In the aftermath of separation or divorce, dividing assets between partners is a crucial part of the legal process. One significant asset that must be considered is superannuation. Although often overlooked, superannuation is treated as property in Australia and therefore New South Wales, and its division can have a long-term impact on both parties’ financial futures. This article explores how superannuation is handled in property settlements in Australia, the process of splitting superannuation, and the key considerations you should be aware of.
Key Takeaways
- Superannuation is considered property in NSW property settlements after separation or divorce.
- It can be divided between parties through a superannuation splitting order.
- The family law court will treat superannuation like any other asset in the property settlement.
- Superannuation is not usually cashed out but rather split or transferred to one party.
- Seeking professional legal advice is crucial for a fair division of superannuation.
What Happens to Superannuation in a Property Settlement?
Superannuation is treated as property under the Family Law Act 1975, meaning it can be included in the overall asset pool for property settlements. When separating, both parties must disclose their superannuation balances to ensure that it is fairly divided. The court can order that superannuation be split between the parties, but it will not typically be cashed out unless parties have reached retirement age. Instead, the superannuation is split or transferred to the other party’s superannuation fund.
Is Superannuation Automatically Divided?
Unlike other assets, superannuation does not automatically get divided in a property settlement. While the court will consider it when determining how to fairly distribute the total assets, the division of superannuation requires a formal order. This means that a superannuation splitting order must be sought or agreed.
Methods of Dividing Superannuation
There are several ways in which superannuation can be split in property settlements in NSW:
1. Superannuation Splitting Order
A superannuation splitting order is a legal order that specifies how much superannuation will be transferred from one party to another. The order will outline the percentage or amount of the superannuation fund that is being transferred and how it will be handled. This ensures that the superannuation entitlements are divided fairly, based on the contributions made by both parties during the relationship.
2. Superannuation Agreement
In some cases, couples may agree on how to divide their superannuation without the need for a court order. If both parties reach an agreement, this can be formalised through a binding financial agreement (BFA), which is enforceable by law. However, it is important to note that the agreement must comply with specific legal requirements to be valid.
Actuarial Valuation
Before dividing superannuation, an actuarial valuation is needed to assess the value of the superannuation fund. This valuation takes into account factors such as the fund’s growth, the individual’s age, and the type of superannuation (accumulation or defined benefit) to ensure a fair division.
Key Considerations When Dividing Superannuation
Several factors influence how superannuation is divided in a property settlement:
1. The Value of Superannuation
The value of superannuation can vary greatly between partners. Some individuals may have built up substantial superannuation entitlements during the relationship, while others may have little or no superannuation. It is essential to ensure that the superannuation is accurately valued so that both parties receive a fair share.
2. Future Contributions
Superannuation is not just about the value at the time of separation; future contributions to superannuation must also be considered. If one party is likely to continue making contributions to their superannuation in the future, this may impact how the settlement is structured.
3. Type of Superannuation Fund
Superannuation funds are classified as either accumulation funds or defined benefit funds. Accumulation funds are based on contributions made by the individual and the returns on those contributions, while defined benefit funds provide a fixed retirement benefit based on a formula. Defined benefit funds are more complex and require careful consideration and valuation before they can be divided.
4. Preserving Retirement Entitlements
Superannuation is ultimately meant for retirement, and the court typically aims to ensure that both parties are left with adequate superannuation to fund their retirement. As such, the court will not usually deplete superannuation funds completely, and will work to ensure that both parties have sufficient funds to support their future financial security.
The Legal Process for Dividing Superannuation
The legal process for dividing superannuation typically involves the following steps:
- Disclosure: Both parties must disclose the value of their superannuation entitlements.
- Valuation: An actuarial valuation is often required to determine the present value of the superannuation funds.
- Agreement or Court Order: The parties can either reach an agreement on how to divide the superannuation and formalise that agreement by consent orders or a binding financial agreement (BFA), or the court can determine and issue a superannuation splitting order.
- Implementation: Once the division is formalised the superannuation funds are split or transferred as per the court order or BFA.
The Impact of Superannuation Division on Your Financial Future
It is important to understand that dividing superannuation in a property settlement can have long-term financial implications. Superannuation is a retirement savings vehicle, and any division of funds can affect your financial security later in life. If a significant portion of your superannuation is transferred to your ex-partner, it could impact your ability to fund your retirement.
Getting Legal Advice
Given the complexities of dividing superannuation, it is crucial to seek professional legal advice during the property settlement process. A family lawyer with experience in superannuation issues can help ensure that your superannuation entitlements are fairly divided and that you receive the best possible outcome.
Conclusion
Superannuation is an important asset that must be considered in property settlements after separation or divorce in Australia and therefore NSW. While it can be split or transferred, it is not automatically divided and requires either a superannuation splitting order or an binding financial agreement between the parties. Understanding the process and seeking expert legal advice can help ensure that you receive a fair share of your superannuation entitlements, protecting your future financial security.
At Clarity Lawyers, we’re here to help you navigate divorce settlements and superannuation splits. Don’t hesitate to get in touch with our family lawyers today.
