Superannuation Splitting – Why Super Might Be Your Largest Asset in a Separation & Divorce

by | Sep 11, 2023

Superannuation Entitlements can easily become the most significant asset an individual possesses. Employers are required to contribute 11% of their employees’ annual salaries to their selected superannuation accounts each year, and this percentage is continuing to increase over time. This form of forced savings can unexpectedly emerge as your most substantial asset during a separation or divorce. Since our superannuation entitlements generally remain inaccessible until retirement, they can sometimes be disregarded when couples separate or get divorced. Neglecting the parties superannuation entitlements could lead to financial disadvantages. Understanding the specifics of superannuation splitting is crucial for securing your financial future. 

Superannuation Splitting: How It Works

When it comes to splitting superannuation entitlements, there’s no single approach that fits everyone. The couple going through separation has the option to either reach a mutual agreement through negotiation or use mediation to decide how to divide their assets. If they are unable to reach an agreement, the Family Court might be required to intervene to make the determination. It’s pivotal to understand that a division of the parties superannuation entitlements doesn’t always result in an equal partition. The division takes into account a myriad of factors including the length of the relationship, individual financial and non-financial contributions, the future needs of both parties, and the entirety of the asset pool available for distribution between the parties. This complex landscape ensures that the asset split overall is just and equitable, recognising the multifaceted roles each party played during their relationship.

The Process Simplified

Identification: Begin by ascertaining all assets and liabilities of the parties, including all superannuation funds held by both parties.

Valuation: Obtain an accurate valuation of these items.

Decision: Formalise the agreement (Binding Financial Agreement or Court Orders, either by consent or Court determination).

Execution: Implement the agreement by notifying the relevant super fund to by comply with the Court Order or Binding Financial Agreement.

Agreements vs. Court Determined Orders

Mutual agreements between the two parties ensure flexibility and can help reduce a bitter fallout. In order to be legally binding, these agreements must be formalised, either with a Binding Financial Agreement or by application to the Family Court for Consent Orders. Court Orders by determination, on the other hand, are the result of litigation and are sought when an amicable resolution can’t be reached. A party must “initiate Court proceedings”, and then the Court will delve into the intricacies and make Orders which mandate a division.

Implications for the Primary Breadwinner

For the primary income earner in the relationship, the division of superannuation can present significant financial challenges. Watching a substantial portion of their accrued retirement savings being redirected to their former spouse can be a source of anxiety and trepidation. However, it’s essential to appreciate that this redistribution recognises circumstances like a break from working to care for the parties children, pays gaps between men and women, or inabilities to engage in paid employment due to medical ailments. 

Reassessing Financial Goals – How Much Will I Pay?

Aside from dividing assets, divorce brings about a range of extra expenses. These span from legal fees to valuation charges and potential tax consequences. The financial outlook after divorce might differ significantly from the parties earlier expectations at the start of the separation process. As a result, a thorough reassessment is necessary. Taking part in thorough financial planning can assist in defining new goals, creating budgets, and ensuring a path toward financial stability and security.

Superannuation Splitting FAQs

Are De Facto Relationships Entitled To Superannuation Splitting?

Short answer is yes – de facto couples do enjoy the benefit of being able to split superannuation as their married counterparts when it comes to the division of assets upon separation. This a reflection of the legal system’s evolving understanding that relationships, irrespective of their formal status, involve shared commitments and finances. Just as in marriage, partners in a de facto relationship make joint sacrifices, investments, and plans for the future, and thus their rights to assets, including superannuation, should be acknowledged and protected.

On August 18, 2022, the West Australian State Parliament passed a new law enabling de facto couples who are going through separation to divide their superannuation. This progressive step aligns Western Australia with the rest of the Australian states and territories, ensuring consistency in providing equitable financial outcomes for separating couples across the nation.

How Long After A Separation Can A Party Make A Claim?

For married couples, the general rule is that an application for property adjustment, which encompasses superannuation, should ideally be filed within 12 months of the finalisation of the divorce. Delays beyond this window might necessitate special permission from the court, which is granted only under exceptional circumstances. De facto partners, on the other hand, generally have two years from the date of separation to make a claim. Being aware of these timelines is crucial to safeguard one’s rights and interests.

Seeking the Right Advice to Safeguard Your Financial Wellbeing

In the intricate landscape of asset division during separation and divorce, expert guidance is essential. The complexities inherent in this process underscore the importance of engaging with specialists. Genuine Legal WA boasts a proficient team of legal advisors, ensuring regulatory compliance and strategic foresight.  For a judicious approach to superannuation matters, consult with Genuine Legal WA.