How to Protect Your Superannuation in Divorce or Separation in Australia

In Australia, superannuation is often one of the most significant assets to be considered when a relationship breaks down.

For many individuals in their 50’s and those approaching retirement, superannuation may represent decades of financial planning and long-term security. The prospect of those savings being divided as part of a family law property settlement can therefore give rise to understandable concern, particularly where the superannuation has been accumulated primarily in one party’s name over many years of employment.

Unlike the family home or savings, superannuation is generally preserved until retirement and cannot be accessed immediately. However, under the Family Law Act 1975 (Cth), superannuation is treated as property and may be divided as part of a property settlement.

This article addresses some of the most common questions about how superannuation is treated in Australian family law property settlements, including the circumstances in which it may be divided, retained or preserved as part of an overall property settlement.

At Arora Legal, we regularly advise professionals and business owners throughout Brisbane and South-East Queensland in relation to superannuation splitting orders arising from complex family law property settlements.

Is Superannuation Included in a Divorce Settlement in Australia?

Since legislative amendments introduced in 2002, superannuation has been treated as property under Australian family law and is included in the asset pool for division following separation. This applies whether the parties were married or in a de facto relationship.

Although superannuation is not usually accessible at the time of separation, it remains an asset that may be adjusted between the parties as part of the overall property settlement process.

Can My Ex-Partner Claim My Super After Separation?

Potentially. There is no requirement for superannuation to be held jointly for it to be included in the property pool. Superannuation held in one party’s sole name may still be subject to adjustment depending on the length of the relationship, financial contributions made by each party, non-financial contributions and each party’s future needs.

Even where one party earned and accumulated the majority of superannuation during the relationship, the Court may consider whether a superannuation split is necessary to achieve a fair outcome overall.

What Happens to Super if It Was Built Up Before the Relationship?

Superannuation accumulated prior to the commencement of a relationship may be recognised as an initial contribution.

However, in practice this does not necessarily result in that superannuation being excluded from the property pool. In longer relationships or where there is a disparity in earning capacity the Court may still make an adjustment in favour of the lower-earning party if required to achieve a fair outcome.

Can Super Be Offset Against Other Assets?

In some circumstances, it may be appropriate for one party to retain their superannuation interest while the other receives a greater share of assets that are immediately accessible, such as real estate or savings.

However, because superannuation cannot usually be accessed until retirement, offsetting arrangements should be approached with care. An outcome that appears fair on paper may result in one party retaining liquid assets while the other holds an equivalent value in preserved retirement savings.

When Might the Court Decide Not to Split Superannuation?

Although superannuation is treated as property under Australian family law, this does not necessarily mean that it will always be divided between the parties.

In some cases, the Court may determine that it is more appropriate to leave each party’s superannuation interests intact particularly where a fair and equitable outcome can be achieved by adjusting the division of non-superannuation assets such as real estate, savings or investments.

For example, where one party retains the former matrimonial home or receives a greater share of immediately accessible assets, it may be unnecessary to further divide superannuation in order to achieve an overall just outcome.

The Court’s focus is not on ensuring that each category of asset is divided equally, but rather on whether the overall division of property is fair when considered as a whole.

What Are the Risks of Offsetting Super Against Other Assets?

In practice, it is not uncommon for separating couples to consider offsetting superannuation against non-superannuation assets. For example, by allowing one party to retain their super while the other receives a greater share of equity in the family home.

While this approach may appear commercially sensible at the time of settlement, it is important to recognise that superannuation and non-superannuation assets are fundamentally different in nature.

Superannuation is generally preserved until retirement and cannot usually be accessed for present-day financial needs. By contrast, assets such as real property or savings may be immediately available for use or investment.

As a result, an arrangement that appears equal in dollar terms may produce very different long-term outcomes. One party may retain liquid assets capable of generating income or capital growth, while the other holds an equivalent value in preserved retirement savings that cannot be accessed for many years.

How Is Superannuation Valued in a Property Settlement?

Before superannuation can be divided, it must first be properly valued.

While accumulation funds are often capable of being valued by reference to recent member statements, defined benefit interests or interests held within a Self-Managed Superannuation Fund may require actuarial or financial assessment to determine their present value.

Failure to obtain an appropriate valuation may distort the asset pool and ultimately impact the fairness of any proposed settlement.

Are Defined Benefit Superannuation Schemes Treated Differently?

Defined benefit superannuation, such as military super, DFRDB, CSS or PSS present complexity in the context of family law property settlements.

Unlike accumulation funds, which are based on an identifiable account balance, defined benefit interests are typically calculated by reference to a formula that may include factors such as salary at retirement, years of service and future accrual of entitlements.

This means that the present value of a defined benefit interest may differ significantly from the ultimate benefit payable upon retirement.

