Q: My husband and I have split up and we’re trying to sort our financial split. I know I can claim part of his super but I’m not sure how it would work. Can you explain if the money needs to be kept in super — are there any rules I need to be aware of? Are there other options?
A: Divorce is one of the leading causes of financial hardship for women so taking an active interest in your financial future is a positive step. Family law and superannuation law allow an interest in super to be split in the event of relationship breakdown. But, it works both ways. While you may be entitled to some of your husband’s super, he may also be entitled to some of yours.
A super interest or payment can be split by an agreement or court order. These outline how the super will be split between a couple. If you and your husband have a superannuation agreement that is legally binding, this agreement may be used to address the split.
There are a number of things to consider when splitting super as part of divorce. Depending on the rules of your husband’s super fund, the split may occur when the agreement or order is received by his fund rather than waiting until he can access his super. If his super interest can’t be split now for whatever reason, it may be possible for the fund to place a flag on his account so the amount may be split or transferred to you when he qualifies to receive his super.
There are points to be aware of when a non-member spouse is entitled to receive a portion of their spouse’s super as part of a divorce settlement.
Depending on the rules of the super fund, a new super interest may be created for the non-member spouse in the same fund. If it doesn’t, the non-member spouse may have the choice to transfer or roll over to a fund of their choice. It’s worth noting that any benefit rolled over to the non-member spouse’s super account as part of a payment split is not treated as a contribution in the non-member spouse’s account. This means it will not be measured against your contribution caps. But you do need to be aware it could have an impact on your future contribution opportunities.
From July 1, 2017, the ability to make non-concessional (or after tax) contributions to your super each financial year will be determined by what is called your “total super balance” at the previous June 30. Where your total super balance (generally the value of what you hold in super, adjusted by defined benefit arrangements if you have them) at the previous June 30 is below $1.6 million, you have the ability to make non-concessional contributions in the current financial year. So any super split you receive in the current year won’t impact your ability to contribute this financial year, but will count in your balance at the next June 30 and therefore could impact your ability to contribute more if you choose to do that next financial year.
Any benefit transferred to you as part of a super split will have the same underlying tax free and taxable components as your husband’s super. For example, if 50 per cent of his super was a tax-free component, then 50 per cent of what is split to you will be a tax-free component. Be mindful of the taxable and tax-free portion, which is only relevant at the time the split occurs. If you are thinking of investing your super, depending on how you invest the super monies, these proportions could be different when you do retire in the future.
The preservation status (or ability to access that super) of a spouse whose super is being split will be carried across post the split of super. If your husband was already able to access all or some of his super, then you will have access to that same proportion of the monies split across. But this doesn’t mean you can also automatically access that same proportion of your own super accumulated to date.
Any preserved component of a spouse’s super will also be preserved in the non-member spouse’s account. You certainly have some big decisions to make about your financial future and some complexities to navigate. It may be worthwhile working through your options with a financial adviser to ensure you set yourself up for financial success now and into the future.
By Sarah Conte
28 November 2017