Splitting the Nest Egg: Separation and Superannuation

Article 25 July 2019

Splitting the Nest Egg: Separation and Superannuation

When couples separate or divorce, one of the first steps taken is usually to formalise the division of their assets and property.  The vast majority of couples are able to negotiate a property settlement either on their own if the separation is amicable, or as we would recommend, with the help of experienced family lawyers.  Formalising a fair and equitable division of their assets at the time of separation can help to reduce the potential for future disputes or disagreements over money and help a couple to move on with their lives.

In addition to any money held in bank accounts, the property ‘pool’ that is to be split between the parties concerned might include their residential home, real estate investments, company shares, goods such as cars, furniture, jewellery and so on.  One of the more contentious assets is superannuation.  

Since the introduction of compulsory superannuation schemes in 1992, superannuation has become one of the single biggest assets held by many Australians.  When one party holds significantly more in their superannuation than the other, for example where one parent has continued to work whilst the other has taken time out to raise the family, it can become a sticking point in the negotiation of a property settlement.

Superannuation in a Property Settlement

Superannuation is very different in nature from other property.  Most people cannot access their superannuation until they are 65 years old and retired, whereas other property that may be included in a property settlement - such as real estate or cash - is either available immediately to split, or can be sold off and split without any further intervention. 

As a result of the unique nature of superannuation, provisions have been made in the Family Law Act regarding how superannuation payment splits and payment flags are to be made when undertaking a distribution of superannuation funds.

A Super payment split allows for a percentage split, or a split based on a set dollar amount, pursuant to section 90XJ of the Act.  Although it is a complicated mechanism, the usual effect of such a split is for one party’s superannuation fund to pay a sum of money into the other party’s fund.

The payment essentially levels the playing field and forms part of the other person’s superannuation payout to be accessed on retirement.  

The majority of superannuation interests are known as accumulation interests, which have “dollar amount” balances. These types of superannuation interests are the simplest to deal with, and payment splits are generally trouble free.  A relatively small amount of superannuation interests (mainly from within the public sector), are defined as “benefit” interests and run very differently from the usual superannuation fund structure.  Whilst a split is still possible, these require careful consideration of various factors, and may require input from an appropriately experienced accountant to manage the process.

When people run their own self-managed superannuation funds, the way in which the fund holds its assets is often unique and can vary from fund to fund. This necessitates careful consideration of how a payment split might occur and, in some cases, it means that the assets must be disposed of to liquidate funds prior to splitting.  This may result in significant tax implications and an experienced accountant will be required to ensure parties are aware of their obligations, and the possible outcome.

Determining the Split Amount

The most important point to note during a separation is that every property settlement is different. Some couples will incorporate a superannuation split into their property settlement, others will divide the real estate and other assets a certain way but choose to leave the superannuation as it is.

The key to a successful division of property is to ensure the settlement is fair and equitable and that It takes into account each parties’ contribution to the relationship.  The best possible way to ensure a good outcome, is to seek advice and representation from an experienced family lawyer.  The team at CDQ can advise you on the best way to approach a property settlement, whether superannuation should be included and if so, how much, as well as negotiating the arrangements on your behalf.

For more information on how superannuation is treated in a property settlement contact CDQ on ph: 02 8566 2400.