If you are going through a relationship breakdown, you’re probably mindful that your asset pool will be divided between you and your former partner. What a lot of people don’t realise is that superannuation interests have been counted as part of the property pool since 2002.

That means that if you or your partner have superannuation accounts, superannuation splitting laws will apply to your family law proceedings. Likewise, if you are starting out in a new relationship, you may be thinking ahead to the ‘what-ifs’ and wondering what you can do to protect your superannuation in the event of relationship breakdown.

In this article, we’ll look at how super splitting laws work, and what you can do to protect your superannuation entitlements from your ex-partner, whether you are going through separation now, or wish to put in safeguards for later.

To start with, it’s important to understand that superannuation is property

Under the Family Law Act 1975, superannuation is treated as property, even though it may not be immediately accessible by either party. It can be split between parties during property settlement. The first step to protecting it is knowing it’s on the table. This also applies if you have a self-managed super fund, and all super accounts you may have in your name.

When you go through separation or divorce proceedings, you and your former partner or spouse will need to work out what is in the relationship property pool. This will include all financial assets held by both parties, as well as any debt.

Property settlement and superannuation

Property settlement is a critical aspect of divorce, and superannuation is an essential part of the asset pool. The courts aim to achieve a fair and equitable division of assets, including superannuation, but this can be a challenging process. Financial contributions, non-financial contributions, and individual circumstances are all considered when determining the division of superannuation assets.

It’s essential to have a thorough understanding of your financial position and seek legal advice to ensure you receive a fair outcome. A superannuation splitting order can be an effective way to divide superannuation assets, but it’s crucial to understand the legal implications of such an order.

Super is often a significant asset in Australian property settlements

For many couples, especially nearing retirement, super may be the largest or second-largest asset after the family home. An undervalued or overvalued account can unfairly advantage one party and distort the entire settlement.

Superannuation benefits also have a marked impact on how well a person can retire in Australia, which means that losing a portion, especially in your later years, can have quite an impact on your future.

Understanding superannuation splitting and superannuation laws

Superannuation splitting involves dividing superannuation interests between parties, which can be a complex process. The Family Law Act governs superannuation splitting, and it’s essential to understand the laws and regulations surrounding this process.

A superannuation agreement can be a useful tool in splitting superannuation, but it’s crucial to seek legal advice to ensure it’s legally binding. The Federal Circuit and Family Court of Australia have the authority to make orders regarding superannuation splitting, and it’s vital to understand the court’s role in this process. Self-managed superannuation funds require special consideration when it comes to superannuation splitting, and it’s essential to seek advice from a family law specialist.

Protecting retirement savings

Retirement savings are a critical aspect of your financial future, and protecting them during divorce is essential. Superannuation is a vital part of retirement savings, and it’s crucial to understand how to protect it during divorce proceedings.

It’s essential to consider the long-term implications of superannuation splitting and seek professional advice to minimise any adverse effects. If you are concerned about how a relationship split may impact your financial future, there are strategies you can take – both before, during and after a relationship ends to help preserve your retirement nest egg, even if your shared or marital assets are split.

Keep comprehensive financial records of your superannuation payments and balances

One of the most important things you can do regarding your superannuation is to keep good records of your balances, contributions and any changes made to your account over time.

Maintain accurate records of:

Super balances over time
Contributions (especially pre-relationship or post-separation)
Rollovers, withdrawals or transfers

These can help demonstrate what portion of your super should be considered non-marital or non-shared.

Some examples of why super can get confusing when it comes time to divide assets

Maintaining detailed superannuation records can support your position in a family law property settlement, particularly when determining what portion of superannuation is marital property versus non-shared (non-matrimonial) contributions. Here are some examples of why it matters and why good records can help protect yours in a divorce or separation.

Example 1: Contributions to spouse’s super

Jed makes regular contributions to his wife’s superannuation fund over 10 years of marriage.

During the property settlement, accurate records of these contributions via employer statements or tax returns can support an argument that his indirect financial contributions should be recognised and potentially balanced against other asset distributions. This can be relevant to achieving a fair and equitable outcome under the Family Law Act.

Example 2: Significant super growth post-separation

Sarah changes her super investment strategy shortly after separation, resulting in significant growth in her super balance. If she can demonstrate that the growth occurred after the relationship ended and was due to individual choices and market performance, the court may consider that portion as post-separation gain, potentially reducing how much is shared with her ex-partner.

Example 3: Early withdrawal for personal use

Alex withdraws a substantial sum from their superannuation fund to cover medical treatment right before separation. This may raise questions during settlement about whether the withdrawal unfairly reduced the pool of divisible assets. However, if Alex has detailed medical records, withdrawal history, and receipts, they may be able to show that the funds were used appropriately for personal necessity, not to diminish the marital pool.

To protect their superannuation during a divorce in Australia, couples can consider several options, including prenuptial agreements, financial agreements, or seeking legal advice early in the process to negotiate a fair settlement. Formal agreements, consent orders, or court orders can also outline how superannuation will be divided.

Example 4: SMSF crashes in value – both parties affected

Chris and Jordan jointly manage a Self-Managed Super Fund (SMSF), which includes high-risk property and shares.

