Super and divorce
Divorce is not only distressing but can also be financially devastating if it’s not managed carefully. Here are some essential facts to help you navigate the complexities of a divorce settlement, then get your retirement savings back on track.
Divorce is both painful and stressful, especially when children are involved. Making it even harder are all of the difficult practical decisions you need to make – particularly when it comes to agreeing who gets what.
Recent research led by the Australian Institute of Family Studies confirms what most people probably suspect – that a relationship breakdown can negatively affect your finances long after the divorce papers are signed. Analysing data from more than 7,7000 households gathered between 2001 and 2010, the research found that divorced single men have an average of $762,000 less in assets at age 55 than those who have stayed married, while divorced single women fall an average of $645,000 behind their married peers1.
Fortunately, it doesn’t have to be that way. While no adviser can promise to make your divorce stress-free, professional financial and legal advice can help you navigate the complexities of superannuation law and get your super and investments back on track.
What happens to your super?
When you divorce, the law treats the super you and your partner have saved as simply another asset to be divided up. However because super is a special class of investment, preserved until you retire or meet some other condition of release, there are also some important differences in the way it is treated.
Like other assets, super is not necessarily divided depending on how much each partner contributed financially. For example, a spouse who spends time working in the home and taking care of children, rather than in paid employment, may be entitled to a share of their partner’s super.
You can split your super with your spouse immediately. However, as super is usually preserved you will need to leave it in a super fund until you retire, for example. Or you could decide that one person can take other assets worth the value of their share of the super, but leave the super intact.
If you decide to split your super, you can do so through:
- A superannuation agreement, outlining how you would like to split your superannuation if your relationship breaks down. As this is a legal agreement, it must be organised through a lawyer.
- A Court Order, as part of a property settlement. This could be a consent order or it may be required if you and your spouse are unable to reach an agreement independently.
Legally, the trustee of your super fund must follow your superannuation agreement or court order.
One more point to keep in mind: these rules also apply to de facto relationships except in Western Australia. So just because you aren’t married, it doesn’t mean you aren’t entitled to your share.
The settlement process
While the process can be different, depending on your circumstances and the choices you make, a superannuation split usually follows these steps:
1. Identify and value the super you’ve accrued together. The first step is to find out what your super and your partner’s super is currently worth. You can send a request to your spouse’s super fund for information, even if you are not a member of the fund.
2. Reach an agreement. This will involve lawyers, even if you reach a friendly agreement on splitting your super. If you can’t reach an agreement, you’ll need to apply for a court order.
3. Each partner’s contributions are assessed. This includes the contribution of taking care of the children and the home, and whether you or your spouse made financial contributions to your super before the marriage. A court will also consider the financial position that both parties will be in after the divorce or separation, which may affect how super is divided.
Investing your super settlement
Once your divorce or separation is finally settled, you may end up with a lump sum – sometimes a large amount. This is when it’s especially important to get the right kind of financial advice to make sure you put this money to work for your future.
A financial adviser can help you decide how best to invest your super, depending on the amount of time you have before you retire, whether you still have dependent children and the level of risk you’re comfortable with.
Getting back on track
Once the settlement is complete, you should also take stock of where you are financially, listing your other financial assets and liabilities, and working out how much you need to cover everyday living costs of living. Keep in mind that it may take time to get used to living on a single income if you and your ex-partner both worked.
It’s essential to get good financial advice throughout and after the settlement. A good adviser will be able to recommend some strategies to help you rebuild your super if needed, such as salary sacrificing.
Five tips for getting back on track
- Close or freeze all your joint accounts.
- Make a budget for your new life – and stick to it.
- Update your will and your insurance, especially if you have children who rely on your income.
- If you’re receiving any financial benefits such as childcare payments, make sure Centrelink know your new circumstances.
- Get support from family and friends. Going through a separation can be particularly lonely, so make sure you reach out to others and get help when you need it.
1Australian Institute of Family Studies (AIFS), The Financial Impact of Divorce, July 2012.
This document has been prepared by Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) based on its understanding of current regulatory requirements and laws as at 26 April 2013. This document is not advice and provides information only. It does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement available from the product issuer carefully and assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision.
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