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No place to hide: even super isn't safe in a divorce settlement

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In a divorce settlement, retirement savings go into the pool to be divided up

Going through a divorce or separation can take a heavy toll, emotionally and financially.

Despite the turmoil, it's a time when you need to have your wits about you and to be clear about what to expect. This is because divorce can have a lasting financial impact. Or as one divorcee once forlornly explained: "Together we were rich but separately we are poor."

Gone are the days when partners planning to exit their marriage could squirrel away assets into super beyond the reach of their spouse. These days super is treated like any other asset to be divided by the partners either by agreement or, if that fails, by court order.

divorce super

All assets and liabilities are thrown into the pool that is to be divvied up, including the family home, other real estate, investments, shares, cash, term deposits and superannuation. In short, anything owned individually, jointly or by a family trust or family company.

"For some time now super has been taken into account," says Colin Lewis, head of strategic advice at Fitzpatricks Private Wealth. "It means you have an entitlement to ask or approach your spouse's super fund and get details of their account balance. It has to be disclosed."

Get advice

The law requires each party to get independent legal advice before signing a super agreement. This can be part of the overall process of reaching a settlement on all the other family assets with a binding financial agreement.

"There's a process involved in divorce where you've got to go through mediation or family dispute resolution. The idea is if you can work it out between yourselves the better off you are going to be than having to go through the court process, where everything gets eaten up in legal fees." Lewis says less than 5% of cases get to the Family Court.

"When you go through a divorce you have to do a full and fair disclosure of all assets. If you don't provide total disclosure, whatever agreement you make is basically invalid. If one of the parties realises the other person hasn't fully disclosed, it opens up the case again. You can't do anything to try to hide things."

Division of assets

He says the process works best when your lawyer has a financial adviser who can crunch the numbers. How the assets are split will be worked out by the couple. They can agree on how much or how little of the super the other party may get.

"You work out specifically what assets you are going to split. You might agree, for example, if the couple hasn't been married long and each has brought a reasonable amount to the relationship, to split it 50:50 and say, 'OK, you keep the home and I'll take the investment portfolio, or all the super', in order to get that balance of 50:50.

"It comes down to so many different factors like whether children or dependants are involved, so it may not be 50:50.

If young children are involved, that percentage might go 60:40 or 70:30, whatever the case might be."

When super is split, the receiving party can leave their entitlement in the same fund, move it to a new fund or take it as cash if they are at retirement age.

"They have a right to transfer it to a fund of their choice and all the tax componentry moves across with them. The receiving spouse inherits the original cost base from the former spouse. They don't pay tax at that time but ultimately when the share in the super fund is sold tax may be payable then. If sold in retirement phase, it's taxfree."

Lewis says defined benefit funds are more complex, with the agreed entitlement transferred at retirement when the benefit becomes payable.

"It's a difficult time and emotions run very high. But if you can be level headed about it and come up with an amicable agreement, the couple are more likely to end up with a greater slice than they otherwise would have.

Sometimes settling for a slightly less ideal position might end up being a better outcome than lawyers fighting it out," he says.

Take stock of your assets

Being prepared is half the battle in a separation. Check what happens to jointly held assets such as your mortgage, bank accounts and insurance policies. Do a stocktake of your financial position.

You might be entitled to some of your partner's super or they might be entitled to some of yours.

Once your assets have been split, check your super's death benefit nomination. Opt for a binding death benefit nomination. It instructs your fund where your money should go.

The fund trustee must pay the beneficiaries you've nominated in the proportions you've set out. Make sure it is non-lapsing. Also revisit your will. Vita Palestrant super

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Vita Palestrant was the editor of the Money section of The Sydney Morning Herald and The Age. She has worked on major metropolitan newspapers here and overseas and has won several prestigious journalism awards including the 2001 Citigroup Award for Excellence in Journalism, Personal Finance Category.
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