Gone are the times of matrimonial longevity. Instances of relationship breakdowns are far from uncommon, with the Australian Bureau of Statistics indicating that as many as one in three marriages end in divorce.

The division of assets is among the key issues needing to be addressed whenever a relationship breaks down, with superannuation one of the biggest assets of any long-term partnership.

Changes to the Family Law Act in 2002 and further amendments in 2005 have now accorded superannuation the same status as any other asset of a long-term partnership that can be split between individuals in the partnership. Now there are “splitting superannuation” laws which means to split a member’s superannuation benefit and allocate a certain portion of the benefit into the superannuation account of that member’s spouse, either within the same fund or rolled over into a newly nominated fund. The laws apply to married couples as well as de-facto couples, which includes same sex couples, in most states and territories.

Couples can work out what proportion of a superannuation interest will go to each person through a financial agreement if the relationship breakdown is amicable. If the breakup is acrimonious, however, and lawyers are involved, the Family Court has a four step process through which it will go when assessing any parties’ interest to the division of superannuation:

• Ascertain and value the asset pool
• Assess the contributions by both parties – both direct and indirect, financial and non-financial (contributions “made in the capacity of homemaker or parent” are always taken into account and it is immaterial if one partner was the sole financial contributor to the super fund)
• Consider the future needs and income-earning abilities of both parties
• After having considered steps 1-3, make orders which are fair and equitable.

Splitting superannuation does not convert it into a cash asset as it is still subject to superannuation laws – such as the fact that it is inaccessible until a person reaches preservation age.

In the event of any relationship breakdown and superannuation split, you need to obtain valuation information for your super benefit and decide on a method to split the superannuation – both of which we go into below.

STEP 1: OBTAIN VALUATION INFORMATION

The value of your superannuation is contingent upon the type of fund to which you belong. The table below summarises how you obtain valuation information for each fund.

STEP 2: DECIDE THE METHOD OF SPLITTING

The options for splitting superannuation are to:

• enter into a formal written agreement (a formal written agreement requires that both you and your partner instruct a lawyer who must sign a certificate stating that independent legal advice about the agreement has been given. If this agreement is made, you do not need to go to court but each person must retain a copy)
• seek consent orders to split superannuation, or
• seek a court order where agreement cannot be reached.

A splitting order divides a superannuation
entitlement between a member and a non-member of the fund. There are three ways to split a superannuation interest, by specifying:

• the base amount of the superannuation benefit which the non-member spouse will receive. The base amount is a dollar amount upon which the parties agree the non-member will receive from the member’s superannuation interest
• a method by which a base amount can be calculated, or
• a percentage which the non-member spouse will receive.

The most common splitting method is the base amount method. In a case where both husband and wife are working and have accrued their respective superannuation, one spouse will be the recipient of a superannuation benefit – thus according them the “non-member” spouse title.

Dividing the super fund can see one portion rolled over to another account in the same fund in the name of the “non-member spouse” or transferred into another fund altogether. The tax-free and taxable components are determined and proportionally split between the two. A roll over within the same fund will generally be tax-free to the fund. Anything that happens to the non-member spouse’s balance, like contributions, investment earnings and benefit payments, will be subject to the usual tax laws.

Investment earnings may be divided in the pre-retirement phase either as an agreed amount or percentage. Interests divided in the payment phase (when the member is a recipient of pension and an income stream has already commenced for the “member spouse”) are divided as a percentage of the regular pension payments. In most cases, the income stream will be stopped while the benefit is divided and recommenced under the new arrangements.

Alternatively, parties can defer their agreement about how a super interest is divided by “flagging” the super interest, preventing a trustee from making any payments out of it until the flag has been lifted. “Flagging” may occur because there is a case for maintaining the account and dividing it later, especially where doing so is likely to lead to greater growth of the final amount.

Splitting superannuation is complex, so be sure to consult this office on all matters pertaining to it in the unfortunate event of a relationship breakdown.