Superannuation and Divorce: What You Need to Know

Divorce can be messy, and figuring out who gets what is never easy—especially regarding superannuation. Unlike cash or property, superannuation is typically locked away in a trust, which isn’t instantly accessible. However, under the Family Law Act 1975, superannuation is considered property and can be divided between separating partners.

How Superannuation is Split

The way superannuation is divided depends on whether it’s a self-managed fund or one regulated by the Australian Prudential Regulation Authority (APRA):

• Self-managed funds: The rules depend on the specific fund deed. Some allow for an immediate split, while others require waiting until retirement or preservation age before accessing funds.

• APRA-regulated funds: These generally follow standard legal procedures for splitting superannuation.

When Can You Claim Superannuation?

• Married couples: You can apply for a superannuation split up to 12 months after your divorce is finalized. You can use any time during the process if you’re separated but not officially divorced.

• De facto relationships: You have 24 months from separation to apply. However, if you were together for less than two years, you may only be eligible if you have a child together or can prove financial hardship.

Even if you miss these deadlines, the court might still allow you to claim superannuation in cases of significant hardship.

What Factors Affect Superannuation Splitting?

Most couples agree on a fair division without going to court, but if it does end up before a judge, they’ll consider:

• The length of the relationship

• The value of each person’s superannuation

• Each party’s financial contributions (e.g., income, assets)

• Non-financial contributions (e.g., parenting, home duties)

• The welfare of children or dependents

• Differences in income

• Future financial responsibilities

While property splits aren’t always 50/50, superannuation can be an exception—especially if both partners started the relationship with little to no super. The aim is often to ensure both parties walk away with a similar amount of superannuation.

Tax Traps You Need to Watch Out For

Dividing assets during a breakup isn’t just about fairness—it also comes with tax implications. Here are some key tax traps to be aware of:

Capital Gains Tax (CGT)

Since superannuation transfers usually happen without actual payments, the market value substitution rule applies. This means:

• The person transferring the asset is taxed based on the market value of the superannuation, not what they originally paid for it.

• The receiving party will inherit the market value cost base of the asset.

The good news? Some exemptions and rollovers can help minimize CGT impact.

The Main Residence Exemption

If you own property together, there are special rules around capital gains tax exemptions for your primary residence. Key things to note:

• If you and your ex have been living separately, only one primary residence can be claimed between both parties.

• If you own multiple properties, the exemption applies separately to each one.

• To avoid future tax disputes, it’s important to agree in writing on any elections regarding who gets the principal residence exemption.

The Bottom Line

Dividing superannuation in a divorce isn’t always straightforward, but understanding the rules, timelines, and tax implications can make the process much smoother. Whether you’re handling things amicably or heading to court, getting professional legal and financial advice is a smart move to protect your future.