What happens to your Super in a relationship breakdown?

If your relationship has run its course and you're heading for a split, so might your Super too

With Superannuation becoming an increasingly significant asset in the property pool for separating Australian couples, superannuation splitting laws now allow super to be treated like property and divided when a relationship breaks down.

The Australian Family Law Act now recognises Super assets held by a couple as part of the family assets, and as such super can now, be split and divided between the separating parties, (including defacto spouses) as part of a Family Law Court property settlement in three different ways.

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When are you entitled to seek a super split?

People who were married or in a de facto relationship and have now separated may be entitled to a superannuation split, or legally obligated to split their superannuation with their former partner. 

How does this relate to defacto couples?

Under the Family Law Act, a person is in a “de facto relationship” with another person if they are not legally married to each other, not related by family and they share a relationship as a “couple living together on a genuine domestic basis”. 

• A party seeking superannuation orders must have been in a de facto relationship with the other party for at least 2 years, unless there is a child, or children, of the relationship. 
• If there is a child of the relationship, (or a party makes a substantial contribution), the 2-year rule does not apply and an application can be made seeking superannuation orders even if the relationship broke down before two years.

How long after a separation or divorce can you make a claim for a super split?

• If you were married, you must apply to the court for super orders within 12 months of the date on which your Divorce Order took effect. (If you have not obtained a Divorce Order, you can make a claim for superannuation at any time after separation).
• If you were in a de facto relationship, (both heterosexual or same-sex) you must apply to the court for superannuation orders within 2 years of the date of separation from your partner.

Understand there is no cash-out value to a super split

While super splitting law lets separating couples value their superannuation and split a super balance (this is not mandatory), splitting does not convert it into a cash asset – it is still subject to superannuation laws and is usually preserved until retirement ages are reached.

• In practical terms, any funds split from one person's super fund are simply transferred into their former partner's super fund and continue to be held in a trust until that person retires or meets a condition of release.

Super splitting, SMSFs and lumpy investment assets

As Super can also be invested in 'lumpy' non-liquid assets, there are special laws that allow for the splitting of super to be deferred until lumpy investment assets have a chance to appreciate in value, before they are divided between the former partners. (This is often the case where an SMSF has invested in residential, property, the market is still maturing and a forces 'fire sale' to create a liquid account balance would be to both parties' detriment).

Three options to choose from

1. Just Split the super. If you separate or become divorced, you and your ex-partner may split your super account balances by agreement, or by court order – the same way as many other assets. 
2. Defer your decision until another time, such as retirement. A couple can choose to wait for an event (such as retirement) to occur before dealing with the super account by making a flagging agreement, which prevents the super fund from making a payment out of the superannuation account until the flag is lifted. (This approach is more relevant to the old defined benefit account super schemes of some government jobs.)
3. Take super balances into account when deciding upon a property settlement, but leave it. A couple may decide to divide their other assets while considering the value of their super accounts and decide to leave their superannuation benefits as they are. (De-facto couples in Western Australia may choose to take this approach, as their super cannot be split).

More info

If you or a friend finds themselves wanting to learn more about Super Splitting laws, more information is available on the websites of the Federal Circuit and Family Court of Australia and the Family Court of Western Australia. 

Drew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn.  Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.