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Managing Superannuation
Divorce and Superannuation
Peter Skinner1
The treatment of superannuation changed dramatically from December 2002 as a result of changes to the Family Law Act. Superannuation is now no longer a shadowy asset to be considered in some vague and inconsistent way when the property pool is being divided.
Today, the valuation of superannuation is prescribed, it can be protected pending property settlement and it can be split between the husband and wife. Couples can even enter into an agreement which will determine how the superannuation will be split if the marriage fails.
These are all big steps and give certainty and equity in the treatment of superannuation in divorce. So what are they? Who does it apply to? What do I need to do? What are the next steps? All fair questions. Firstly, superannuation splits are only available to married couples and not those in a defacto relationship. Next, we need just a little discussion on the types of superannuation as most is relatively straightforward but the remainder are quite complex. So you need to know first and foremost what type of super you have or you may be entitled to.
Most super comes from what the employer must pay – about 9% and these monies go into an accumulation account. Here it grows at whatever the fund earns. About 85% of aussie workers have accumulation accounts these are relatively straight forward when dividing the property pool. The remainder are in more complex super arrangements with the majority belonging to defined benefit funds. In these schemes, the end benefit is defined – normally by years of service, contributions and final average salary.
Accumulation schemes go into the property pool at whatever their value is at the appropriate date such as date of separation or court hearing date. So they do not need to be valued. Accumulation accounts are easy to split so part of the super can be allocated to the spouse – either by agreement or by a Court order.
Defined benefit schemes need to be valued – the biggest mistake is to take the member’s current balance off their member statement and put that value into the asset pool. You will need to approach a specialist in valuing superannuation. Whilst some defined benefit schemes can be split and allocated to the spouse, some are very restrictive and you might not be able to access the split super until your ex spouse retires. Seek professional assistance if this applies to you.
There are tax and social security consequences as a result of a super split. Be aware that most super is taxed and if super is being swapped for a non taxed asset, such as the family home, you need to take the tax on super into consideration. Further information on social security can be found at www.facs.gov.au
Spouses can get information about their partner’s superannuation by approaching the Trustee of the superannuation scheme and lodging what is called a Form 6 – or Superannuation Information Form. These are available at the Family Court web site - http://www.familycourt.gov.au
If you want to make sure that the superannuation will still be in the account for property settlement purposes, you can “flag” the superannuation interest. This prevents the Trustees from paying out any benefits without reference to the Courts.
You will also need to give consideration to the type of orders to split superannuation. You can have a base amount or a percentage split. Different orders apply in different circumstances so seek professional assistance.
1. Peter Skinner is the principal of SuperValuers and PGS Superannuation Consulting Pty Ltd. |