For many couples, superannuation is the second-largest asset after the family home. For some (particularly those in their fifties and sixties, or with self-managed funds) it is the largest. Yet super is often misunderstood in separation: people either overlook it, or assume it is theirs alone because it is in their name.
Neither is correct. This article explains how super is dealt with when a relationship ends.
This is general information, not legal advice.
Superannuation is property
Since 2002, the Family Law Act 1975 (Cth) has treated superannuation as a type of property that can be divided in a property settlement. The rules are in Part VIIIB for married couples, with equivalent provisions for de facto couples.
Super held in either party's name (in an industry fund, retail fund, public sector fund or self-managed fund) is included in the asset pool. The court looks at the whole pool, including super, when assessing contributions and future circumstances.
Valuing superannuation
How super is valued depends on the type of interest.
Accumulation interests, the most common type, are valued simply at the member's account balance, which can be obtained from the fund.
Defined benefit interests, common in older public sector and some corporate schemes, are valued using a method prescribed by regulations, which can produce a figure quite different from the member's statement. Some defined benefit interests have substantial value even though they cannot be accessed for many years.
Self-managed super funds (SMSFs) are valued according to the value of the fund's assets, which may require property or business valuations, and each member's share of those assets.
To obtain information about a party's super, the other party can apply to the fund trustee using a prescribed form. The trustee must provide details of the interest and its value.
How super is divided
There are several ways to deal with super in a settlement.
Splitting orders or agreements
A splitting order (made by the court, including by consent) or a superannuation agreement (part of a binding financial agreement) directs the fund trustee to split a member's interest. The split can be:
- a base amount: a fixed dollar amount; or
- a percentage of the interest at the time of payment (sometimes used for defined benefit interests).
When the split is carried out, a new interest is created for the non-member spouse, either in the same fund or by rollover to another fund.
Offsetting
Instead of splitting super, the parties can leave each person's super where it is and adjust the division of other assets to compensate. For example, one party keeps their super, and the other receives a larger share of the home equity.
Offsetting is common, but care is needed. A dollar of super is not the same as a dollar of cash: it cannot be accessed until retirement, it is concessionally taxed, and its value will change over time. Whether a dollar-for-dollar offset is fair depends on the parties' ages and needs.
Flagging
Where a super interest is difficult to value, or the fund cannot currently be split, a flagging order or agreement can be made. A flag prevents the trustee from paying out the interest without notice, and the split is carried out later when the interest becomes payable.
Procedural fairness to the fund
Before a court makes a splitting order, the trustee of the fund must be given notice and an opportunity to object. Proposed orders must be drafted in terms the trustee can implement. Getting this right avoids delay, or orders that cannot be carried out.
Self-managed super funds
SMSFs bring additional complexity:
- Trustee roles
Both parties are often trustees (or directors of the corporate trustee). After separation, working together as trustees can be difficult. One party usually exits the fund, and their interest is rolled over. - Illiquid assets
SMSFs often hold real property or business premises. Splitting the fund may require selling assets or transferring them in specie, subject to super law restrictions. - Related-party arrangements
Business real property leased to a party's business, and other related-party investments, must be handled carefully to remain compliant. - Tax and duty
Transfers between funds as a result of a family law split may qualify for relief, but expert tax advice is recommended.
Timing matters
Super balances rise and fall with markets. Because the pool is generally valued at the date of settlement, a split based on a stale balance can produce an unintended outcome. For large or volatile interests, percentage splits or careful updating of values before settlement may be appropriate.
Super and contributions
Super accumulated before the relationship, or after separation, is still part of the pool, but the timing of contributions is relevant in assessing each party's contributions. In a short relationship, super accrued before it may be substantially preserved for the member. In a long relationship, the distinction usually matters less.
Death benefit nominations
Separation does not change your super fund's death benefit arrangements. If your spouse is your nominated beneficiary, or would be the default recipient as your spouse, they may still receive your super if you die before the property settlement is finalised. Review your nominations as soon as you separate, within the limits of any interim orders.
Practical steps
- Obtain current statements for all super interests in both parties' names.
- Identify the type of each interest: accumulation, defined benefit, SMSF.
- For defined benefit or unusual interests, obtain valuations under the prescribed methods.
- Model the options: split, offset or flag.
- Check the trustee's requirements before finalising orders or agreements.
- Review death benefit nominations.
How we can help
We regularly deal with superannuation in property settlements, including SMSFs and defined benefit interests. See property settlement and high net worth divorce.
This article is general information about the law as at the date it was last reviewed. It is not legal advice and does not take your circumstances into account.