In general, when you separate from your partner and have to divide your property, superannuation is treated like any other asset. Our clients sometimes argue that “my spouse has not put anything into my super. Why should he/she get any of it?” The answer is quite clear – the efforts of both parties during the marriage, as a team, have facilitated the ability of one spouse to contribute to super. Thus, it is a joint asset.
An interest in a superannuation fund can be divided on the breakdown of your relationship and the division of superannuation entitlements may be implemented through Court Orders or through a Superannuation Agreement entered between the parties themselves. The process is quite straight forward and merely requires that the superannuation interest be valued, and that you decide, and hopefully reach agreement, on how you want to split it.
Mostly, the valuation process involves reading the regular statement issued by the super fund. The amount on the statement represents the value to be divided. The valuation process can become more complicated for particular types of superannuation called Defined Benefit Funds. These are usually confined to Government employees such as police, defence force personnel, judges, and the like. There can also be complications valuing a superannuation interest where the beneficiary is receiving, or will receive, a pension, rather than a lump sum.
Once the value of your superannuation is decided, you can achieve a split by transferring a specific percentage of your fund to your spouse.
The super that is split off from your fund must be rolled over into another superannuation fund for your spouse. In other words, you can’t just withdraw the agreed amount from your super and pay it as cash to your spouse.
It is possible, however, to avoid a division of superannuation by altering interests in other property, by way of a trade-off. For example, instead of giving your spouse a share of your super, you could keep all of your super and give your spouse a greater share of the other assets. Your overall percentage entitlement to all of assets would be unaltered, but how those assets are taken by each party could be innovative.
This is a very useful method for dealing with individual preferences, in specific cases, especially as superannuation often represents a very large proportion of the assets to be divided. If a party has special reasons for wanting to retain a house (such as for housing young children), the parties may agree to give the house to one party and the superannuation to the other. This may suit the party receiving the superannuation because:
• they are nearing retirement age when they will be able to access the funds, or
• they have a good income, can borrow to rehouse and want the tax benefits of retaining the super fund.
Flexibility, when dealing with superannuation at the end of a relationship, can present the parties with an ideal opportunity to manage issues such as the cost of affording a new house and the tax advantages of superannuation. At Watkins Tapsell, our aim is to work with our clients to find clever solutions that complement future plans after the end of a relationship.
For further information, contact the Family Law Team.