. Split the super. The most common way of dealing with super in separation is to divide the value of the super immediately. Unless you have met a condition of release (usual retirement), the benefit cannot be split as cash and must remain within the super system.
  2. Flag the decision for later. In some cases, you may wish to delay the division of super until after a specific event – such as the maturation of an investment or a partner’s impending retirement. Flagging defers the decision until later and makes it impossible for the interests to be paid out before a flag-lifting agreement is completed.
  3. Take super into account, but do not split it. Another option, typically the default for de facto couples in Western Australia, is to take the value of the super benefits into account when splitting other financial assets. In this case, super is left untouched but used to determine a fair division of assets.

 

divorce and super 1

Before going your own way, ensure your superannuation has been split fairly

 

How is superannuation division decided?

You and your ex-partner can form a superannuation agreement before, during or after your relationship. This is a written, binding document which determines how super will be split upon separation or divorce.

If you don’t have a superannuation agreement in place but have both agreed how you’d like to divide your super, you can file an Application for Consent Orders. You don’t need to attend court for the consent order to be formalised.

Finally, if you’re unable to reach a consensus, you might look to obtain a court order. In this case, you and your former partner will be required to attend family court and a judge will determine how super will split.

 

divorce and super 2

Move forward with confidence knowing your super is safe.

 

How can you arrange to split super with your ex-partner?

There are a number of steps to follow to organise the division of your super.

Step One

Seek a current valuation of both you and your partner’s superannuation. You’re legally entitled to this information but must provide your partner’s fund with the forms in the Superannuation Information Kit available via the Family Court website. If your super is held in a self-managed superannuation fund (SMSF) you’ll need to seek a valuation from an accountant or actuary.

You don’t need to complete this step unless you’re seeking a court order, but it’s generally a good idea to know what you’ll be splitting.

Note that some funds may charge a fee for providing information.

 

Step Two

Under legal guidance, reach an agreement with your partner about how you’ll split superannuation. It’s important to take everything into consideration, including non-financial contributions to the relationship (childcare, for example) as well as your respective financial situations.

If you cannot agree, you will instead need to seek a court order.

 

Step Three

File the right documents with the Family Court online. These are:

 

Step Four

Your partner will need to respond to the initiating application, providing their own financial statement and affidavit.

 

Step Five

Once the consent order or court order has been issued, you must provide your super funds with a sealed copy of the orders as soon as possible.

 

divorce and super 3

Don’t be afraid to seek financial advice before, during, or after a separation.

 

Seeking financial advice during separation

It’s not unusual to want to avoid dragging a separation out and split superannuation and other assets as quickly as possible. However, doing so may lead to significant financial consequences down the line.

If you’re experiencing a separation, it’s important to know your rights and protect your wealth. You may also need ongoing financial advice to ensure you keep on your feet. You may feel like resisting more advice during this difficult time, but we’d recommend an initial meeting at the least to see if it makes sense for you. There is no cost for the first meeting with a Financial Adviser.

 

Clarify your financial picture

At any time of your life, the role of a Financial Adviser is to help you understand what is important about money to you, what you have and what you need to realise your goals and dreams, With this information at hand, they can help you map out what your best possible life can look like. When going through a divorce, you may find that your goals change and that the things that were most important to you change as well. Working with an adviser can help you form some clarity around what all that means for you and the resulting financial implications.

 

Buffer emotion

One of the biggest impacts on our financial performance over our lives is emotion. It is in our nature to cloud judgement when fear, stress or worry are running high. Equally, we can make riskier than normal decisions when we are feeling a rush of freedom or confidence. Given you can expect all of those emotions to play a part in your life as your relationship ends, having someone else to work with on your money during this time is a great defence strategy. Financial advisers, by defining your best plan forward, are here to help you stay true to your plans and prevent rash money decisions. Let an adviser provide objective and informed advice before you commit.

 

Regain confidence

Irrespective of what your financial life was like before your divorce, there is a very high chance it will change afterwards. This ‘newness’ can be very unsettling. By working out a clear plan with an Adviser, you will have clarity and therefore, confidence, about what your future financial life looks like.

 

To speak with a trustworthy, compassionate financial adviser, reach out to Invest Blue today or book an appointment.

 

What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.


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