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Superannuation has been compulsory in Australia since 1992. Employers must contribute a percentage of an employee’s salary into a superannuation fund of the employee’s choosing. The minimum percentage contribution required to be made by an employer is currently 9.5%. Employers and employees can negotiate higher percentage contributions.
What happens to superannuation when you separate?
Superannuation is classified as an asset of the relationship however is dealt with differently from other assets held by the parties. In family law, superannuation is covered by the Family Law Act 1975 and the Superannuation Industry (Supervision) Act 1993. There are strict laws governing superannuation funds and caution must be taken to ensure that the laws are complied with by solicitors and the parties themselves.
What is a superannuation splitting order?
Under the Family Law Act, the parties are referred to as the member and the non-member spouse. However, it must be noted that superannuation splitting orders apply to married parties and de-facto couples.
Due to the regulations surrounding superannuation, the parties must obtain an Order from the Court, or enter into a Financial Agreement, to split superannuation. After a splitting order is made, the trustee of the member’s superannuation fund will transfer the specified amount of the superannuation to the non-member spouse’s superannuation fund.
After the splitting order takes effect, the laws regulating superannuation remain, particularly in that the superannuation funds cannot be accessed until the individual reaches the legislated retirement age to access superannuation. There are some limited exceptional circumstances in which superannuation can be accessed early, such as suffering financial hardship.
Common types of superannuation
The most common type of superannuation fund in Australia is the accumulation plan. In an accumulation plan, the individual and the employer contribute to the fund and the superannuation value grows or accumulates over time. The accumulation plan value increases through the contributions made to the fund and the investment growth. An accumulation plan generally provides lump-sum benefits.
The risk with the accumulation plan is that if the market drops, the superannuation held in the super fund may also decrease. However, if the market increases, the value of the superannuation increases as well.
Defined Benefit Plan
A defined benefit plan superannuation is the original superannuation fund type. The members are usually, but not always, government employees. Many defined benefit schemes no longer accept new members as the employer is required to carry the financial risk in a decrease in the market. If you consider leaving a defined benefit fund superannuation scheme, you should obtain independent financial advice as many defined benefit schemes will not allow you to rejoin.
The payment rate for a defined benefit scheme is determined by the contributions made by the individual and the employer, the member’s salary around the time of retirement and the individual’s length of service with the employer. Each defined benefit fund then uses a formula as to the individual’s final superannuation benefit. When parties separate, the value of the defined benefit fund can be brought into question.
The Family Law team at Fourtree Lawyers can assist you with having your defined benefit fund valued for a Family Law property settlement.
Self-Managed Superannuation Fund (“SMSF”)
Self-managed superannuation funds are private accumulation plan superannuation funds that the individual manages and is usually a trustee. Broadly, SMSF’s are governed by the same regulations as other superannuation funds, but the members themselves have to ensure compliance with the super and tax laws.
The benefits of an SMSF are that the individual members have the power over their own financial investment and can invest the money in their own choice of investments. The responsibility of running your own SMSF also comes with risks, particularly in that you are personally liable for all the fund’s decisions.
There can be penalties for the individual members of the SMSF for not complying with the governing laws, including fines and imprisonment. It must be noted that, except in limited exceptional circumstances, individuals are not permitted to withdraw money from their superannuation funds for their personal expenditure. If you need to access money from your superannuation, you will need to seek independent financial advice.
In Family Law matters, the members of the SMSF are generally the husband and wife, or de-facto couple. To comply with the court’s duty to end financial relations between the parties and avoid further proceedings, the parties should reach an agreement on how to deal with the SMSF. In practicality, this often means that either one member has to resign their membership in the SMSF and either set up their own new SMSF or enter into a new superannuation scheme. Otherwise, the SMSF is wound up and both parties arrange their own new superannuation funds.
We are here to help
Our Family Law Solicitors specialise in Family Law Superannuation matters and represent clients throughout the Central Coast, Newcastle & Hunter Regions. We have the experience and understanding to guide you through the process from beginning to end and get you the best possible outcome.
The Family Law team at Fourtree Lawyers can provide you with detailed advice and assistance regarding dealing with superannuation after separation and prepare the documentation to effect a superannuation split. Contact one of our Family Law Specialists on 1300 529 444 or fill in a contact form to arrange a free conference with a solicitor today.
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