Superannuation and relationship breakdown

Overview

If your relationship with your spouse ends, you should be aware of what can happen to the super entitlements of you both.

The Family Court and super-splitting laws generally enable super interests (accounts in super funds) or super payments (pensions or annuities) to be split by agreement or court order if a relationship breaks down.

There are options for splitting super depending on whether you are the member or non-member spouse of the super fund that reports this information to the ATO.

The ATO may be able to provide information to the family courts on the assets of the other party in family law proceedings where there are concerns that they have not fully disclosed.

A spouse is a person who lived with you on a genuine domestic basis in a relationship as a couple (whether of the same or different sex). This includes a de facto relationship – you do not necessarily need to be legally married.

For more detailed legal information on the law that applies to superannuation in a relationship breakdown, see Attorney-General’s Department (search for ‘Superannuation splitting’).

How super is treated

Superannuation is treated as property under the Family Law Act 1975 but differs from other types of property because it’s held in a trust.

Where the super interest can be split under superannuation law and the super fund rules, the parties can finalise their superannuation entitlements and obligations as part of their settlement, rather than waiting until the member spouse retires.

How an interest in a super fund or a super payment will be split between the member and non-member spouses may be specified by a court order or a superannuation agreement negotiated as part of a financial settlement.

Options for splitting super assets

If the fund’s rules allow it, the non-member spouse can open a new super account for themself in the same fund. If not, the fund can transfer or roll over the interest to another fund in the non-member spouse’s name.

If a non-member spouse meets a condition of release, they may be able to access their interest immediately in the form of a super benefit.

The tax-free and taxable components of the super interest or super payment is calculated immediately before the interest split or payment and divided between the split interests or payments in the same proportion.

If an income stream has started

If the member has set up a super income stream that has started to be paid before the relationship breakdown, a super agreement or court order can split the income stream.

In most cases, the income stream would be commuted into a lump sum (due to the governing rules of the fund) and the non-member spouse paid their entitlement under the agreement or court order. The fund would pay the rest to the member spouse either as either a lump sum or a reduced super income stream.

If the fund pays the non-member spouse’s entitlement as a super lump sum, they will treat it as a separate lump sum benefit for the non-member spouse. If it is paid as a super income stream, they will treat it as a separate income stream for the non-member spouse.

If the income stream is unable to be commuted, or fully commuted, to a lump sum due to the fund’s governing rules, both spouses will receive an income stream. The split will result in two regular payments from the same income stream – one to the member spouse and one to the non-member spouse. 

Transfer balance cap consequences of splitting super

Splitting an income stream can also have transfer balance cap consequences for both the member and non-member spouses. You may need to notify us of a pension split to manage your transfer balance account.

If the member spouse has started to receive a super income stream before the relationship breakdown, a superannuation split can result in the non-member spouse receiving a lump sum amount or a percentage of member spouse’s super income stream benefits.

Most income streams are in the retirement phase and will count towards the individual’s transfer balance cap. Splitting a retirement phase super income stream can have transfer balance cap consequences for both the member and non-member spouse. To manage your transfer balance account, you may notify the ATO in writing on a Transfer balance event notification form. This split affects the transfer balance account for both spouses.

If the payment split is achieved by the member spouse fully or partially commuting the income stream to pay the non-member spouse a lump sum amount, a debit will arise in the member’s transfer balance account, which their fund will report to us. If the non-member spouse chooses to use that lump sum amount to start a super income stream, a transfer balance credit will arise in the non-member’s transfer balance account, which their fund will report to us.

Tax consequences of splitting super

If the non-member spouse creates a new super interest in the member spouse’s fund, any super benefits subsequently taken by the non-member spouse from the new super interest are taxed according to the current rules for member benefits.

The tax consequences of splitting super on a relationship breakdown are:

  • super lump sum and income stream payments are taxed to the two parties separately

  • the proportion of the taxable and tax-free components in the member spouse’s existing super interest is applied equally to the amount retained by the member spouse and the amount transferred the non-member spouse

  • your total super balance is affected by the amount you received (or lost) from the split

    • for the non-member spouse, this may affect your ability to contribute to super in the future

    • for the member spouse, this may bring you under thresholds, allowing you to make further contributions again.

Self-managed super funds

The same options for splitting super apply to members of self-managed super funds (SMSFs). However SMSF trustees (who are also typically fund members) are also responsible for ensuring the SMSF complies with a superannuation agreement or court order, subject to a member’s directions on what fund their interest is to be rolled over to.

