Valuation of Superannuation for Splitting the Superannuation Benefits between the parties to a marriage or defacto relationship

09/01/2019

Since 2002 the Family Court of Australia and the Federal Circuit Court of Australia has had the capacity of making Orders splitting the superannuation entitlements of parties to a marriage (and subsequently) for people in de facto relationships.  This allows for flexibility in achieving property division and can achieve a result where the superannuation “poor” party receives a split in his or her favour.  That sounds simple but there are pitfalls that can occur if the superannuation split is not documented properly and in accordance with the Regulations.

Different types of Superannuation Entitlements

There are different types of superannuation entitlements.

  1. Accumulation Interests;
  2. Defined Benefits Schemes. 
  3. Self -Managed Superannuation Funds.

Valuation of the Entitlements

  1. Valuation of Accumulation Interests 

The Valuation of these types of entitlements is relatively straightforward.  A member will receive a benefit entitlement statement every 6 months.  This will show the value. Further, a request can be made to the fund for this information (Superannuation Information Request Form).

  1. Valuation of Defined Benefits Schemes 

The value of these types of entitlements is calculated by reference to the member’s salary, time of service and potentially other specified benefits or entitlements.  The Regulations set out that a defined benefits scheme may have as part of its scheme, a specific method for valuations.  If the scheme has its own rules for valuation then those rules will be utilised to undertake the valuation.

Care also needs to be taken to determine whether the fund is in the growth or payments stage and whether the benefit can be taken as a lump sum or whether it has to be taken as a pension.

  1. Valuation of Self-Managed Superannuation Funds.

Annual accounts are required to be prepared and there are requirements that valuation of assets be reviewed regularly.

However, the annual accounts may not be reflective of the true value of the assets in the fund.  The fund may hold many different types of assets, for instance, real estate or shares listed or unlisted. 

The value of the assets including for example, shares or real estate can fluctuate. Individual valuations of some assets may need to be obtained.

In terms of splitting the funds, there are a number of issues to consider when splitting.

The assets in the superannuation fund may not be of a similar nature and may have different tax liabilities in the event of a sale.

Options will include the sale of some assets or transfer of some assets or transfer of some assets to pay out the departing spouse.

There could be a mix of sale or transfer of assets to achieve an equitable settlement.

Capital Gains Tax (CGT) attaching to the assets will be realised on the sale and may diminish the total member entitlements.

Specific attention needs to be given to the best approach to achieve an adjustment including taking into account any tax liability and the CGT consequences on sale.

The splitting of superannuation plays an important part in financial/property settlements.

Watson & Watson are experienced in matters involving superannuation splits including negotiations, valuations, sale options and tax implications of sale.  If you or your spouse have superannuation in particular, a self managed fund when it comes to your financial/property settlement, please contact Richard Watson Senior Family Law Solicitor or his Personal Assistant Shereen Da Gloria to discuss your concerns.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.

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