Plain English Guide to Superannuation and Property Settlement
The treatment of superannuation in a property settlement between separating couples was historically a problem area because of the special qualities of superannuation interests. Because of strict rules in relation to superannuation interests, it has sometimes been difficult to arrive at a settlement which is fair to both parties. If your property settlement is dealt with under the Family Law Act, superannuation as well as other assets can be divided as part of your property settlement. As most people have superannuation this will have a significant effect on most people’s property settlement.
The law in relation to superannuation provides that it is to be treated as though it were property of the parties. The court can make orders ‘splitting’ or ‘flagging’ superannuation interests. A splitting order splits the superannuation interest so that some of it is given to the other partner. A flagging order prevents the superannuation fund paying out any money when the member retires until the court has decided how the money should be paid. These orders must be obeyed by the superannuation funds provided they are given notice of the orders sought and the opportunity to seek changes to these proposed orders.
A member of a superannuation fund or the partner of a member can apply to a superannuation fund for information about the member’s interest in the fund. The fund is required to give this information provided that all the legal requirements of the request are met. The law states what information must be supplied by the fund. This information enables the member’s interest in the fund to be valued and assists the parties and the court to decide how the superannuation interest should be dealt with in a property settlement.
Valuing superannuation interests
The law provides a formula for the valuation of a superannuation interest. There are many different types of superannuation interests and there is a special formula for each type. Some funds, particularly large government funds, have their own valuation formulas approved. The one exception is self-managed superannuation funds for which there is no set formula. A formal valuation by a qualified expert may be needed for these types of fund.
Entitlement to superannuation interest
The law provides that each party’s superannuation interest is to be taken into account when examining how much superannuation each party is entitled to retain. The same basic “4-step” process described in our Plain English Guide to Property Settlement is applied to superannuation. Additionally factors such as when the parties began contributing to their superannuation funds are taken into account as well.
Carrying out the orders
Proposed orders affecting a superannuation interest must be given to the superannuation fund before the orders are made to ensure the orders comply with the fund’s requirements. The superannuation fund must also be provided with a copy of the orders once they have been made by a Court. How the orders operate varies from case to case depending on what the particular orders say, and the type of superannuation interest. Most splitting orders will result in the creation of a new superannuation interest for the person who is not a member of the fund.
Tax and financial planning issues
Orders relating to superannuation interests can have very important consequences. It is essential that your lawyer understands the potential tax and financial planning implications and knows where to get expert advice about these issues. In some cases superannuation splitting orders can be used to the financial advantage of both parties, for example by minimising potential tax liabilities.
How can Coleman Greig help you?
The law relating to the treatment of superannuation in property settlements is complex. It is essential that your lawyer has a sound understanding of these issues to ensure you receive the best possible outcome.
At Coleman Greig we have a number of lawyers, including an accredited specialist, practising exclusively in the area of family law. As well as our practical experience in all aspects of family law, other specialist practitioners in the firm are able to contribute their expertise in areas such as commercial, taxation and property law where such issues need to be considered in dealing with your case.
Where appropriate we will work with your other advisers, such as your accountant, so as to achieve a good understanding of all aspects of your case and provide you with the best possible representation.
For more information, please contact our Family Law team on 02 9895 9200.
Disclaimer: The information provided in the document is a general summary and is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.