Key Highlights

  • Superannuation is treated as property under Australia’s family law framework and can generally be divided following a relationship breakdown.
  • A super interest may be split through an agreement or court order, with the resulting interest potentially transferred or rolled into an account for the non-member spouse.
  • Splitting an income stream can affect transfer balance accounts, while the tax-free and taxable components are allocated between the parties according to the applicable rules.
  • Eligible parties in current family law proceedings can request certain super information through the court from the ATO.

Superannuation can become an important component of financial arrangements when a marriage or de facto relationship ends. Under the Australian family law framework, Superannuation is treated as property, although it differs from other property because super interests are generally held within a trust structure.

The Family Court and superannuation-splitting provisions allow super interests, including accounts held in super funds, and certain super payments such as pensions or annuities, to be divided following a relationship breakdown. The division can be established through an agreement between the parties or a court order.

This means former partners may be able to settle their superannuation interests as part of their broader financial settlement instead of waiting until the member spouse reaches retirement.

Options for Splitting Super Assets

The division of super can involve a member spouse and a non-member spouse. Where the rules of the fund permit, the non-member spouse may establish a separate super account within the same fund. Where this is not possible, the relevant interest can generally be transferred or rolled over into another super fund in the non-member spouse’s name.

A non-member spouse may be able to access the resulting super interest immediately if they satisfy a relevant condition of release. Otherwise, the amount remains subject to the rules governing access to superannuation.

The tax-free and taxable portions of the super interest are determined immediately before the split. These components are then allocated between the resulting interests or payments according to the applicable proportions.

What Happens to an Existing Income Stream?

Relationship breakdown can also affect superannuation income streams that have already commenced. A superannuation agreement or court order can provide for an existing income stream to be divided.

In many cases, the income stream may be commuted into a lump sum under the governing rules of the fund. The non-member spouse receives their entitlement under the agreement or court order, while the remaining amount can be paid to the member spouse either as a lump sum or as a reduced income stream.

Where an income stream cannot be fully converted into a lump sum, both parties may instead receive separate regular payments from the original income stream. The treatment depends on the fund’s governing rules and the terms of the applicable agreement or court order.

Transfer Balance Cap Implications

Splitting a retirement-phase income stream can have consequences for both spouses’ transfer balance accounts. Where an income stream is split, the relevant event may need to be reported so the transfer balance accounts of both parties can be managed correctly.

For example, if a member spouse commutes all or part of an income stream to provide a lump sum to the non-member spouse, a debit can arise in the member spouse’s transfer balance account. If the non-member spouse subsequently uses that amount to commence a super income stream, a corresponding transfer balance Credit can arise for that person.

The fund generally reports these events, although notification requirements can also apply depending on the circumstances.

Tax Treatment Following a Super Split

The tax consequences of dividing superannuation are applied separately to the two parties. The taxable and tax-free proportions of the original super interest are generally carried across to the portions retained by the member spouse and transferred to the non-member spouse.

If the non-member spouse establishes a new super interest, future benefits taken from that account are generally taxed under the rules applicable to member benefits.

A super split can also change each person’s total super balance. For the non-member spouse, an increase in super may affect their ability to make future contributions. For the member spouse, a reduction in their balance may potentially bring them below certain thresholds relevant to future contributions.

Self-Managed Super Funds

Relationship breakdown can create additional considerations where the parties are members of a self-managed super fund. SMSF trustees remain responsible for complying with superannuation agreements and court orders and for meeting the fund’s legal and reporting obligations.

Depending on the fund’s trust deed and the circumstances of the separation, the SMSF may need to be restructured or wound up. Trustees must continue to act in the interests of the fund’s members while implementing the required super split.

The rules also provide an exception to the usual restrictions on acquiring Assets from a related party where the Acquisition occurs because of a member’s relationship breakdown.

Access to Super Information in Family Law Proceedings

Since 1 April 2022, individuals involved in eligible property settlement proceedings can request information about a current or former spouse’s super interests through the family law courts.

The request must be made through the relevant court rather than directly to the ATO. Where eligible, the court can request available information, and the ATO responds with details it holds, including fund information, the latest reported balance and the account phase where available.

However, ATO information may not represent the latest Account Balance and should not be treated as the sole evidence for a property settlement. Updated information can be obtained directly from the relevant super fund, while specific rules can apply to certain defined benefit arrangements.

Conclusion

Superannuation can form a significant part of financial arrangements following the breakdown of a marriage or de facto relationship. Australian rules allow eligible super interests and payments to be divided through agreements or court orders, with different considerations applying to accumulation accounts, income streams and SMSFs. The split can also affect tax components, total super balances and transfer balance accounts. Access to super information through family law courts can assist eligible parties in identifying relevant interests, although current fund information may still be required when determining the final settlement.