Divorce can be complicated, and determining the division of assets is often challenging—particularly when it comes to superannuation. Unlike cash or real estate, superannuation is usually secured in a trust, making it not readily accessible. Nonetheless, per the Family Law Act 1975, superannuation is treated as property and can be apportioned between separating partners.
How Superannuation is Divided
The method of dividing superannuation varies based on whether it is held in a self-managed fund or one governed by the Australian Prudential Regulation Authority (APRA):
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Self-managed funds: The guidelines hinge on the specific fund deed. Some funds permit an immediate division, while others necessitate waiting until retirement or preservation age for access.
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APRA-regulated funds: These typically adhere to standard legal protocols for splitting superannuation.
When Can You Claim Superannuation?
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Married couples: You can seek a superannuation split within 12 months after the finalisation of your divorce. If you are separated but not yet divorced, you can apply at any point during the process.
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De facto relationships: You have 24 months from the date of separation to file your application. However, if the relationship lasted less than two years, you may only qualify if you have a child together or can demonstrate financial hardship.
Even if you miss these deadlines, it’s possible for the court to permit you to claim superannuation in situations of significant hardship.
What Factors Affect Superannuation Splitting?
While many couples come to a reasonable agreement on division without court intervention, if the matter goes to a judge, they will consider:
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The duration of the relationship
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The value of each partner’s superannuation
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Each person’s financial contributions (e.g., income, assets)
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Non-financial contributions (e.g., home duties, parenting)
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The well-being of children or dependents
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Disparities in income
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Future financial obligations
Although property distributions aren’t always split evenly, superannuation can be an exception, especially if both individuals entered the relationship with minimal super. The objective is often to ensure both parties receive a similar superannuation balance.
Tax Traps You Need to Watch Out For
Dividing assets during a divorce is not just about equity; it also carries tax consequences. Here are some key tax pitfalls to be aware of:
Capital Gains Tax (CGT)
As superannuation transfers usually occur without actual cash transactions, the market value substitution rule is applicable. Essentially:
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The individual transferring the asset is taxed based on the market value of the superannuation, rather than the original purchase price.
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The party receiving the superannuation will take on the market value cost base of the asset.
The good news is that certain exemptions and rollovers may alleviate the impact of CGT.
The Main Residence Exemption
If you jointly own property, there are specific rules regarding capital gains tax exemptions for your main residence. Key points to consider:
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If you and your former partner have been living apart, only one primary residence can be claimed between the two parties.
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In the case of multiple properties, the exemption is applicable to each property individually.
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To prevent future tax disputes, it’s advisable to reach a written agreement regarding any decisions about the principal residence exemption.
The Bottom Line
Dividing superannuation during a divorce can be complex, but a solid understanding of the rules, timelines, and tax implications can help streamline the process. Whether you are managing the situation amicably or moving towards court, obtaining professional legal and financial guidance is a prudent choice to safeguard your future.
For more insights on navigating divorce and related financial matters, visit Connect Client.
