Super and divorce — how super is split

Super is property

Since 2002, super has been treated as property under the Family Law Act. That means in any separation — divorce, or de facto separation meeting the time thresholds — super accounts are part of the asset pool available to be split.

Four ways to handle super in a settlement

• Offset. One party takes more of the non-super assets (house, savings, shares) and the other keeps their super intact. Simple, no super-fund paperwork.
• Splitting order. A court order (or binding financial agreement) directs the super fund to transfer a specified amount or percentage from one spouse’s account to the other’s.
• Flagging order. Prevents either party from withdrawing from a specified super account until the issue is resolved — used when valuation is uncertain (e.g. defined benefit pensions).
• Do nothing. If both parties agree and super balances are similar, sometimes no split is needed. Risky if you don’t document this formally.

How a splitting order is implemented

1. Negotiate the split amount — a specific dollar figure or percentage
2. Document it in a Binding Financial Agreement (with independent legal advice for each party) or court order
3. Serve the order on the super fund
4. The fund transfers the amount from the member’s account to the receiving spouse’s super
5. The receiving spouse keeps it in super (preserved) — can’t cash it out before preservation age

Tax consequences

• The split itself is not a taxable event when done under an order
• The receiving spouse inherits the taxable/tax-free components proportionally
• When the receiving spouse later withdraws, normal super tax rules apply
• The contribution caps are not affected by a family law split — it’s not a contribution in the normal sense

Valuing defined-benefit pensions

Defined-benefit funds (common in public sector, older corporate super) don’t have a simple account balance. Valuation requires a Family Law Information Request from the fund, followed by actuarial calculation. It’s where most splits get complicated and expensive. Budget for actuary fees of $500–$2,000.

SMSFs and separation

Where both parties are members of the same SMSF, separation becomes operationally messy:

• Ongoing trustee obligations may require one party to roll out to a new fund
• Asset sales to fund a split can trigger CGT inside the SMSF
• Corporate trustee structures make removal of a director cleaner than individual trustee structures

Many family lawyers recommend both parties establish new individual SMSFs or move to retail funds rather than try to continue co-trusteeing.

De facto thresholds

De facto couples have the same rights to super splitting as married couples, provided they meet one of:

• 2+ years of cohabitation
• A child of the relationship
• Significant financial contributions where a serious injustice would result without the split

Do this before you sign anything

• Request a Form 6 superannuation information request from each other’s funds
• Work out the tax-free / taxable split of each account
• Run the numbers on offset vs split — sometimes taking the house works out better, sometimes worse
• Get independent legal advice — a Binding Financial Agreement without it is void