Family Law property settlements and superannuation

When the Family Law Act was established in Australia in 1975, the Act didn’t consider superannuation as an asset to be part of a division of property.

In 2002 the Family Law Act was changed to enable property settlements to include a “split” of superannuation from one spouse to the other.

To have this happen the act had to change to recognise superannuation as an asset – although it is an asset different to other assets like your house or car given that is owned by a trust on your behalf and until it vests you really only have a beneficial entitlement to your super. Of course, you also usually will not be able to access your superannuation law, until “preservation age” which for most is many years down the track from your property settlement.

Superannuation interests also vary in their nature. Most superannuation interests are “accumulation interests” where, as with most investments, their value is calculated by the monetary contribution to the superannuation plus investment return less administration fees.

However, there are interests known as “defined benefit interests” where their value is attributed to a formula which usually depends upon factors such as a worker’s average salary at the time that they cease employment. Calculating a member’s value for these interests at any given time is more complicated and under Family Law, there are specific valuation regulations that apply to these funds.

Also becoming more common are self-managed super funds, where the parties have established their own superannuation fund rather than keeping their super in an industry fund.

So how does the court deal with super in determining a property division?

Firstly, it is necessary to value the superannuation. With accumulation funds the valuation is usually quite similar to what is on your annual super statement. For defined benefit funds they need to be valued in accordance with formulas set by the Family Law Act. A self-managed super fund will be valued by valuing the assets that it has.

Then a court needs to determine whether the superannuation to be split and if so how.

Usually for longer relationships where both couples are still some years away from being able to access their superannuation, the Court would take what is known as the “two pools approach” where non-superannuation assets are considered in one pool and the superannuation in another. This approach is designed to reflect the differing nature of super and non-super and to ensure that one party does not end up with a significantly greater proportion of superannuation to non-superannuation.

The differing nature of superannuation interests may result in different treatment from the Courts. For example, superannuation interests that can only be accessed as a pension, have been held not to be property for division between spouses notwithstanding a lump sum value could be attributed to the relevant superannuation interest. In those cases, the superannuation pension was held to be a future income stream, thereby a future resource of that party.

Splitting self-managed funds can often be a bit trickier. While the separating couple may be joint Trustees of the fund which may own commonly held and used assets like real estate and shares, it is important to remember that they are still superannuation assets with those assets more difficult to unscramble to affect a split.

Superannuation and family law can be complex - you really need to make sure you get legal advice from us specific to your situation to make sure your super is dealt with fairly in a property settlement.