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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.

Have you shared your retirement plans with your loved ones? Leaving full-time work can mean many changes for you and them, so make the time now.
For many people, change doesn’t get any bigger than what they experience at retirement when they leave full-time work. It’s an important life stage, and may impact not just you, but those around you as well.

While some may look at it as an adventure and a new beginning, others may find themselves unprepared and unaware of what to expect when they retire from the routine of a work-driven life. It may even be very different to how they imagined it to be.

That’s why it’s important to talk to your family (especially your partner and children) about what you plan to do and how you plan to achieve any goals you have set for yourself. Talking to your partner is key to having their support and input. Involving your children can make them feel confident about your plans.

So what’s the best time? The average age of people at retirement, last year, was 53.3 years with 57.9 years for men and 49.6 years for women1. If you stagger your conversation through at least a 7-10 year period, that’s plenty of time to work out a plan and engage your partner and children in it.

Your conversation need not be all about money either.

Picture tomorrow with your partner

Talking with your spouse or partner when planning for life after retirement can help prevent your relationship from coming under strain. This means working together to:

-consider your post-retirement aspirations
-plan a new lifestyle that works for both of you
-understand and anticipate the impact of the impending changes.
-Couples may assume their dreams and goals are aligned, but when they start talking about their plans, may discover substantial differences.

To avoid unnecessary surprises, decide on your retirement goals with your partner during your working years and discuss them regularly as you near retirement age. Your ideas and financial situation may change, but you’ll have a solid long-term overview of what you both want and where you’re headed.

Involve your children

Many young and middle-aged adults worry about their parents’ retirement; especially about whether their parents will have enough money to lead a secure and comfortable life. By involving your children in your planning discussions, you can avoid the strain on them of not knowing if you have planned to take care of yourself.

Also consider how your children and other dependants in your life may be affected after you retire from a full-time role. As you get older, you may want to tell them about your wishes. For example, with more time to spend with your children and grandchildren who may live elsewhere, you may want to reduce your travelling and decide to relocate – this will have a direct impact on all of you.

Decide about work

There are many incentives for people to remain in the workforce beyond retirement age – mainly to supplement any retirement income. You can also speak with your financial planner about what strategies are best suited to increase your income, investments that can provide you with a consistent return and how to make the most of government benefits. This will be important if, for example, you would like to start volunteering, instead of doing paid part-time work.

If you are interested in paid work, you can also discuss your options with your family. After all, they care about your welfare and want to see you be comfortable and independent.

Top topics

Here’s a guide to what topics you may want to raise with your family:

1.your aspirations and how they match with those of your partner
2.how you plan to spend your time in retirement
3.any employment or volunteering plans
4.where you’ll live and if you’ll relocate at some time
5.the potential for medical support as you become older
6.the future needs of your dependants
7.your overall financial situation.
By discussing issues and goals early, you won’t be forced to rush or compromise at a time when it may be too late to adjust your plans or your income.

The key to success is thoughtful, long-term planning – speak with Tactical Solutions today about how you can plan for a rewarding tomorrow.

 

1 Australian Bureau of Statistics. (13 December 2011). Retirement and retirement intentions, Australia, July 2010 to June 2011. Retrieved from abs.gov.au.

..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 this advice, you should consider the appropriateness of this 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.


 

Bernie's Blog -Question.


Question.

Bernie,  I have a question about super. My husband and I run our own businesses (one each in fact).  Do we really need to have Super ?   Is it compulsory?   Brian and I don't really see the benefit of having it at all.   What if we put a certain amount of money away monthly in the bank and call it super?   At the end when we retire, we can have that money back plus interest. Wouldn't that be better?    Tracey – Fairfield.

Well Tracey,  you are not the first small business owner to ask me that!

Paying superannuation is compulsory for your employees.  If you and your husband operate your businesses as sole traders or in partnership (with each other or other people) then you are not employees and do not have to pay super for yourselves.  If you are employees of a Pty Ltd company then it is compulsory to pay for you as well as other employees.

If you have been with your employer for at least five years and are thinking about leaving your job this financial year - even if you are being made redundant, you can take advantage of temporary rules that can save you tax and get maximum benefit from your super contributions.

Money Made Simple - Bernie answers a question from a local resident about Super.