Can I do that?
The long-awaited legislation allowing
couples to split their super on divorce came into
effect on December 28. This means any property
settlements finalised after this date can include a
division of superannuation benefits. The legislation
doesn’t, however, apply to de facto or same-sex
couples, so if you’re not married you’ll still have to
muddle along under the existing rules. These allow
super to be taken into account in property
settlements, but you can’t actually split the benefits.
How does splitting work?
Deborah Wilson, the
technical services manager with BT Funds
Management, says super benefits can be split or
flagged as part of a settlement.
If you want to make a clean break, she says, you
can opt for an "interest split" where your interest in
your spouse’s fund is transferred into a new or
existing super account for you and your spouse no
longer has any rights over that money.
Interest splits can be used for all accumulation
funds and allocated pensions but they don’t work
with defined benefit funds as the money isn’t actually
in the fund member’s account – it is a promised
benefit to be funded by the employer.
In cases such as this where a clean break can’t be
made, Wilson says you can opt for a "payment split"
where future payments from the super fund are split
between you. Your agreement must identify the
interest that you have in your spouse’s super and
how the amount payable will be calculated.
In some cases, particularly if your spouse is near
retirement, it may be better to "flag" your interest in
the super benefit and work out the details of the split
when the actual value of the benefit is known. Wilson
says this effectively puts a "hold" over your spouse’s
super account and it doesn’t have to specify how the
benefit will be apportioned.
Once you have an agreement, the trustee of the
super fund must be notified and provided with
evidence of the marriage breakdown. The trustee will
confirm the details of the split with both of you and
send the necessary forms to the recipient spouse so
he or she can choose where the money goes.
If you can’t agree on how the super should be split,
you can seek a court order to either split or flag your
spouse’s super benefit. Wilson says that for
agreements to be valid both parties must get
independent legal advice and have their lawyer
certify that such advice was given.
There are some super entitlements, however, that
can’t be split. These include super interests with a
withdrawal value of less than $5000, payments to the
member spouse on compassionate or hardship
grounds, and payments of some insurance benefits.
Is there any tax payable?
The general principle,
says Wilson, is that there is no tax at the time of the
split and the benefit is then treated as if you had
accrued it in your own name. This means you both
get access to the valuable tax concessions on super
benefits – such as the $112,405 lump sum tax-free
threshold – and your own reasonable benefit limit.
However, there are some traps relating to specific
situations and it may be worth seeking expert advice
before you decide to split – particularly if you or your
spouse has pre-1983 service.
Can I include super in a pre-nuptial agreement?
Yes. Wilson says these agreements can even cover
future super entitlements that may not exist at the
time you make the agreement.
