With the increasing emphasis on superannuation as the main retirement savings vehicle, it is quite likely that in the not too distant future, a client’s superannuation benefit may surpass the main home as their major asset.
Add to the mix the fact that nearly 30% of marriages end in divorce and it is easy to see that advice is required on how best to deal with superannuation and divorce.
Advising in this area requires a good understanding of the interactions between Family, Superannuation and Tax laws as well as a great deal of patience and emotional sensitivity. One point to note is that planning opportunities generally only exist when couples are willing to negotiate and agree between themselves rather than ending up in Court where the Court simply makes appropriate orders.
Unfortunately, this may mean that planners may face a dilemma as to for whom they should act as in most cases, they could have been acting for the clients as a couple. In a divorce situation, a planner should not act for both as a conflict of interest situation is very high and should be avoided. As a consequence, planners may be required to think beyond the square and consider external factors that might impact on valuations and therefore on the nature and structure of the ultimate settlement that is in the best interests the selected client rather than their (ex) partner.
As if this area was not complex enough, one needs to be aware that superannuation splitting laws in nearly all Australian states and territories EXCEPT Western Australia, apply to de facto couples including both heterosexual and same sex couples. In Western Australia, superannuation for de facto couples is not a splittable asset but is considered as a financial resource. This means that it is taken into account when looking at how all of the assets are to be divided rather than being able to be split.
1. Understanding the general process
Understanding the process the courts go through when dividing property is the place to start. Generally, the court will consider the following factors:
- Identifies and values all the assets and liabilities of the couple;
- Assesses the contribution, both direct and indirect, each partner has made towards the total wealth. The contribution is not based only on monetary factors, but rather the court endeavours to take into account activities such as child rearing and home making;
- The court will also attempt to look into the future and consider any disparity in each partner’s financial situation. In many cases, for example, one of the spouses may have been out of the workforce for a number of years with family commitments while the other built a career and potentially has a higher earning capacity. How this may impact on the future living standards of the parties is also considered and the court will make adjustments for this as it feels is justified
- Finally there is a check to see if the final result, in the courts view, is “fair”.
Generally, the superannuation relationship breakdown rules apply to:
- Married people who divorce and want to finalize their property issues;
- People who are separated but not yet divorced who want to finalize their property issues;
- Couples in both heterosexual and same sex de facto relationships (except for WA) that separate and want to finalize their property issues.
The Family Law Act takes a number of factors into consideration when determining whether a “de facto” relation exists, but broadly, couples are in a de facto relationship where they have a relationship as a couple living together on a genuine domestic basis.
2. Accessing superannuation information
Under the superannuation splitting law, a trustee of a superannuation fund is required to provide information to an eligible applicant if a request by the applicant meets the prescribed requirements. A member of a superannuation fund or the spouse of the member or a person who intends to enter into a superannuation agreement with the member for family law purposes is an eligible applicant to request for information.
The request must be in writing with a declaration in the prescribed form- known as Form 6 declaration, along with the Superannuation Information Request form plus any requisite fee that may be applicable. Only information prescribed under the family law provisions can be provided and this must be provided within a reasonable timeframe.