Superannuation is frequently one of the most significant assets in any property settlement, yet it is also one of the most complex to deal with. Under Australian family law, superannuation interests can be split between parties as part of a Binding Financial Agreement. At Reid+Alexander Lawyers, we advise clients on how to properly address superannuation within a BFA, ensuring that splitting arrangements are correctly structured and enforceable.
How Superannuation Splitting Works in a BFA
The Family Law Act 1975, together with the Family Law (Superannuation) Regulations 2001, allows parties to split superannuation interests as part of a financial agreement. Unlike consent orders, where a court order directs the superannuation trustee to split the interest, a BFA operates as a contractual arrangement between the parties.
A superannuation splitting arrangement in a BFA typically involves:
- Identifying all superannuation interests held by each party, including accumulation funds, defined benefit funds, and self-managed superannuation funds (SMSFs)
- Obtaining valuations of each superannuation interest in accordance with the regulations
- Agreeing on the amount or percentage to be split from one party's superannuation to the other
- Specifying the receiving fund into which the split amount will be transferred
- Specifying any interim arrangements to preserve superannuation entitlements until the split is effected
Valuation of Superannuation
Accurate valuation is essential to ensuring a fair outcome. The method of valuation depends on the type of superannuation fund:
- Accumulation funds: These are generally valued at the current account balance, which can be obtained from the fund's most recent member statement or by contacting the trustee directly.
- Defined benefit funds: These require a more complex actuarial valuation, as the benefit is not simply an account balance but a future income stream. The regulations prescribe specific methods for valuing defined benefit interests.
- Self-managed superannuation funds (SMSFs): Valuation of SMSF interests may require independent assessment of the fund's assets, including real property, shares, and other investments held within the fund.
A superannuation interest cannot simply be cashed out and divided like a bank account. Superannuation is subject to preservation rules, meaning it generally cannot be accessed until the member reaches preservation age and meets a condition of release. Splitting arrangements transfer an entitlement within the superannuation system.
Key Considerations for Super Splitting in BFAs
There are several important matters to consider when including superannuation splitting provisions in a Binding Financial Agreement:
- Fund compliance: Not all superannuation funds handle BFA-based splits in the same way. Some trustees may impose specific procedural requirements or fees. It is advisable to contact the relevant fund early in the process to understand their requirements.
- Tax implications: The transfer of a superannuation interest under a BFA split is generally not a taxable event, but there may be implications for the receiving party depending on the type of fund and the components of the superannuation interest (taxable and tax-free components).
- Multiple funds: Many individuals hold superannuation across multiple funds. All superannuation interests should be identified and considered as part of the overall property settlement, even if not all funds are subject to a splitting arrangement.
- Timing: The splitting arrangement specified in a BFA must be implemented after the agreement is executed. There may be processing times involved, particularly for defined benefit funds or SMSFs.
- Preservation of entitlements: If you are concerned about the other party dealing with their superannuation before the split is effected, a formal superannuation flag can be obtained through a court order under Part VIIIB of the Act. A BFA alone cannot impose a statutory flag, but prompt execution and implementation of the agreement helps protect entitlements.
Our Approach to Superannuation in BFAs
Reid+Alexander Lawyers takes a meticulous approach to superannuation splitting within Binding Financial Agreements:
- Identification and disclosure: We ensure all superannuation interests are identified through comprehensive financial disclosure, including searches of the Australian Taxation Office's lost super register where appropriate.
- Valuation: We arrange or review valuations for all relevant superannuation interests, engaging actuaries where necessary for defined benefit funds.
- Drafting splitting provisions: We prepare the superannuation splitting clauses in accordance with the regulations, ensuring they contain all required information and are in a form that the relevant trustee will accept.
- Liaison with funds: Where necessary, we communicate with superannuation fund trustees to confirm procedural requirements and ensure the splitting arrangement can be implemented smoothly.
"Superannuation is too significant an asset to be overlooked or dealt with imprecisely. Proper attention to super splitting within a BFA can mean the difference between a fair settlement and one that leaves a party substantially disadvantaged."
To discuss how superannuation should be addressed in your Binding Financial Agreement, contact Reid+Alexander Lawyers for expert advice from our family law team.