HOW SUPERANNUATION IS DISTRIBUTED AND HANDLED IN A FINANCIAL SETTLEMENT FOR DIVORCE
Financial settlements in divorce can be complicated. Sometimes, yet not always, a superfund transfer may be included. “Financial settlements can be confusing and challenging. Having a clearer understanding of what you are embarking upon in your financial settlement certainly helps. Superannuation is one part of the settlement that often needs clarification,” says Rachael Scharrer, life change counsellor and Separation Strategist. Rachael Scharrer addresses some common questions about superannuation and divorce.
What are the common misunderstandings about Superannuation and divorce?
What is the process of reaching a settlement agreement? As with all financial settlements, a statement of balance needs to be provided to the other party regardless of whether you are in a self-managed super fund or an industry/retail/government/corporate super fund to prove the value of your Superannuation.
The couple will work of the one balance sheet and negotiate a settlement agreement. You may be interested in reading two related articles:
If negotiations are protracted, assets and liabilities may increase or decrease. As such, there may be a need to get updated statements so that the balance sheet is as accurate and as true to the date of the negotiation.
Couples can negotiate to split a portion of the superannuation as well as the other assets and distribute any debt in the relationship. Read this article before you take on any debt: Financial Settlements and Debt
How superannuation is distributed in a financial settlement If you agree to a superannuation split as a part of the financial settlement, it is important to understand that it is unlikely that your superannuation will be given to you as cash. If you are not of retirement age, the transfer of super will go from one person’s superfund account to the other person’s superfund account. To reiterate, yes, superannuation is cash, however it is a cash transfer that will NOT benefit you in the short term if you are not of retirement age. A superfund transfer means that you will be in a better financial position in your mature age.
If you are of retirement age, you will be able to access your superannuation. Please contact your lawyer, accountant and/or superfund for appropriate advice.
How to transfer the superannuation in a financial settlement Superannuation can only be transferred with a Court Order. Upon receiving sealed and signed Court Orders, you will need to supply a copy of the Orders to the Superfund that is transferring out the funds. It is also likely that you will need to fill out a form as nominated by the superfund to approve the transfer.
How can you access the cash within the superfund? In a divorce, it is unlikely or incredibly rare for you to lose all of your superannuation. While it is possible that you may lose as much as half of your superannuation, your superfund account (or SMSF) will still be an active account. For more information about early access to your superannuation due to financial hardship, please contact the ATO directly or your accountant.
If you are experiencing financial hardship and want to know more about accessing your superannuation early, read this article.
Update your beneficiaries Upon separation and divorce, it is important for you to contact your superfund manager and ensure that your nominated beneficiaries are the person or people that you want it to be. It’s also worthy of ensuring that all of your personal details are also correct and accurate.
What if you have a Self-Managed Super Fund? Self-Managed Super Funds (SMSF) are an asset of the owner/beneficiary and their ‘ownership’ relates to the relevant contributions and performance of the contributions in investments. It is a similar set up to other ‘ordinary’ Super Funds managed by an investment company. If you have a SMSF, it is likely that you have already rolled all of your super into that account.
Just like industry superfunds, transferring funds to your ex-spouse will require a court order and documentation/paperwork to ensure that you are compliant with Superannuation regulations. Your accountant can assist you.
Recommendation For a financial settlement to be binding, it is always recommended to lodge the settlement at court and have it made as an order. Remember that full and frank disclosure is also expected. If it is found out that you have been deceptive, then your court order may be overturned and negotiations are likely to proceed in court and not in the favour of the misleading person.
Related article: Claiming Financial hardship and early access to superannuation