After separation, the SMSF suffers a significant loss due to a property market downturn and poorly performing shares. If one party alleges mismanagement by the other, or that the investment decisions were unilateral, clear SMSF records, including minutes of meetings, asset valuations, and financial statements, become crucial.

In family law, both parties are generally considered equally responsible for jointly managed funds, especially if both had control or oversight. However, if one party can prove they opposed the risky strategy or weren’t actively involved, the Federal Circuit and Family Court of Australia may take that into account when adjusting the asset pool.

Defined benefit super funds are tricky to value

If you or your ex have a defined benefit super fund (often common in the public sector), the value of the super is not just the number shown on your annual statement. Instead of having a regular account balance like most funds, these types of super funds pay a guaranteed benefit in the future, based on your salary and how long you’ve worked.

This means the real value of the fund today (its “present value”) needs to be calculated by a specialist, often with the help of an actuary and a Form 6 valuation, to:

Estimate the actual present value
Avoid undervaluing future entitlements
Ensure a fair split

Why does this matter when splitting super?

You might undervalue your entitlements if you rely only on the statement.
Family courts require an accurate valuation to fairly divide super in a property settlement.
Lawyers and judges often refer to actuarial reports to make sure the split is fair.

Use accurate super valuations

Ensure that all superannuation accounts, including SMSFs and defined benefit funds, are valued adequately during a relationship breakdown. Otherwise, it may appear that your ex-partner has less super than they actually do, which means they may end up with more of yours.

Defined benefit and public sector funds often require a specialist valuation and Form 6 declaration to determine their true worth. This ensures no entitlements are missed and helps achieve a fair split during property settlement. Always include every super account in your assessment.

How super splits are taxed

When super is divided in a divorce, both the tax-free and taxable components are split in the same proportion as the original balance. For example, if 30% of the fund is tax-free, then 30% of any split amount will also be tax-free. This keeps things fair and preserves the original tax structure.

Even if part of your super is tax-free, such as contributions made early in life or due to inheritance, it can’t be totally shielded from a split. Instead, it’s divided proportionally with the rest.

So, understanding the makeup of your super helps you:

Accurately value what’s at risk
Anticipate future tax impacts
Seek a fairer settlement if contributions or benefits were clearly non-shared

Protecting your super means knowing the structure, components and history of both parties’ super fund accounts, not just the total balance.

Tax implications of superannuation splitting after separation

When a couple separates and superannuation is split, there are generally no immediate tax consequences for either party at the time of the split. The portion transferred to the receiving partner becomes part of their super account and retains its original tax structure, including the taxable and tax-free components.

However, tax implications arise later when either party accesses their super. For example:

Withdrawals from the taxable component may be taxed if taken before retirement age.
Lump sum withdrawals and income streams may be taxed differently depending on age and components.
Any capital gains or losses from investments inside a self-managed super fund (SMSF) remain within the fund and don’t trigger personal tax unless accessed.

Because these rules can be complex and vary depending on the type of super fund and the parties’ ages, it’s essential to seek advice from a financial adviser or accountant experienced in family law superannuation splitting.

Negotiate strategically in property settlements

Sometimes, it’s better to negotiate a settlement that allows you to retain more super in exchange for giving up other assets, like cash or property.

This is common if:

You’re nearing retirement
You want to preserve long-term financial security

Ensure any trade-offs are fair and well-documented in consent orders or a BFA.

Consider a binding financial agreement (BFA)

A Binding Financial Agreement made before, during, or after a marriage or de facto relationship can set out how superannuation will be treated in the event of separation.

It can:

Protect specific super interests
Limit or exclude future claims

It’s essential to seek independent legal advice to ensure any BFA is properly drafted, legally binding, and fairly reflects the needs of both parties.

Even if a BFA wasn’t initially in place, a BFA can be created

after a separation to outline the division of superannuation.

Deferred super splitting with a flagging agreement

In some cases, separating couples may choose to postpone dividing their superannuation. This is known as deferred splitting and is commonly done using a flagging agreement. Rather than immediately transferring super, the fund is “flagged” to pause any payment until a future event, typically retirement or withdrawal.

This option can be useful when:

The super interest is difficult to value, such as defined benefit funds
The fund cannot yet be split
Parties agree to delay division until entitlements crystallise

The Family Court can order a flagging agreement, which notifies the super fund and prevents payment without further instructions. This ensures the asset is preserved and fairly dealt with later.

Informed negotiation matters when it comes to protecting your superannuation interests

If a super split is likely, now or in the future, having a family lawyer guide negotiations is essential. Super can be one of the most significant assets in a relationship, and its value isn’t always straightforward. A lawyer ensures your entitlements are protected and the split is fair, and can work with your financial advisor to ensure that tax implications or future risks are considered. This helps you secure a stable financial outcome post-separation.

Early intervention is an effective way to protect your super in divorce or separation

Early intervention is one of the most effective ways to safeguard your super in a divorce or separation. Whether through a Binding Financial Agreement (BFA) before you reach that point, or getting advice at the point of separation, speaking with a family lawyer early helps you understand your rights, avoid costly mistakes and plan for a fair division.

Get in touch today to have a chat about your options for protecting your super in the event of divorce or separation – no matter what life or relationship stage you are in.

How To Protect Superannuation In Divorce Or Separation Proceedings