Dividing property following separation can be a challenging and emotional process. More specifically, the distribution of superannuation between a divorced couple can be relatively complex. Although superannuation is commonly a couple’s major asset excluding the family home, it is often overlooked in favour of more readily accessible assets.
There are various types of superannuation funds, such as ‘accumulation funds’ and ‘self-managed funds’. In an accumulation fund, the monetary value grows or ‘accumulates’ over time and the fund value depends on the money that the fund holder and their employer contributes, and on the investment return generated by the fund. In contrast, self-managed super funds are private funds that the fund holders manages themselves, by choosing the investments and the insurance. ‘Defined benefit funds’ constitute a retirement benefit which is determined by a formula rather than being based on an investment return. Most of these funds are corporate or public sector funds.
Determining whether superannuation will be divided (and if so, how) is generally done through a superannuation agreement or court order. The Family Law (Superannuation) Regulations 2001 (‘Family Law (Superannuation) Regulations’) set out the methods of valuing superannuation interests; the way in which the payment split is to be put into effect and the information that the trustees have to provide.
Superannuation agreements can be made either before, during or after a relationship as part of a Binding Financial Agreement. Parties who have not made a Binding Financial Agreement may obtain a Court Order which outlines how the superannuation should be split.
There are two types of Court Orders: Consent Orders and Financial Orders. Consent Orders are made for couples who have come to an agreement concerning how their property should be divided. If the Family Court considers the proposed division of property to be fair, it will make a Court Order rendering the agreement legally binding. If a couple disagrees on how to split their superannuation, the Court will make this decision on their behalf by way of a Financial Agreement.
The Family Law Act 1975 (‘FLA’) provides direction as to how parties and the Court should approach superannuation splitting. Firstly, it is integral that parties determine the total value of their superannuation. Parties are entitled to request their partner’s superannuation fund provides the account balance. Couples are then encouraged to seek legal advice regarding whether to seek a property settlement, or whether they should apply for a Court Order. If the matter proceeds to Court, the Court will consider several factors when determining how to divide the property. This includes assessing contributions such as taking care of the children to the relationship, maintenance of the family home, financial contributions to shared assets and the future financial position of the parties. Due to the varied nature of contributions to a relationship, both financial and non-financial, superannuation is not necessarily split according to how much each party contributed financially.
Accordingly, the Full Court in Hickey & Hickey & Attorney General for Commonwealth of Australia [2003] FamCA 395 established a four-step process to be used as a guide to determining parties’ entitlements, in circumstances where parties are (or were) married or in a de facto relationship. The case set out the original parameters for superannuation splitting which require the Court to (1) identify the assets of the property pool, (2) assess the financial and non-financial contributions of each party, (3) consider the factors outlined in FLA section 75(2) to determine if there should be an adjustment in favour of one party, and lastly (4) ensure the orders are ‘just and equitable’.
Once parties have obtained a valid property split agreement or Court Order, they can apply for their superannuation to be split. Although most superannuation can be split either by agreement or Court Order, it is not possible to spit superannuation of little or no value if it would not be cost effective to do so. The Family Law (Superannuation) Regulations prescribe that superannuation interests with a withdrawal benefit of less than $5,000, and non-commutable pensions or annuities of less than $2,000 per annum, are unsplittable interests. The most common types of splitting orders are called Type A and Type B orders. In Type A orders, a lump sum is calculated based on a dollar figure ‘base amount’ which is adjusted over time and the non-member’s interest grows independently of the member’s interest. In Type B orders, the non-member is paid a certain percentage of each splittable payment. This occurs when the member is receiving a superannuation pension or has met the conditions of release and is therefore entitled to receive a pension or lump sum.
In order to effect a superannuation split, Nicholes Family Lawyers can provide advice and assist parties with preparing superannuation splitting orders and agreements, so that a portion of one party’s superannuation fund can essentially be ‘rolled over’ into the other party’s fund. We can also assist with the division of assets held in self-managed superannuation funds.