Super­an­nu­a­tion and rela­tion­ship breakdown

The Aus­tralian Finan­cial Review recent­ly ran an opin­ion piece (by Tim Mack­ay) on the ATO announc­ing that it is using a ​“top 100 SMSF” list to ​“tar­get aggres­sive tax plan­ning arrange­ments.” The top 100 SMS­Fs report­ed­ly con­trol a com­bined $8 billion. 

Super­an­nu­a­tion is a tax effec­tive way to save for retire­ment, and while most peo­ple won’t have super­an­nu­a­tion enti­tle­ments to the tune of bil­lions, or even mil­lions, it is often one of the most sub­stan­tial assets ​“up for grabs” in the event of rela­tion­ship breakdown. 

This arti­cle looks at how the Fam­i­ly Court and Fed­er­al Cir­cuit Court treat superannuation.

Asset by asset approach or glob­al approach to divid­ing the prop­er­ty pool?

The court can adopt an ​“asset by asset” approach, or a ​“glob­al approach”, which deals with the entire­ty of the prop­er­ty pool (all the assets and lia­bil­i­ties of the par­ties or either of them, includ­ing super­an­nu­a­tion). The approach tak­en by the court may depend on a num­ber of fac­tors, such as:

• the length of the relationship;
• where a par­ty brought an asset into the relationship;
• where par­ties have had sep­a­rate finances and prop­er­ty dur­ing the rela­tion­ship; and
• where the con­tri­bu­tions of par­ties to a par­tic­u­lar asset may dif­fer from con­tri­bu­tions to oth­er assets.

Gen­er­al­ly, the Court will adopt a glob­al approach to deter­min­ing how assets are divid­ed post-separation. 

Super split­ting

Part VII­IB of the Fam­i­ly Law Act 1975 (Cth) deals with the treat­ment of super­an­nu­a­tion inter­ests in fam­i­ly law prop­er­ty cases. 

In the event of a mar­riage or de fac­to rela­tion­ship break­down, a super­an­nu­a­tion inter­est can be split between spouse par­ties pur­suant to the Fam­i­ly Law Act 1975 and the Super­an­nu­a­tion Indus­try (Super­vi­sion) Act 1993 (Cth) (except for in WA where super­an­nu­a­tion can’t be split between de fac­to couples**). 

This has been the case since 2002, when the super split­ting leg­is­la­tion was intro­duced to over­come inequitable out­comes in fam­i­ly law, where a spouse who had been the ​“bread­win­ner” retained the entire­ty of their super­an­nu­a­tion, regard­less of the length of the rela­tion­ship or the con­tri­bu­tions of the par­ties, because there was no means to trans­fer any of that super­an­nu­a­tion to a ​“home­mak­er” spouse. 

A super­an­nu­a­tion split means that all or part of a super­an­nu­a­tion inter­est is paid from one spouse or par­ty to a de fac­to rela­tion­ship into the fund of anoth­er spouse or par­ty to a de fac­to rela­tion­ship. Split­ting super­an­nu­a­tion will not con­vert it to cash, and the split pay­ment will still be sub­ject to super­an­nu­a­tion laws.

The divi­sion of super­an­nu­a­tion can be either:

1. by for­mal writ­ten agree­ment between you and your ex-partner;
2. pur­suant to Orders made by con­sent between you and your ex-part­ner; or
3. an order to split super­an­nu­a­tion can be sought from the Court if you can­not reach agreement.

The court’s treat­ment of super

The Full Court of the Fam­i­ly Court set out the court’s approach to super­an­nu­a­tion in Cogh­lan.:

In Cogh­lan, the Tri­al Judge had ordered a 60%/40% divi­sion of prop­er­ty in favour of the wife exclud­ing super­an­nu­a­tion enti­tle­ments. The net val­ue of the par­ties’ prop­er­ty was approx­i­mate­ly $600,000, while the com­bined val­ue of the par­ties’ super­an­nu­a­tion enti­tle­ments was approx­i­mate­ly $360,000.

The par­ties’ super­an­nu­a­tion ​“pool” was made up of:

• the wife’s future super enti­tle­ments of approx­i­mate­ly $65,000, com­prised of enti­tle­ments in a defined ben­e­fit scheme, as well as an accu­mu­la­tion scheme;
• the hus­band’s lump sum super of approx­i­mate­ly $65,000, received three years pri­or to the hear­ing; and
• the hus­band’s super­an­nu­a­tion pen­sion val­ued at approx­i­mate­ly $230,000.

The Tri­al Judge had made no order in rela­tion to superannuation.

The Full Court stated:

“the Tri­al Judge has a dis­cre­tion as to how super­an­nu­a­tion inter­ests will be treat­ed in a par­tic­u­lar case. If super­an­nu­a­tion is not includ­ed in the list of prop­er­ty but rather made the sub­ject of a sep­a­rate pool, it will be nec­es­sary where a split­ting order is sought, or extreme­ly pru­dent where no such split­ting order is sought (in order to ensure that jus­tice and equi­ty is achieved) to:

(a) val­ue the super­an­nu­a­tion inter­est (accord­ing to the Reg­u­la­tions if an order under Part VII­IB is sought or accord­ing to the Reg­u­la­tions or oth­er­wise if no order is sought); 

(b) con­sid­er and make find­ings about the types of con­tri­bu­tions referred to in s 79(4)(a), (b) and (c ) which have been made by the par­ties to the super­an­nu­a­tion inter­ests on either a glob­al approach or an asset by asset approach depend­ing on the circumstances; 

(c ) con­sid­er the oth­er fac­tors in s 79(4) being the mat­ters in s 79(4)(d), (e), (f) and (g); and 

(d) ensure that pur­suant to s 79(2) the orders in rela­tion to the par­ties’ prop­er­ty, and any order under Part VII­IB in rela­tion to super­an­nu­a­tion inter­ests are just and equitable.”

Pur­suant to Cogh­lan, it is now com­mon­place for prop­er­ty set­tle­ments to include super­an­nu­a­tion splits which reflect the finan­cial, non-finan­cial and home­mak­er con­tri­bu­tions to the par­ties’ over­all prop­er­ty pool, and the future needs of each of the parties. 

On a prac­ti­cal lev­el, there is no ​“one size fits all” approach to super­an­nu­a­tion split­ting which can be applied to all sep­a­rat­ing cou­ples. For advice on your indi­vid­ual cir­cum­stances, please con­tact the spe­cial­ists in Fam­i­ly Law at Swaab on +61 2 9233 5544 for advice.

**The Attor­ney-Gen­er­al released a state­ment in Octo­ber 2018 set­ting out an inten­tion by the Fed­er­al Gov­ern­ment to amend the Fam­i­ly Law Act 1975 (Cth) ​“as soon as pos­si­ble” so that WA de fac­to cou­ples will be able to split super.