Superannuation splitting orders have played a significant role in achieving more equitable financial outcomes, particularly for those who took on a primary caring role during a relationship or who didn't work for other reasons. Their importance will continue to grow with the legislated increases in the superannuation guarantee employers must contribute, which will reach 12% of gross pay by 2025.

In Australia, the primary legal framework that governs property division following the conclusion of a relationship is The Family Law Act 1975 (Cth) (the Act). In Western Australia, the legal landscape differs slightly. If you reside in Western Australia, it is advisable to seek advice from a local law firm.

The Act applies to individuals whether they were married or in a de facto relationship. The initial step in any property settlement process is to identify and value the property owned by each person involved in the relationship, whether it's owned individually, jointly, or with others outside the relationship. Property held in trusts, property within a deceased estate, and property transferred to other parties either before or after the relationship ended, may all be considered part of the asset pool open for division depending on the circumstances. Furthermore, the Act facilitates the division of superannuation, as although it’s legally a financial resource, and not property, it’s included in the pool of assets.

Superannuation splitting orders were introduced through the Family Law Legislation Amendment (Superannuation) Act 2001 (the FL Superannuation Act), commencing in 2002. The transfer of superannuation from one party to another is accomplished first through Part 7A of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations), which enables the creation of a new superannuation interest in the name of the non-member spouse. This effectively separates their interest from that of the member spouse within the same superannuation fund. Subsequently, the superannuation splitting order allows for the non-member's interest to be rolled over into a compliant fund of their choosing.

It's crucial for recipients of the superannuation split to understand that the funds will remain as superannuation until they, not their ex-partner, reach the preservation age. Accessing those funds will only be possible once they meet a condition of release.

Couples going through a separation can reach an agreement about property division through various means, such as negotiating independently, with the help of a mediator, through a collaborative law process, or via lawyers representing them. This agreement is formalised by filing an Application for Consent Orders, accompanied by the proposed Minutes of Order, to the Federal Circuit and Family Court of Australia. A Registrar will review the application, and if the asset division is deemed 'just and equitable,' and the Minutes are correctly drafted, the Orders will be sealed by the Court and become legally enforceable. Alternatively, formalizing the agreement can be done through a financial agreement, but each party must receive independent legal advice.

Given the complexity and strict legislative requirements associated with splitting superannuation, legal advice is imperative in situations where separating couples have agreed to divide their superannuation, where there is a significant disparity in superannuation interests, an imbalance in negotiation power, or the involvement of defined benefit or self-managed superannuation fund (SMSFs) interests.

 Common Pitfalls

Here are some common pitfalls or mistakes that we often observe in the treatment of superannuation interests in family law property settlements:

1. Treating superannuation as if it belongs to only one party and, consequently, not incorporating it as an asset in negotiations;

2. Overlooking the long-term financial impact of superannuation;

3. Applying a percentage adjustment across the global asset pool (inclusive of superannuation), as opposed to equalising the super, which may be more appropriate in some cases;

4. Failing to accurately value superannuation interests. The value should be determined at the time of the agreement, not at the time of separation. Additionally, specific interests, such as defined benefit and self-managed superannuation funds (SMSFs), may require valuation by a qualified appraiser;

5. Not properly considering the nature, form and characteristics of a defined benefit interest (this is a particularly complex area of law in which evolving case law applies).  

6. Not identifying superannuation interests. People don’t realise they have lost superannuation;

7. A party not knowing or not disclosing that there is an existing ‘flagging order’ on a superannuation interest. A flagging order means that the decision to split the member’s superannuation has been deferred to a date in the future;

8. Overlooking compliance issues with SMSFs. Parties often don’t understand the obligations  they are uner as trustees of their own funds, and that these obligations continue post-separation

9.  Failing to consider tax implications or a superannuation split. This can be costly. Both tax and financial advise is important if you have significant superanuation or hold in as a defined benefit or in a SMSF.

10. Not realising that different funds have unique rules and obligations outlined in their trust deeds and legislation. An order that suits one fund or interest type or fund, may not be suitable for another;

11. Not advising the fund of the parties’ intention to seek a superannuation splitting order prior to applying to the court for the order. In this case the Court may not make the Order, and even if it does, the Trustee may not consider it binding on them given they were not afforded procedural fairness required by the Act and natural justice.

12. Failing to differentiate between Property Orders and Financial Agreements and the variations in how superannuation is split in each.

13. Not serving the superannuation splitting order on the fund after it is made or failing to provide sufficient information. A Regulation 72 Notice, signed by the party receiving the superannuation split, must be provided when serving the order.

14.   Exchanging superannuation for equity in a property without assessing whether a discount should apply, considering that upfront equity is more valuable than superannuation, which may not be accessible until retirement age.

If you need advice in relation to superannuation splitting order or any other aspect of property division, book a consultation with an experienced family law lawyer here: https://www.focusonfamily.com.au/book-a-consultation