Because the process of collecting super takes place over a person’s entire career, the possibility for change and the need to accommodate for it is almost inevitable. An example of this kind of change is when a couple decides to divorce or separate
During a divorce, super is part of the couple’s property and needs to be divided. This can be decided between the separating partners by reaching an agreement, or where this isn’t possible, the decision will instead need to be made in court.
This requirement to reach a decision applies to all types of separating couples, whether they are de facto, married, heterosexual, or same-sex. The only exception to this criteria is de facto couples in Western Australia, as they cannot split their super.
There are three ways this decision can be made:
As described, an agreement can be made to split the super between the two ex-partners. It’s important to note this doesn’t convert the super into cash, and it can only be accessed once the conditions of release for whoever owns the super are satisfied, such as when preservation age is reached. Putting this kind of agreement together can be made at any stage in a partners’ relationship. For instance, it can be made earlier as part of a ‘binding financial agreement’.
Less commonly, agreement to split the super can be deferred until retirement. This is done by making what is called a ‘flagging’ agreement, which prevents payment coming out of the super until the flag is lifted. Reasons for this can be to allow for the uncertainty of the ultimate value of the super, such as if it is a defined benefit account, or to prevent any potential withdrawals if an ex-partner is going to reach preservation age before the agreement is finalised.
Alternatively, an agreement can be made to split the total assets in a way that factors for the combined value of the super, but that leaves each partner’s super unaffected. By necessity de facto couples in Western Australia need to take this approach as they cannot split their super.
How is this agreement usually done?
Of the three ways outlined above, the first approach is the most common and follows three steps:
Firstly, each ex-partner is legally entitled to know how much money is in each other’s super. This is done by filling out the Superannuation Information Kit downloadable from the Family Court website, which is then sent to the applicable super funds to collect the financial details. Trustees of SMSFs need to follow a different process; for example, they will instead require a valuation from an accountant or actuary and must act in the interests of all the SMSF members.
With this information obtained, an agreement needs to be reached on how the super is split. Meeting the legal compliance requirements for this is not a simple matter, so it’s best to seek legal advice for this step at least. The agreement is either reached in this way, or it will need to be made in court, which is started by the process described below.
Copies of the agreement, once it is completed, are then sent to each of the relevant super funds to be processed.
What happens if it needs to go to court?
If an agreement cannot be reached, then it will need to be decided in court. Filing a court order requires submitting an initiating application, a financial statement, and an affidavit with the Family Court, which can be done online.
Once the application is received by the Family Court, the other ex-partner’s corresponding financial statement and affidavit will also need to be provided.
A consent or court order will then be issued, and a sealed copy of these must be provided to the relevant super funds as soon as possible.
Going through a divorce can be very stressful, and making these arrangements can feel like one more complexity during a difficult time. The important thing is to maintain perspective: not everything in life works out as planned, but at least we can adjust our plans in an informed fashion when changes occur. Keeping this perspective also includes making sure that any adjustments to financial plans are also well-informed and adequately thought through. For this reason, it’s also a wise move to meet with a financial planner during this time.
Please contact us on 03 9553 0271 if you seek further assistance on this topic.
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