How to handle super in a divorce

In the event of a divorce, how should you and your ex-partner's super balances be split so you each get your fair share?

Breaking up is hard to do, and so too is deciding who gets what if you and your partner have decided to call time on your marriage or de facto relationship.

Superannuation is a major component of the shared property pool for many Australian couples. In fact, if one or both parties is a high-income earner or has spent a significant amount of time in the full-time workforce, its value may well exceed that of the marital home or other joint investments.

Let's not stick together

There were 46,606 divorces granted in Australia in 2016, according to the Australian Bureau of Statistics' report on Marriage and Divorces. The median duration of those marriages was 12 years, with the median age at time of divorce being 45.5 years for men and 42.9 years for women.

By this stage of life, superannuation balances can be sizeable. The average Australian male aged 45 to 49 had $145,076 in super in 2015–16, according to the Association of Superannuation Funds of Australia (ASFA), while women aged 40 to 44 had an average of $61,922.

Who gets what in the divorce?

When it comes to determining how divorcing couples should divide their assets, the courts generally take what's termed a 'two-pool approach', according to family law specialist and Linden Legal principal Margaret Linden.

"One pool is the non-super assets, and the other is the super assets," Linden explains, "and they'll generally be split in the same proportions – whether that's 50/50 or 60/40, or whatever is agreed on.

"Money is then transferred from one party's super fund to the other, to make up the balance."

Some couples opt for a one-pool approach, whereby all assets, including super, are tallied and then divvied up in whatever proportions the parties agree on. This can result in a situation where one person receives most or all of the equity in the family home while the other party retains the bulk of their shared super.

In such scenarios, says Linden, it's typically women who seek a larger share of the non-super assets, particularly if there are dependent children in the mix.

"Usually they're the ones with the lesser income, so cash now is far more important to them than super in 20 years' time," Linden explains. "Their immediate consideration tends to be housing their kids and getting through the next five or 10 years, until they're off their hands."

Conversely, some high-income earners have the cash flow to rehouse themselves and are happy to receive a lump-sum injection to their super fund, in lieu of more liquid assets.

A one-pool split essentially equates each dollar of super with one dollar of cash – an equation worth considering carefully depending on your specific circumstances, Linden points out.

"Depending on your age, it can be a good approach," she says. "If you're over 50 and nearing retirement, that's fine. But if both parties are in their forties or younger, a dollar of cash is going to be more valuable than a dollar of super, unless there's really serious money in the equation.

"If that's not the case, then it's unlikely either person will agree to take a lot of super, because the wait to access the funds is too long."

Super splitting laws

Superannuation splitting laws introduced in 2001 made it possible for superannuation balances to be divided as part of family law property settlements.

If you don't know how much your ex has amassed in super, you're entitled to ask their fund's trustee. You'll be provided with their balance on an agreed date, and a valuation can be calculated based on this information.

You may then make a legal agreement, known as a superannuation agreement, about how any super either of you has will be divided between you. In order for this agreement to be binding, you need to provide evidence that you've both received independent legal advice prior to its signing.

Your super can be split by court order if you're unable to come to agreement.

Sorting out your super split

So should you share the collective contents of your super accounts equally, hang onto your own contributions, or take a larger slice of the retirement pie and a lesser proportion of the family home and other assets?

There's no one correct answer that suits everyone, according to RetireInvest planner John Walker. Respective ages, incomes and family situations all play a part in determining how couples should divvy up their retirement savings within a property settlement, so it's a good idea to seek personalised advice.

"The idea is to take into account everyone's circumstances from a practical point of view when you're trying to determine an equitable split," Walker says.

"Ideally, you'll have a financial planner as well as a lawyer on your team. There can be real value in working with someone who's competent and listens, but isn't sucked into the emotionality of it all.

"Their role is to be a sounding board and to help you get to grips with your new circumstances, and [to] work out a plan to move forward financially once you've settled your affairs."

To discuss your circumstances, contact your financial adviser.