How to protect your superannuation in divorce

If you’re going through a divorce or separation, you may be wondering what will happen to your super. Will you get to keep 100% of it, or will you have to split it with your ex? Let’s investigate how to protect superannuation in divorce.

Australians understand how important superannuation is in providing for their retirement. Statistics show that superannuation for Australians over the age of 35 could be in the hundreds of thousands of dollars. The balance in your super account could make all the difference to how much you enjoy life when you stop working.

Considering most of us will spend our entire working lives building up our super, it’s natural to feel protective of it. If you’re going through a divorce or separation, you might worry that your relationship breakdown could force you to lose some of these hard-earned funds.

To be perfectly honest, this is a risk. Very often, superannuation is considered part of the property pool of a relationship and can be an important and quite substantial asset. Just as other assets are typically divided between parties, depending on the factors at play, your superannuation could ultimately be split with your ex-partner too. Of course, every situation is unique, and while some people may lose some of their super, others won’t.

But there are things you can do to safeguard your hard-earned super during divorce or separation.

What happens to superannuation in divorce?

Under the Family Law Act 1975, superannuation is treated as a type of property. This means that during a property settlement, the Court might decide that it should be included in the shared pool of assets and liabilities.

If so, the super would first need to be valued and could then be split between the parties as part of the property pool. This will be done according to factors like the value of both parties’ super benefits, the financial and non-financial contributions of each party and the future needs of the parties, including the needs of any dependants. 

Previously married couples have one year from the date of divorce to make an application for the division of assets, liabilities and super. 

De facto couples have two years from the date of separation. But unlike other assets, when super is ‘split’ during a property settlement, it will not automatically translate into a cash payout. That’s because superannuation is a retirement fund, so they’re generally not accessible until the plan member has reached the age of retirement.

There are various options to split super, including:

• Parties can seek legal advice to create a Binding Financial Agreement (BFA) that stipulates how their property, including their super, will be split.
• If you’re able to reach an agreement with your ex, a legally binding consent order can be filed with the Federal Circuit and Family Court setting out that agreement.
• If you are not able to reach an agreement with your ex, and you’ve attended mediation or some other form of dispute resolution, you can apply for a court order to have your property, including your super, split.

If the super funds are ultimately ‘split’ between the parties, the actual payouts will generally be deferred until the retirement age of the member (that is, the person to whom the super initially belonged). Instead, a ‘flagging agreement’ is created, which flags the account so that when the member does reach the retirement age, each party will receive the amount due to them.

It’s important that you get legal advice and a formal agreement or court order in place for the division of superannuation. If you don’t get legal advice, the splitting agreement won’t be binding on the trustee of the super fund. And without a formal agreement, you could leave yourself open to the risk that your ex may get access to retirement funds that aren’t legally theirs.

How to protect your superannuation in divorce

If you’re splitting from your partner, it’s important to know how to protect your superannuation in divorce. The Australian Family Lawyers team has shared some tips to help you achieve an equitable outcome.

1. Understand your legal rights

Family law can be complex. It’s essential that you understand how superannuation is treated under the Family Law Act before the settlement process begins so you can take any proactive steps necessary to protect yourself and your assets.

A qualified and experienced lawyer will be able to advise you on your entitlements. Choose a legal representative who focuses on family law and is familiar with the property settlement process.

2. Obtain a superannuation valuation

Before your super can be divided, it needs to be valued. It’s important to obtain an accurate valuation, as this will affect how much you end up with. 

In most cases, valuing your super fund is fairly straightforward because most superannuation accounts are what are known as ‘accumulation accounts’. Accumulation accounts are very simple to value (and therefore split) because the money in them accumulates until retirement.

There are some older types of superannuation accounts that are known as defined benefit interest funds. Dividing these up is much more challenging because the entitlements aren’t actually in place until retirement and are based on factors such as the duration of employment and the member’s final salary. These funds are valued using different fund-specific factors and methods.

In both cases, a family lawyer can help you to finalise your superannuation valuation.

3. Consider a binding financial agreement

A BFA is a legally binding agreement that clearly articulates financial arrangements following a relationship breakdown. These can be made before (prenuptial agreement), during or after (postnuptial agreement) the relationship. 

A BFA may not feel romantic in the early days of a relationship. But it can save both parties a lot of time and upset down the track. Particularly in the case of a prenup, as it allows you to discuss finances without the additional emotions of a divorce. It will also give you an opportunity to actively protect your super. 

A BFA is a convenient way to stipulate how assets will be divided upon divorce without having to go to court. This may help reduce friction between ex-partners during the court process and save you time and money. A BFA will also give you comfort knowing that you have the tick of approval from lawyers.

4. Negotiate splitting agreements

Whenever possible, it’s a good idea to try to negotiate amicably with your ex to reach a splitting agreement. This saves time, reduces stress and avoids costly legal battles. Your lawyer can certainly help you with your negotiations, and mediation is always a great and cost-effective option to get the agreement over the line.

5. Seek professional legal and financial advice on how to protect superannuation in divorce

The best way to protect your super is to follow the guidance of a family lawyer and financial adviser throughout the settlement process.

A family lawyer can advise you on factors that may affect the super split. For example, one party having a reduced opportunity to earn super because they contributed to the household in other ways, e.g. childcare obligations. They can also help during the negotiations.

A financial adviser can talk you through the process, help you to obtain information on your or your ex’s super, and understand the impacts a super split might have on your future finances.

Tips to minimise superannuation financial loss during divorce

• Keep accurate records of your super contributions.
• Make a note if there were any reasons why you weren’t able to earn as much super as your ex-partner (e.g., raising children, caring for relatives)
• Consult a trusted lawyer and financial adviser.
• Be wary of emotional decisions during negotiations.
• Consider mediation to reduce legal costs.
• Be cautious of early withdrawals, such as for financial hardship. 

Next steps

When you’re going through a divorce or separation, fear of losing out financially can be challenging, particularly when it comes to your financial security in old age.

Following the guidance above may help you protect your super and achieve the best outcomes for your situation. But we’re here to help. Learn more about splitting superannuation and the settlement process by getting in touch with our team. We’d love to help you understand the steps to take to put you in the best position for your situation.

For expert legal advice on how to protect superannuation in divorce, reach out to Australian Family Lawyers today. Call the team on 1300 470 243 or request a call back via the form below.