For better… or for worse…

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. If your spouse has an assessable income of less than $13,800 for a given financial year, you may be able to claim a tax offset of up to $540 by making up to $3,000 in after-tax contributions to your spouse's super account.

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, althoughthe 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 limit ^[2] .

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.

If you’re going through a divorce and need financial advice to prepare for your future, call us on 02 9299 9777 today.  

[1] The 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.

[2] $25,000 concessional contributions limit applies for the 2012/2013 financial year. Concessional contributions include employer super contributions and personal before-tax contributions, eg salary sacrifice contributions.

What you need to know

Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP Group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.