Divorce or separation can be one of the most challenging life events, not just emotionally but financially as well. Superannuation is often one of the largest assets in a relationship and must be considered in property settlements. Understanding the rules around super splitting, tax implications, and estate planning is essential to ensure a fair and strategic financial outcome.
How Super is Treated in a Relationship Breakdown
Superannuation is considered property under family law and can be split between partners as part of a settlement. However, it remains in the super system until a condition of release is met.
Super Splitting: What Can Be Split?
Most types of superannuation, including accumulation accounts, defined benefits, and account-based pensions, can be split. However, exceptions apply, such as small balances under $5,000 or payments made on compassionate grounds.
Methods of Super Splitting
Super can be split using:
- Base Amount Method – A fixed dollar amount is transferred to the non-member spouse.
- Percentage Split – A percentage of the member’s super balance is allocated to the non-member spouse.
- Income Split – For defined benefit pensions, a portion of each income payment may be allocated to the non-member spouse.
Impact on Tax and Contribution Caps
Super splits are treated as rollovers, meaning they do not count towards the contribution caps of either spouse. However, tax-free and taxable components are proportionally transferred, which can affect future tax treatment.
Super Splitting in SMSFs
Splitting super in a Self-Managed Super Fund (SMSF) adds complexity, as both parties are often members and trustees. Options include one party exiting the fund, rolling over to a different fund, or liquidating assets to facilitate the split.
Centrelink Implications
For individuals receiving Centrelink benefits, superannuation splits may impact eligibility and asset/income tests. Transferring assets under a formal property settlement typically does not count as gifting.
Estate Planning Considerations
Relationship breakdowns often require a review of wills, binding nominations, and trust structures. Failing to update these documents could result in unintended beneficiaries receiving assets.
Final Thoughts
Super splitting is a complex process with significant financial and tax implications. Seeking professional financial and legal advice is crucial to ensuring a fair and tax-effective outcome.