Superannuation and break-ups

As the amount of money in superannuation grows, how to carve it up when a relationship breaks down is becoming a big issue.

Splitting superannuation has two basic problems — valuing it (if it’s a defined benefits fund), and inability to access it (if it’s an accumulation fund) because of preservation.

Suppose the breadwinner is a member of a defined benefits fund, where the amount of end benefit depends on their final salary. If they have many years to work it is nearly impossible to put a value on such a benefit. Also, it is possible they will change jobs prior to retirement age and end up with a much lower superannuation payout.

If they are a member of an accumulation fund it is simple to value their superannuation as they will have an account balance that grows each year by earnings and contributions. However, such funds typically will not be able to be accessed by the party receiving the split of the super funds until retirement age.

Consider a very simplified situation where the husband is the breadwinner, the wife works two days per week, there are young children and the family home has a mortgage. Suppose the parties agreed (or failing agreement the Court decided) on a property settlement that saw all assets owned by them, including superannuation, split evenly between them.

Leaving aside the issues of spousal maintenance and child support, after the split the wife is likely to face the challenge of trying to buy a home with a small deposit and insufficient income for the size of the loan needed. Any money she had received into her superannuation fund from her husband’s superannuation fund, as part of the property settlement, would be useless, as it may be 30 years before she could withdraw it.

A better solution may be — again leaving aside the issues of spousal maintenance and child support — to let the breadwinner, in this case the husband, retain all (or a larger proportion of) his superannuation and a smaller share of the other assets.

This could allow them both to start again on a more equal footing.

The husband has the higher earning power, meaning he is more likely to have sufficient income to service a loan for a home and, therefore, a better chance to buy one with a small deposit. The wife has a larger amount for a deposit and there is potential for her to be able to service a smaller loan for a home.

Noel Whittaker is the author of Superannuation Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions.

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