Specialist actuarial advice may therefore be required to determine the appropriate value of the interest for the purposes of property settlement. Failure to obtain an accurate valuation may distort the asset pool and lead to an outcome that does not properly reflect the parties’ respective entitlements.

Why Superannuation Can Become Complex to Divide in a Property Settlement

Superannuation interests are not always straightforward to assess or divide in a family law property settlement. In practice, issues may arise in relation to how contributions were made during the relationship, how investment decisions were managed, or whether changes to superannuation balances occurred after separation.

Maintaining clear records of superannuation contributions, withdrawals and investment decisions may therefore assist in clarifying the nature and timing of certain financial contributions when the Court is determining a just and equitable division of property.

The following examples illustrate some of the complexities that may arise in practice.

• Contributions Made to a Partner’s SuperannuationOne party may make regular financial contributions to the other’s superannuation interest during a relationship.Example: where a spouse makes voluntary contributions into their partner’s superannuation fund over several years, records of those contributions including employer payment summaries or tax returns may assist in demonstrating indirect financial contributions made during the relationship.This may be relevant when the Court considers whether those contributions should be recognised in the overall division of property.
• Growth in Superannuation After Separation
  In some cases, a superannuation interest may increase in value following separation as a result of changes to investment strategy or market performance.
  Example: Where one party can demonstrate that a portion of the growth occurred after the relationship ended and arose from individual investment decisions or post-separation contributions, the Court may take this into account when assessing the parties’ respective contributions.
• Withdrawals Made Prior to Separation
  Withdrawals from superannuation shortly before separation may give rise to questions about whether the available asset pool has been reduced.However, where funds have been withdrawn for legitimate purposes such as necessary medical treatment, contemporaneous records including medical reports, withdrawal histories or invoices may assist in explaining the purpose of the expenditure and whether it should properly be considered as part of the property pool.
• Investment Decisions Within an SMSF
  Self-Managed Superannuation Funds can present additional complexity, particularly where both parties were trustees of the fund during the relationship.
  Example: where an SMSF has declined in value due to investment decisions made prior to or following separation, records such as trustee meeting minutes, financial statements or independent valuations may become relevant in determining whether both parties had oversight or control of those decisions.In circumstances where one party can demonstrate that they were not actively involved in managing the fund, or opposed a particular investment strategy, the Court may take this into account when considering the appropriate division of the overall asset pool.

How Are Super Splits Taxed?

In most family law property settlements, a superannuation split is intended to be tax-neutral at the time it occurs.

Where a superannuation interest is divided pursuant to a Binding Financial Agreement, Consent Orders or a Court Order made under the Family Law Act 1975 (Cth), the amount transferred from one party’s superannuation fund to the other party’s nominated fund does not usually trigger an immediate tax liability.

Importantly, the transferred entitlement remains within the superannuation system; and retains its existing tax components (for example, taxable and tax-free components).

This means that the receiving party effectively assumes the same tax status in respect of that portion of the superannuation interest.

Tax is generally only payable at the time the superannuation benefit is accessed such as upon retirement or otherwise satisfying a condition of release and will depend on factors including the receiving party’s age and whether the benefit is taken as a lump sum or income stream.

While a superannuation split does not usually give rise to capital gains tax at the time of transfer, additional considerations may arise where a defined benefit interest or Self-Managed Superannuation Fund is involved.

What Happens If My Partner Tries to Hide Their Superannuation?

Parties to a family law property settlement are required to provide full and frank financial disclosure.

This obligation extends to superannuation interests, including account balances, employer contributions and any associated entitlements.

A failure to disclose superannuation may result in adverse inferences being drawn by the Court, cost consequences, or in some circumstances, orders being set aside.

To help ensure transparency, you can:

• Contact the ATO and request your former partner’s super information by using the Superannuation Information Request process
• Work with a family lawyer to obtain disclosure documents.
• If necessary, obtain court orders to compel disclosure of hidden or undisclosed super.

How Can I Protect My Super Before Moving In With Someone?

If you are entering a new relationship particularly where there is a disparity in income or you have accumulated significant superannuation prior to the relationship you may wish to consider entering into a Binding Financial Agreement.

Such an agreement may allow parties to determine in advance how property, including superannuation, will be treated in the event of separation and may reduce uncertainty in the future.

Final Thoughts: The Importance of Strategic Negotiation When Assessing Superannuation Splits

For many separating couples particularly professionals in their 50s superannuation may represent decades of retirement planning. Ensuring that it is properly disclosed, valued and considered during property settlement may have long-term financial implications for both parties.

If you are concerned about how your superannuation may be treated in the event of separation or entering a new relationship and wish to protect assets accumulated prior to cohabitation obtaining legal advice at an early stage can be critical.

Our family law property lawyers, advise individuals throughout Brisbane and South-East Queensland in relation to superannuation splitting orders, binding financial agreements, complex property settlements and asset protection strategies prior to cohabitation.