Key Takeaways:

• Superannuation is included in the property pool when couples separate.
• It’s valued differently from other assets and can sometimes be complex.
• There are several ways to deal with superannuation in a separation, depending on your situation.
• Different types of funds may require different approaches.
• Understanding these options can help you work out what a fair outcome looks like.

Navigating a property settlement after separation can be overwhelming, particularly when major assets like superannuation are involved. In any instance, superannuation plays a significant role in the financial future of most Australians. 

When a marriage or de facto relationship breaks down, understanding how superannuation is treated is essential to achieving an appropriate property settlement. Although superannuation is a unique type of asset, often not available to withdraw from until retirement, it’s nonetheless considered part of the overall property pool and can be divided between two separating partners.

As superannuation forms part of the property pool available for division,  it’s crucial to have the superannuation interests valued to ensure it is accurately reflected in the asset pool. 

 

Valuing Superannuation in a Divorce or Separation

It’s important to know that superannuation is not treated like cash or other liquid assets. Because its value is tied to specific fund rules and accessibility conditions, the law has developed special mechanisms for identifying, valuing, and dividing these interests.

To expand on this, superannuation can take various forms, such as accumulation accounts, defined benefit funds, self-managed superannuation funds (SMSFs), and government schemes. Valuing the superannuation interest depends on its nature.  For example:

• Accumulation funds are valued at the current account balance.  This is usually achieved by making a formal request to the relevant fund for a valuation via a Superannuation Information Request Form.
• Defined benefit funds require a specialist valuation, often requiring an expert to be appointed to value the interest, as benefits depend on formulas (e.g., salary and years of service) rather than a simple account balance.
• SMSFs require detailed valuation of underlying assets, including property or business interests.  

Depending on which type of account the two separating partners have, superannuation can be dealt with in many different manners.  

 

Superannuation Splitting Orders 

A superannuation split allows a portion of one partner's super to be transferred to the other, however,his doesn’t provide immediate access to the funds.Any amount transferred as part of the divorce becomes part of the receiving person’s superannuation and remains subject to the same preservation rules (not accessible until retirement).

A splitting order can be:

• By consent: As part of a Binding Financial Agreement (BFA) or Consent Orders; or
• By court order: If the parties cannot agree and litigation has commenced.

Splitting orders can specify:

• A base amount, which is a “fixed dollar amount”; or
• A percentage split of the member's entitlement.

 

Flagging Orders 

A flagging order prevents the super fund from paying out benefits until a specific event occurs.  These types of orders “freeze” a parties’ superannuation, stopping them from accessing and/or withdrawing funds, before a final property settlement is made. 

A flag gives the parties time to:

• Obtain proper valuation;
• Negotiate a settlement; or
• Allow the court to make orders once the entitlement crystallises.

 

Offsetting Against Other Assets 

Instead of splitting superannuation, the two separating partners  may choose to offset it. This means one partner retains their full super entitlement while the other receives a greater share of non-super assets (e.g., cash, property, investments).

This option can be suitable if:

• One party has significantly more super than the other;
• There are sufficient non-super assets to adjust the overall division; or
• Parties want to avoid the administrative process of splitting.

However, because super is a future asset, offsetting must be considered carefully to ensure the overall outcome is just and equitable.

 

Special Considerations

Tax and fund rules

Transferring superannuation due to a splitting order is typically tax-free, but each fund may have specific rules governing how splits are processed.

It’s crucial to seek financial and tax advice to understand any implications a superannuation split may have for you.

SMSFs 

Splitting an SMSF often involves complex asset transfers and requires careful compliance with superannuation law requirements.

It’s always advisable to seek financial and tax advice regarding a superannuation split that incorporates an SMSF.

 

Conclusion

Superannuation is a unique asset in family law and requires a different approach from other parts of the property pool. Its treatment depends on the type of fund, the rules governing its valuation, and whether the interest is best split, flagged, or offset against other assets. Understanding these mechanisms is essential, as superannuation can form a significant portion of each party’s overall financial position.

If you need support understanding how superannuation fits within your property settlement, our team can provide clear guidance. Contact us on 1300 052 224 or info@bwbfl.com.au, or access our Property Settlement Guide for more detailed information.