Super splitting and relationship breakdown may mean you need to restructure or wind up your SMSF. The option of continued membership of the SMSF after a relationship breakdown will depend on the SMSF’s trust deed.

Trustees must also ensure the SMSF continues to meet all its legal and reporting obligations while giving effect to a super splitting order or agreement. This includes meeting requirements to implement super splitting imposed on trustees under the Superannuation Industry (Supervision) Act 1993 and its Regulations.

As trustee, you have control over and responsibility for your fund’s investment decisions. You also must manage the fund’s legal responsibilities and always act in the best interests of all members.

Trustees can acquire assets from a related party of a SMSF because of a relationship breakdown

The usual prohibition on acquiring assets from a related party do not apply where the acquisition occurs as a result of the relationship breakdown of a member of the fund.

Visibility of super information for family law proceedings

From 1 April 2022, individuals in current property settlement proceedings can request information from the ATO through the family law courts on their current or former spouse’s super interests. The ATO will disclose this information to the court, which will then provide it to all parties.

This process often results in faster and fairer property settlements.

How to request your spouse’s super information

Step 1: Check you’re eligible to apply

To be eligible to apply, you must be a party to a current permitted family law proceeding in either the Federal Circuit and Family Court of Australia or Family Court of Western Australia.

Step 2: Submit super information request form to court

You or your legal representative will need to submit a ‘Super information request form’ to the respective court – not directly to the ATO.

Check the court website for how to access and complete the form. It must be completed electronically and include the following information on your current or former spouse:

  • full name including former names

  • any known addresses

  • date of birth

  • their phone number and/or email address, if known.

The court will verify the ongoing permitted family law proceedings between the parties before submitting the request to us. We will respond, providing the court with any information we have within 5 business days of receiving the request.

Step 3: Court will provide available information

The court will provide the super information to those involved in the family law proceeding and/or their legal representatives. This may be distributed electronically. Please check the court’s website for information on how any response will be provided.

The 3 possible outcomes are:

  • Individual located and super found

  • Individual located and no super found

  • Individual unable to be located.

If we can’t locate the individual, you may submit a new request if you have further identifying information that can assist us.

If you don’t have any further identifying information and we have been unable to locate the individual, you may want to consider other legal options available to you.

If we have located super information of a member of an APRA fund or SMSF or someone with ATO-held super we will provide the following:

  • super fund name, ABN and unique superannuation identifier

  • amount and date of last reported balance

  • account phase (whether you are still contributing to super, receiving benefits from your super, or both).

Where the information is blank or listed as ‘not yet reported’, we do not have this information.

We will provide the latest balance of ATO-held super. If the balance shows as zero, there may still be super in the account as super funds are only required to report balances annually. You will need to verify the latest balance with the super fund.

A super fund account may be in accumulation or retirement phase or in some cases both. If we don’t hold account phase information, this can be obtained from the super fund together with latest balance information (see next step).

The ATO information that is provided to the courts is subject to change and may not be up to date. It is unlikely to be sufficient evidence for court proceedings, and you should seek independent legal advice on the information.

A disclosure notice is included in each letter advising that the super information it contains should only be for the purposes of a permitted family law proceeding. Making a record of or disclosing this information may be an offence unless it is for the purpose of the relevant proceedings.

Step 4: Obtain updated information from the super fund

The super information provided by us may not reflect an up-to-date account balance and should not be solely relied on. The latest balance information can be obtained from the super fund directly by completing a Form 6 Declaration in the Superannuation Information Kit for your relevant court:

In some circumstances, such as with public sector defined benefit funds, special rules apply to determine the value of the super interest for family law purposes. In these, the fund will not necessarily give the value for family law purposes in the Form 6 declaration. Instead the fund will include all the information needed for the individual to obtain that value from a lawyer or actuary.

The super information is disclosed for the purposes of property settlement proceedings and should only be disclosed to the parties and their respective legal representatives for the purposes of the relevant proceedings. Parties should be aware that making a record of, or on-disclosing, that superannuation information by a person may be an offence unless it is for the purpose of the relevant proceedings.

If your marriage or relationship breaks down and you need information about your super, contact us.

Source: ato.gov.au August 2023
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/superannuation-and-relationship-breakdown.

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