Divorce is one of the most stressful life events someone can go through. You are dealing with the emotional stress of the end of a relationship. You also have to deal with arranging your future, however you can't focus on your future until you settle your past. This means managing your superannuation, along with the rest of your property.
According to the Australian Bureau of Statistics, almost 50,000 divorces were granted in 2020. Prior to a divorce, the average marriage lasts 12 years. In half of all divorce cases, there are children involved. Every separation or divorce is different, and each will have its own challenges.
During the separation and eventual divorce, you have to do a lot of planning, both short and long-term, and protecting your financial assets is a major aspect. If you’ve spent many years working, it means you’ll also have a good amount in your Superannuation. But how is that impacted when you separate? Let’s take a look.
Managing Your Accounts
The first step in divorce property settlement is to protect your financial future by taking stock of your assets and debts. Additionally, you need to set up new accounts in solely your name to protect your income and other ongoing financial gains. Part of this accounting should include the details required to access your superannuation fund. If you're unsure of the details, you can register with myGov using your Tax File Number to track your accounts. As of 2020, around 30% of Australians had multiple superannuation accounts. That might not sound like a bad thing, but multiple accounts could result in unnecessary fees, charges, and reduce your overall retirement fund. Luckily, you can transfer all your accounts into one main account.
If you want to prevent new debt in your name in the property settlement after separation, ensure you cancel all shared streams of credit, such as credit cards or store accounts. Have your information removed from rental agreements or bills that no longer fall under your responsibility. As it unfolds, you will have to face a variety of financial challenges, and detailed checklists can help you keep track of things during your divorce.
Superannuation does form part of your divorce because it is viewed as part of your property pool. Like every other asset, an agreement between you and your former spouse can divide it. Or, you can seek a court order if you cannot agree on your own. This is true of both marriages and de facto relationships. Though, in Western Australia, this rule does not apply to de facto couples.
You have three choices when determining what happens to superannuation benefits during a divorce.
Whether it is by a court order or your own agreement, you can choose to split your superannuation as you do with the rest of your assets. It doesn't convert the super into cash. It remains subject to the same preservation laws as it has always been. It will remain safe in superannuation until you reach preservation age or satisfy the conditions of release.
You may opt to defer the decision until retirement. You can wait for retirement, or another event, by setting a flagging agreement. This will prevent any superannuation payments from being released until the flag is lifted. It's not a common approach to superannuation by any means. However, there are situations where it is an appropriate path forward. When one party is fast approaching the preservation age, you can have a flag placed on both superannuation accounts to prevent withdrawals before you have reached an agreement.
You may prefer to divide all of your other assets and leave your super accounts untouched. You can still consider their value but leave them as is.
The Common Outcome
From the three options above, the most common approach to managing superannuation during a separation or divorce is splitting. Here’s how it works.
To start with, the total value of the superannuation will be calculated. You need accurate figures as to what value is in each account. You are entitled by law to request this information. However, to access this information, you will need to complete a form.
You need to secure legal advice before you try to broker an agreement. If you cannot come to an agreement, you may seek a court order. There are a variety of considerations to take into account when you decide how to split your superannuation. For example, a spouse's non-financial contributions to the marriage, such as childcare. A court can also consider the post-divorce financial positions of both parties.
Once an agreement has been reached, or a court order issued, a copy must be sent to the super fund.
Getting Legal Advice
The rules that surround superannuation and divorce are complex and you need to be aware of the property settlement time limit. So, even if you have a good relationship with your former spouse and things are amicable and mutual, you should always consult legal advice to protect your fair share, as well as offer legal advice to ensure you comply with the relevant laws.
Additionally, there are fees involved with actioning super fund requests. For example, there are administrative costs attached to payment flags, lifting the flag, orders terminating a flag, a payment split, and even the application for information.
The situation is more complicated if a self-managed super fund is involved, especially if the other partner is a trustee. The trustee still holds the same responsibilities despite the breakdown of the relationship. You must act in the best interests of the member, and per the law, despite your personal interest. For example, you cannot exclude a trustee if a decision must be made, you cannot ignore requests, or take any action now permitted by law. The sooner you seek legal advice the better off you will be.
Once you separate from a spouse or de facto partner, you should immediately make changes to your will and your superannuation beneficiary nomination. You can change this at any time. Seek legal advice and assistance as soon as possible from the family law property settlement experts at AJB Stevens. Separation and divorce are stressful, challenging, life-changing events and our team is here to assist with the property settlement process, and to make your life easier and your future brighter. Get in touch today.