If you and/or your former partner worked during the relationship, you should have been paid superannuation, which may be held in a super fund, or maybe in a Self Managed Superannuation Fund (“SMSF”). When a person has an interest in a superannuation fund, they are referred to as a member of the fund. One of the main differences between say a large industry fund and an SMSF is the number of members – many SMSFs generally only have a handful of members.
All funds allow members to make binding death benefit nominations, which are commonly your spouse and/or children. If your relationship has broken down you should contact your fund to update your nomination.
Phases and payment of superannuation
Superannuation is in a growth phase when a member has not yet reached the preservation age, i.e. the member is still working and contributions are being made to the member’s superannuation, which is invested according to the member’s instructions to the Trustee of their fund.
Superannuation is in the payment phase when a member has reached a condition of release and money has been paid out of the interest. Money may be paid from superannuation as a lump sum payment, or an income stream (regular periodic payments, such as a monthly pension amount), or a combination.
How is superannuation treated in family law?
In any property settlement under the Family Law Act, though superannuation is treated as property, the Family Court prefers to treat it separately from other common types of property, such as real estate and ordinary savings held in bank accounts. This is because the asset is not held personally by the member, but on trust, and access to the asset is governed by the Superannuation Industries (Supervision) Act 1993 (Cth) (“SIS Act”).
In determining entitlements to superannuation divorce as part of a property settlement, the length of your relationship is one of many factors that will be considered. For more information about how entitlements are calculated, please click here.
What’s it worth?
Valuing superannuation is not always straightforward and an expert valuer may be needed where you or your former partner receive or will become entitled to receive an income stream from your fund.
An SMSF may hold a variety of asset types which may require individual valuations, depending on the nature of asset – for example, real property would require a valuation, as opposed to monies invested in shares on the Australian stock market.
When seeking advice about a property settlement, one of the first steps is looking at what the property pool is. It is common to calculate a property pool including superannuation, and a property pool exclusive of superannuation. This is because superannuation is subject to a splitting order, and the percentage or fixed amount of the split may be different to that determined or agreed in relation to non-superannuation assets and property.
Depending on the value of different types of assets, as well as your future needs (for example, your age and the age of any children of the relationship), having an overall view of the pool is useful in applying your entitlements in such a way that will be best suited to your future needs post-separation.
For example, if you have young children, access to funds in the present will be more useful than receiving a larger split of superannuation that won’t be available to you until you have reached preservation age and are permanently retired. However, if your children are all in school and you are working and have sufficient income to meet expenses, a larger superannuation split may better suit your circumstances, increasing the amount of superannuation you hold and will have available in the future to offset time taken out of the workforce as a parent and homemaker.
Splitting of Superannuation
When an agreement has been reached, or a decision handed down in the family court, as to the splitting of either your or your former spouse’s superannuation, the agreement or Order must be served on the Trustee of the respective member’s superfund. The Agreement or Order must contain sufficient information depending on whether the split if for a base figure, or is a percentage of payments. In some situations, accompanying documents will be required before the Trustee must comply.
Some individuals or couples establish a self-managed super fund (“SMSF”) to have more control and flexibility with their retirement savings and investments. Like other superannuation entities, SMSFs are managed by the SIS Act, must be governed by a Trust Deed, and have an appointed Trustee of the SMSF. Depending on how the SMSF was established and structured, the Trustee may be a corporate trustee (i.e. a corporation that may be controlled by either or both you and your former partner, or even a third party such as an accountant), or an individual trustee. If the latter, there must be a minimum of two and maximum of four individual trustees.
You will need to know who the trustee(s) are to serve any Agreement or Order on for the splitting of superannuation. If you are a Trustee, you have ongoing obligations in that capacity, including to act impartially in the administration of the trust.
What to do with the SMSF?
Firstly, if you are a Trustee, you need to be aware of any liabilities you have in relation to the SMSF. As with any superannuation held with any fund, you should also review your binding death benefit nomination and update this where necessary.
If you and your former partner hold your superannuation in the same SMSF, there are additional steps you may need to consider whilst negotiating and coming to a property settlement and in moving forward. For example, you will need to decide if you want to remain in that fund, open a new SMSF, or roll your superannuation over into an alternative fund. There may be supplementary considerations if any of your children are members of the fund.
You may want to wind up the existing SMSF and the steps involved here depend on the requirements in the SMSF’s governing Trust Deed, and whether the Trustee is corporate or individual. If there is a corporate Trustee, and you are a Director, there are additional formalities in winding up a company. An SMSF auditor will be needed to complete the final audit, and a final annual return will need to be lodged with the ATO.
Talk to our Superannuation Divorce Lawyers about the division of your assets in your separation.
Our experienced superannuation divorce lawyers in Sydney & Parramatta can provide discrete and practical legal support to help you make realistic and informed decisions. We are motivated to achieve a fair result, without unnecessarily worsening your existing family relationships. We understand that your first priority is to achieve smooth and discrete resolution of your family law matter.