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For better or... for worse.... Featured

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When you’re together it may be easy to grow your super together. But what happens to your super savings when you’re facing a divorce?
When you’re part of a couple, there are plenty of ways to juggle your joint finances and grow your super.

If one of you is working less, the partner with the higher income could reduce their tax by making spouse contributions.

Low income earners may also be able to take advantage of government co-contributions. If you are eligible and make $1,000 of after-tax contributions into super, the government will top up your payments by up to $500, depending on how much you earn.

One or both of you could also make salary sacrifice arrangements, although the spouse earning a higher income may be the one in a stronger financial position to do so. Either way, if you allocate more of your pre-tax salary to go straight into your super, you will pay only 15%1 tax on the salary sacrificed amount, up to a $25,000 concessional contributions limit2.

When times get tough

However, if your relationship founders, you’ll need to separate your financial arrangements. Super is where many of us hold the bulk of our assets – apart from the family home – so it’s an increasingly important part of divorce negotiations.

If the divorce is amicable – you can make a super agreement to divide the super. The ‘non-member spouse’ can:

either receive a new super interest in the same fund; or
transfer their share of the super benefit to another super fund.
And they don’t necessarily need to wait to access the money. In some cases, the non-member spouse may be able to withdraw the super benefit immediately if they meet a superannuation condition of release.

But if the lawyers become involved, the Family Law Act allows for super to be split using a court order. If one person has been working full time while their partner has been at home, it doesn’t mean they will be entitled to their super in full. The court will take into account the couple’s respective roles in the relationship, how much money they have overall, and each person’s future earning potential, when deciding how the super benefit should be split.

Watch out for the tax consequences…

Splitting super can affect your tax situation, as lump sum payments and pensions are calculated and taxed separately for members and non-member spouses. So it may be more attractive to look at swapping other assets for super.

…and don’t forget your will!

You will need to update your will and your beneficiaries, particularly if you have children, to make sure the right people inherit your assets.

Get back on track for retirement

A divorce can end up leaving you with a reduced retirement nest egg. If you’ve paid some of your super to your former spouse, you could get your long-term investment strategy back on track by:

-working out your budget
-bringing your super accounts together to reduce fees
-taking advantage of super’s tax concessions for
-pre-tax contributions
-after-tax contributions.
-And if you’ve received super as part of a divorce settlement, you should think about the most suitable insurance cover and investment mix for you -in light of your changed circumstances.

The value of advice

If you’re going through a divorce, you should consider getting tax advice from an accountant and financial advice from an experienced financial planner.

Example: Ryan’s story – make up lost ground

Ryan and Diana have finalised their divorce amicably, including joint custody of their two children.

Diana has agreed to accept 30% of Ryan’s $200,000 super savings (or $60,000) in return for more cash from their term deposits.

This leaves Ryan with $140,000 in super. He’s got 17 years to get his super back on track for his planned retirement at age 60.

As part of the divorce settlement, Ryan borrowed money to pay Diana her share of the family home. With increased personal liabilities, he should consider whether he needs to increase his insurance cover in his super fund. As Ryan wants his children to receive his superannuation benefit if he dies, he should review the beneficiaries he has nominated on his super account to make sure that his children are named.

Ryan needs to work out his budget and calculate his discretionary income before developing a long-term investment strategy. And he should consider whether it is appropriate for him to top up his super, whether from his pre-tax salary or other funds.

Ryan consults a financial planner who helps him work out how much he may need to retire. Together, they map out an investment strategy that could take him through to retirement and beyond.

 

1The government is proposing to double the 15% tax rate on before-tax personal contributions to 30% from 1 July 2012 for individuals earning more than $300,000 pa. As at February 2013, this proposal has not yet been legislated.

2The government is proposing to double the 15% tax rate on before-tax personal contributions to 30% from 1 July 2012 for individuals earning more than $300,000 pa. As at February 2013, this proposal has not yet been legislated.
“The Family Law Act allows for super to be split using a court order.”

 What you need to know
Any advice in this document is general in nature and is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on the advice, you should consider the appropriateness of the advice having regard to those matters and consider the Product Disclosure Statement before making a decision about the product. AMP Life is part of the AMP group and can be contacted on 131 267. If you decide to purchase or vary a financial product, AMP Life and/or other companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

Bernard Fehon

Bernard Fehon


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