The Australian Financial Review recently ran an opinion piece (by Tim Mackay) on the ATO announcing that it is using a “top 100 SMSF” list to “target aggressive tax planning arrangements.” The top 100 SMSFs reportedly control a combined $8 billion.
Superannuation is a tax effective way to save for retirement, and while most people won’t have superannuation entitlements to the tune of billions, or even millions, it is often one of the most substantial assets “up for grabs” in the event of relationship breakdown.
This article looks at how the Family Court and Federal Circuit Court treat superannuation.
Asset by asset approach or global approach to dividing the property pool?
The court can adopt an “asset by asset” approach, or a “global approach”, which deals with the entirety of the property pool (all the assets and liabilities of the parties or either of them, including superannuation). The approach taken by the court may depend on a number of factors, such as:
- the length of the relationship;
- where a party brought an asset into the relationship;
- where parties have had separate finances and property during the relationship; and
- where the contributions of parties to a particular asset may differ from contributions to other assets.
Generally, the Court will adopt a global approach to determining how assets are divided post-separation.
Part VIIIB of the Family Law Act 1975 (Cth) deals with the treatment of superannuation interests in family law property cases.
In the event of a marriage or de facto relationship breakdown, a superannuation interest can be split between spouse parties pursuant to the Family Law Act 1975 and the Superannuation Industry (Supervision) Act 1993 (Cth) (except for in WA where superannuation can’t be split between de facto couples**).
This has been the case since 2002, when the super splitting legislation was introduced to overcome inequitable outcomes in family law, where a spouse who had been the “breadwinner” retained the entirety of their superannuation, regardless of the length of the relationship or the contributions of the parties, because there was no means to transfer any of that superannuation to a “homemaker” spouse.
A superannuation split means that all or part of a superannuation interest is paid from one spouse or party to a de facto relationship into the fund of another spouse or party to a de facto relationship. Splitting superannuation will not convert it to cash, and the split payment will still be subject to superannuation laws.
The division of superannuation can be either:
- by formal written agreement between you and your ex-partner;
- pursuant to Orders made by consent between you and your ex-partner; or
- an order to split superannuation can be sought from the Court if you cannot reach agreement.
The court’s treatment of super
The Full Court of the Family Court set out the court’s approach to superannuation in Coghlan.:
In Coghlan, the Trial Judge had ordered a 60%/40% division of property in favour of the wife excluding superannuation entitlements. The net value of the parties’ property was approximately $600,000, while the combined value of the parties’ superannuation entitlements was approximately $360,000.
The parties’ superannuation “pool” was made up of:
- the wife’s future super entitlements of approximately $65,000, comprised of entitlements in a defined benefit scheme, as well as an accumulation scheme;
- the husband’s lump sum super of approximately $65,000, received three years prior to the hearing; and
- the husband’s superannuation pension valued at approximately $230,000.
The Trial Judge had made no order in relation to superannuation.
The Full Court stated:
“the Trial Judge has a discretion as to how superannuation interests will be treated in a particular case. If superannuation is not included in the list of property but rather made the subject of a separate pool, it will be necessary where a splitting order is sought, or extremely prudent where no such splitting order is sought (in order to ensure that justice and equity is achieved) to:
(a) value the superannuation interest (according to the Regulations if an order under Part VIIIB is sought or according to the Regulations or otherwise if no order is sought);
(b) consider and make findings about the types of contributions referred to in s 79(4)(a), (b) and (c) which have been made by the parties to the superannuation interests on either a global approach or an asset by asset approach depending on the circumstances;
(c) consider the other factors in s 79(4) being the matters in s 79(4)(d), (e), (f) and (g); and
(d) ensure that pursuant to s 79(2) the orders in relation to the parties’ property, and any order under Part VIIIB in relation to superannuation interests are just and equitable.”
Pursuant to Coghlan, it is now commonplace for property settlements to include superannuation splits which reflect the financial, non-financial and homemaker contributions to the parties’ overall property pool, and the future needs of each of the parties.
**The Attorney-General released a statement in October 2018 setting out an intention by the Federal Government to amend the Family Law Act 1975 (Cth) “as soon as possible” so that WA de facto couples will be able to split super.