Divorce can be complicated, particularly when it comes to determining asset division, including superannuation. Unlike cash or property, superannuation is generally held in a trust, making it less accessible. However, according to the Family Law Act 1975, superannuation is classified as property and can be shared between separating partners.

How Superannuation is Divided

The division of superannuation varies based on whether it is from a self-managed fund or one overseen by the Australian Prudential Regulation Authority (APRA):

• Self-managed funds: The rules are dictated by the specific fund deed. Some funds permit an immediate split, while others stipulate waiting until retirement or preservation age for access.

• APRA-regulated funds: These typically adhere to standard legal protocols for superannuation division.

When Can You Claim Superannuation?

• Married couples: You can request a superannuation split up to 12 months after your divorce is finalised. If you are separated but not yet divorced, you may use any time during this period.

• De facto relationships: You have 24 months from the date of separation to apply. However, if your relationship lasted less than two years, you may only qualify if you have a child together or can demonstrate financial hardship.

If you miss these deadlines, the court may still permit you to claim superannuation in situations of significant hardship.

Factors Influencing Superannuation Splitting

While many couples reach a mutually fair agreement without court intervention, if the matter does go before a judge, they will consider:

• The duration of the relationship
• The value of each party’s superannuation
• Financial contributions from both parties (for example, income and assets)
• Non-financial contributions (such as parenting and home duties)
• The well-being of any children or dependents
• Income disparity
• Future financial obligations

While property divisions are not necessarily an even split, superannuation can be an exception, particularly if both partners entered the relationship with little to no superannuation. The goal is often to ensure both individuals leave with a similar amount of superannuation.

Tax Considerations You Should Be Aware Of

Dividing assets during a separation is not only a matter of fairness; it also carries tax ramifications. Here are some critical tax issues to consider:

Capital Gains Tax (CGT)

As superannuation transfers often occur without actual monetary transactions, the market value substitution rule comes into play. This means:

• The individual transferring the asset is taxed based on the market value of the superannuation, not the original amount they invested.
• The receiving party will take on the market value cost base of the asset.

The upside? Certain exemptions and rollovers can help mitigate the effect of CGT.

The Main Residence Exemption

In cases where property is shared, specific rules apply for capital gains tax exemptions regarding your main residence. Important points to consider include:

• If you and your ex-partner have been living apart, only one primary residence can be claimed by either party.
• The exemption pertains separately to each property if multiple properties are owned.
• To avoid potential tax disputes later, it’s crucial to document any agreed-upon elections concerning who claims the principal residence exemption.

Conclusion

Dividing superannuation during a divorce can be complex, but having a clear understanding of the relevant rules, timelines, and tax implications can simplify the process. Whether navigating the situation amicably or heading to court, seeking professional legal and financial guidance is advisable to safeguard your future.