After separation one or both of the parties to the relationship may seek a property settlement. This will require consideration of your assets, liabilities, financial resources and superannuation interests. Superannuation may be distributed depending on the type of interest held. The total amount of super to be distributed is determined on a case by case basis.
2. Who gets the Superannuation?
2.1. If parties agree
The parties to the relationship may agree on Superannuation entitlements. Such agreement may be made by Consent Order or Binding Financial Agreement.
2.1.1. Consent Orders
An application must be made to the Family Court of Australia for Consent Orders. The court reviews the agreement and approves it if deemed “just and equitable” or “fair” pursuant to sections 79 (for marriages) or 90SM (for a de facto relationship) of the Family Law Act 1975 (Cth) (the Act). The Court usually approves the consent orders without requiring your attendance.
2.1.2. Binding Financial Agreements
A Binding Financial Agreement may also formalise property issues including Superannuation pursuant to sections 90MH and 90MHA of the act. Unlike Consent Orders a Binding Financial Agreement does not require the agreement to be “just and equitable” or “fair”. This provides the parties with more flexibility.
If you have reached agreement and wish to formalise it please contact us for a discussion as to the option which best suits your needs.
2.2. If parties do not agree
If agreement is not reached and your matter proceeds to court then ordinary principles regarding a property settlement are applicable.
2.2.1. Just and equitable
The High Court decision of Stanford indicates that it must be “just and equitable” or “fair” to alter your property interests. It may not be just and equitable to make any adjustment in a very short marriage or relationship where no significant contributions have been made. In these instances both parties are entitled to retain their respective Superannuation Interests, and other property. It is rare for the situation to be that there is no alteration of property interests generally.
2.2.2. The four steps
Provided it is just and equitable to make a property distribution Hickey and Hickey indicates that property settlements generally follow four steps:
- The “property pool” needs to be ascertained. This is the total of all assets, liabilities and superannuation as part of your relationship;
- Both financial and non-financial contributions by both parties are assessed. These may include assets or liabilities brought into the relationship, finances such as salaries applied for the benefit of the parties throughout the relationship, and homemaker and parenting efforts;
- Consideration of adjustment factors, often referred to as “future needs”. There is a long list of factors under section 75(2) for marriages or section 90SF(3) of the Act. Some of these include: the need to care for children, the age and state of health of the parties, and the income discrepancies of the parties. Despite the common reference to “future needs” the listed factors are not solely needs based factors; and
- The court must look at the entire distribution to determine whether it is “just and equitable” or “fair”.
Dealing with Superannuation follows the same principles. However, as superannuation is very different in nature from other assets such as real estate and cash, sometimes superannuation is considered in one “property pool” and everything else is considered in a separate “property pool”, and then the steps applied separately to the two separate pools. When this happens, it is common that the Step 3 (adjustment factors) has a different result given that the needs issues of the parties will likely be less disparate at retirement age, given the children will be grown up and both may only have limited income.
An alternative possibility is that superannuation is distributed in the same terms as all other property. For example if a court orders 60% of the total property to the Wife and 40% to the Husband, the parties’ total superannuation is likely to be divided approximately 60% to the Wife and 40% to the Husband.
If you are among the tiny minority for whom a Judge decides your property settlement, it is at the Court’s discretion as to how superannuation is to be distributed. When considering an agreement, there may be significant advantages or disadvantages to you in whether superannuation is treated separately, or indeed whether there is any distribution at all.
3. How is Superannuation Distributed?
Superannuation is very different in nature from other property. Most people cannot access superannuation until they are 65 years old and retired whereas other property such as real estate and cash is immediately available cash may be used immediately. Therefore complex provisions are made in the Act about how superannuation payment splits and payment flags are to be made in order to effect a distribution of superannuation.
3.1. Payment Split
A Super payment split allows for a percentage or dollar amount split pursuant to section 90MJ of the Act. Although a complicated mechanism, the effect of this split is that one party’s superannuation fund pays a sum into the other party’s fund.
Most 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 not troublesome.
A relatively small amount of superannuation interests, mainly in the public sector, are defined benefit interests. Although members of these types of funds will receive member statements providing a dollar value for their interest, that dollar amount is not the value used for family law purposes. Instead there are detailed formulas to work out the family law value of these interests. These types of interests require careful consideration of various factors, and often require input from an appropriately experienced accountant.
A growing number of people hols superannuation interests in their own self managed superannuation funds. Every fund, and how the fund holds its assets, is very different. This therefore necessitates very careful consideration of how a payment split could be effected at all. It may be that assets need to be disposed of to liquidate funds, and there may also be significant tax concerns about these types of funds.
3.2. Payment Flag
A Superannuation interest may be flagged pursuant to s90ML of the act. This flagging prohibits the Superannuation trustee making any payment while the flag is operational. This is rare but may be desirable in certain circumstances.
At Sarah Bevan Family Lawyers we specialise in Separation & Divorce matters. As specialists we are able to provide you with expert advice to optimise your superannuation interests. Our expert guidance may make substantial differences to the quality of your retirement when your superannuation is accessible.
Talk to one of our Superannuation & Divorce Lawyers today (02) 9633 1088