Relationship breakdowns, your super and you

Peter Arnold

Peter Arnold

Love and marriage are meant to last forever. Unfortunately, in reality, it’s not always likely to be a fairytale story when it comes to relationships. From data compiled by the Australian Bureau of Statistics, we know that just in 2013 there were over 47,500 divorces in Australia, which from a positive point of view is nearly a five percent decline on 2012.

As we can all imagine, divorces and other relationship breakdowns can be messy. Not only are there emotions involved, but there’s also the issue of having to divide assets in a just and equitable manner — and your superannuation funds are included in this. 

Here’s a quick guide to what might happen to your superannuation funds in the unfortunate event that your relationship does break down.

Superannuation splitting

Under the Family Law Act 1975, superannuation is treated as property, like a house is. However, because it is held in a trust, it’s treated a little bit differently. 

The super splitting law allows couples to value their Australian superannuation and divide it accordingly. This is not mandatory — it’s up to the couple to decide.

A couple, in this case, doesn’t have to be married — under the Australian Taxation Office’s definition, a spouse includes someone who lived with another person on a genuine domestic basis in a relationship as a couple, whether of a different sex or the same. 

Bear in mind that In Western Australia the super splitting laws do not apply to de facto couples. Instead, it is treated as a resource to be divided up.

There are two ways Australian superannuation can be split:

  • by Family Court order, or order of a Federal Magistrate Court
  • or by agreement between spouses

The latter is generally preferred, as it gives couples greater flexibility, and lets you avoid expensive, drawn-out court proceedings. A court order is an option for those unable to reach an agreement. 

The family law courts explain that, if you and your spouse decide to split through agreement, it must be a formal, written one. This will involve having lawyers sign a certificate stating that you sought legal advice about the agreement. 

What are the other options?

Couples can also choose to ‘flag’ the super benefit until a key event. This way, they will keep their interest in the account protected until, say, retirement or the valuation of an asset. At this point, when the exact value is found out, the trustee can deal with the account based on an agreement made at a later date. 

They can also choose to leave superannuation alone and divide their other assets based on the value of the super account. 

What about self-managed super funds?

With self-managed super fund (SMSF) trustees, it’s a little bit different. As a trustee, you control the fund’s investment decisions and manage its legal responsibilities, something that doesn’t stop when your personal relationship with another trustee breaks down. 

You must continue to work in the best interests of all SMSF members. Failing to do so can severely harm your SMSF from a tax point of view, as it can be labelled non-complying. 

Whether a regular super fund or an SMSF, the essential point is to remain civil. At the end of the day, when sorting your super out in the midst of a relationship breakdown, the legal architecture is less important than having a fair, reasonable discussion. 

Advice contained in this article is general in nature and not specific to your particular circumstances.  Before making an investment decision you should consider your own financial situation and the relevant Product Disclosure Statement/s.  We also recommend you seek advice about your own particular circumstances from a licensed financial adviser.

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