Under Australian family law, superannuation is treated as an asset. The balance of your and your former partner’s superannuation should, therefore, be considered when negotiating and formalising a property settlement agreement after separation.

In most cases, the Federal Circuit and Family Court of Australia look at superannuation separately from the parties’ other assets and debts. This is called a “two-pool” approach. In this article, we are assuming that a two-pool approach is being used.

In this article, we will discuss:

• How superannuation entitlements are likely to be distributed in a property settlement;
• How to calculate a superannuation split;
• Superannuation entitlements as a negotiating tool; and
• How to formalise and effect a superannuation split.

How are superannuation entitlements likely to be distributed in a property settlement?

Case law provides some general guidance as to how superannuation entitlements are distributed in a property settlement. For example:

Long-term relationship (10+ years)

In long-term relationships, an equalisation of the whole of the parties’ superannuation (see below) is likely to be considered appropriate, particularly if the parties have children and/or dependants.

When considering whether an equalisation of the whole of the party’s superannuation is appropriate, it is important to consider whether the day-to-day contributions of one party contributed to the growth of the other party’s superannuation.

For example, if one party ceases work to be the primary carer of the children, they are seen to have contributed to the growth of the other party’s superannuation as, by staying home to care for the children, they enabled the other party to work and accumulate superannuation. 

Short-term relationships (5 years or less)

In short-term relationships, a superannuation split may not be appropriate, particularly where the parties do not have children or dependants. In this situation, each party would simply retain their own superannuation entitlements.

Medium-term relationships (between 5 years and 10 years)

In medium-term relationships, an equalisation of the superannuation accumulated by the parties during the relationship (see below) may be appropriate.

The Federal Circuit and Family Court of Australia has wide discretion in determining whether there should be a distribution of the parties’ superannuation entitlements. In addition to the length of the parties’ relationship, the Court will consider:

• Whether the parties have children or dependants;
• The age and health of the parties and their ability to accumulate superannuation in the future;
• The nature of the parties’ financial relationship (did they intermingle their finances); and
• Whether it is just and equitable for there to be a superannuation splitting order.

How do you calculate a superannuation split in a property settlement?

A common misconception when parties agree to divide their superannuation is that the party with less superannuation is entitled to half of the other party’s superannuation.

This is not correct.

Step 1 - Obtain a current value for each party’s superannuation entitlements

There are different types of superannuation interests. The most common is an accumulation interest. These types of superannuation interests do not need to be valued, as parties can rely on the balance as detailed in the superannuation statement.

However, other types of superannuation interests, such as a defined benefit fund, have a more complex valuation formula. The balance, as detailed in the superannuation statement, may not be accurate, and we generally recommend engaging an actuary to value such an interest.

Self-managed superannuation interests may also need to be valued. The valuation will be dependent on the type of assets owned by the fund. For example, if the fund owns real estate, you would need to obtain a property valuation.

Step 2 – Calculate the superannuation split

In Victoria, there are generally two approaches to calculating the superannuation split.

An equalisation of the whole of the parties’ superannuation

You add together the total of both parties’ superannuation entitlements and divide this by two. This is the sum that each party should receive.

Example:

• Party 1 superannuation = $50,000
• Party 2 superannuation = $150,000
• Total Super = $200,000
• Divide by two = each party should receive $100,000

The person with the higher superannuation balance will need to transfer the difference to the person with the lower superannuation balance.

In the above example, Party 2 would need to transfer $50,000 to Party 1 so that they each received $100,000.

An equalisation of the superannuation accumulated by the parties during the relationship

You calculate the superannuation accumulated by both parties during the relationship. To do this each party will need to obtain a balance of their superannuation as at the commencement of the relationship and deduct this from their current balance.

Example:

• If Party 1 had $25,000 in superannuation entitlements at the commencement of the relationship and their current balance is $50,000, the total superannuation accumulated during the relationship is $25,000.
• If Party 2 had $100,000 in superannuation entitlements at the commencement of the relationship and, their current balance is $150,000, the total superannuation accumulated during the relationship is $50,000.
• You add together the total superannuation entitlements accumulated by both parties during the relationship and divide this by two. This is the sum that each party should receive.

Calculation:

• Party 1 superannuation accumulated during the relationship = $25,000
• Party 2 superannuation accumulated during the relationship = $50,000
• Total super accumulated during the relationship = $75,000
• Divide by two = each party should receive $37,500.

The person with the higher superannuation balance will need to transfer the difference to the person with the lower superannuation balance.

In the above example, Party 2 would need to transfer $12,500 to Party 1 so that they each receive $37,500.

It is important to note that superannuation will be transferred from one party’s superannuation entitlements to the other party's superannuation entitlements. It is not a cash payment. It will not, therefore, be accessible to the receiving party until retirement or until they are able to access their superannuation entitlements for some other reason, for example, if they meet the financial hardship rules of the relevant super fund.

Superannuation as a negotiating tool

While there is the general position at law, parties can use their superannuation entitlements as a negotiating tool to achieve a property settlement that suits both parties’ needs.

Examples include:

• The party with the lower income earning capacity may benefit from more cash and less superannuation, particularly if they are considering purchasing a new home. In this scenario, they may opt to receive less superannuation than they would ordinarily be entitled to in lieu of more cash. A “discount” would usually be applied to the cash sum that they are to receive, as they benefit from receiving the cash now (as opposed to at retirement).
• The party that is closer to retirement or who has a defined benefit fund, may wish to keep their superannuation entitlements intact. In this scenario, they may opt to give the other party a higher cash payment to preserve their superannuation entitlements.

In either scenario, both parties would need to agree to deviate from the general position at law. If you are unsure of the best way to proceed in your matter, we recommend obtaining accounting and financial advice alongside any legal advice.

We’ve agreed to a superannuation split; what next?

Once the parties have agreed to a superannuation split, they will need to:

Step 1 - Decide how to formalise their property settlement and, consequently, their superannuation split.

There are two ways to make your property settlement legal and binding, those being an Application for Consent Orders or a Financial Agreement.

For more information as to what method is appropriate in your matter, please refer to our article “Consent Orders or Financial Agreements”.

Step 2 - Seek the superannuation fund’s approval of the superannuation splitting orders/agreement.

Regardless of the way in which you formalise your property settlement agreement, a draft copy of the superannuation splitting orders/agreement will need to be sent to the relevant superannuation fund (being the superannuation fund that funds will be transferred from) for the fund’s approval. This is called “procedural fairness”.

It is important to note that superannuation funds can take up to 28 days to respond to any request for procedural fairness. This timeframe should be borne in mind when considering how long a property settlement will take to formalise.

Step 3 - Provide a certified copy of the Consent Order or the Financial Agreement and a Regulation 72 Notice to the relevant superannuation fund to effect the superannuation split.

After the property settlement agreement has been formalised, a certified copy of the sealed Consent Orders or the fully executed Financial Agreement will need to be provided to the relevant superannuation fund.

The fund will also require the party who is receiving the funds from the superannuation fund to complete a document called a “Regulation 72 Notice.” This provides the fund with their personal details and details of where they would like the superannuation funds to be transferred. On receipt of these documents, the relevant superannuation fund can take up to 28 days to process the superannuation split.

Get advice from a family lawyer

If you would like further information in relation to the distribution of superannuation entitlements under the family law or property settlement agreements generally, please contact Emera Family Law to schedule an initial consultation with one of our experienced lawyers.