The impact of separation on superannuation

I recently read a report titled “Untying the Knot’ by Suncorp Superannuation which claimed that 86% of divorcees did not consider superannuation in their divorce settlement.

 

I was a little surprised that the figure was that high but not surprised by the sentiment. A lot of the people who come to see me don’t realise that superannuation is included in calculating the assets and liabilities to be divided between the parties and that even though the superannuation interest may have been accumulated by one party going to work the other party has contributed to that fund by being the home-maker or raising the children – activities that allowed the first person to have a family and home but also log long hours at work.

And superannuation can be a very important asset – statistically it is usually the second biggest asset other than the family home, and depending on the size of the mortgage and age of the parties it can sometimes be the biggest asset.

The statistics in the “Untying the Knot” report show how failing to appreciate the impact of separation and divorce on superannuation can have a drastic effect on your retirement age and superannuation savings.

Firstly, let’s look at what the report showed about the impact of divorce on retirement age.

According to the people surveyed the highest percentage of people not separated or divorced nominated 65-69 (29.4%) as their ideal realistic retirement age, while the majority of those who are divorced selected 75 or older (29.9%) – that’s a ten year difference in likely retirement age for those who are divorced or separated.

So, turning to the impact of divorce on superannuation savings, why is there such a difference in estimated retirement ages?

The report referenced figures relating to the average age of divorce to demonstrate the very different financial positions of male and female divorcees, and came up with this disquieting statistic:

The average age of a man at divorce is 45 and he has about $128,000 in superannuation

The average age of a woman at divorce is 42 and she has about $42,000 in superannuation

If that woman is one of the 86% of divorcees who do not consider superannuation in their property division (firstly, that it is an asset and secondly that she may have made an indirect contribution to the fund) than she is likely to be at a significant financial disadvantage come retirement age; if she had considered superannuation during her property settlement negotiations she is far more likely to be in a financial position to retire earlier rather than having to work into her 70s and beyond.

While the report did not focus on this perspective, to my mind there is another reason why those surveyed may have a different view on what their superannuation savings needs are post separation, and that is, that a payment to a spouse or former partner of part of your superannuation fund obviously reduces the amount of superannuation you have to retire with – hence the need to work later in life to rebuild that nest egg.

While these statistics may be true, and you may have no choice when it comes to going through separation or divorce, there are some options available to help you get back on track financially. Firstly, for my part it is about negotiating the property division that will best enable you to get on with your life, and secondly, I can refer you to expert financial planners who can help you with the next stage of your financial future.