Whose Super is it Anyway?
While I sincerely hope that we will move through our lives with the minimum of disruption, and convert our superannuation into a juicy pension on which we can live for the remainder of our lives, superannuation can be unexpectedly affected by two life events in particular.
Superannuation is considered to be part of the joint property of a relationship, even if you cannot yet access it. As a result, it is part of the settlement in the event of a relationship breakdown, whether that be marriage or a de facto relationship. It should be taken into consideration when dividing property during a relationship breakdown, even when that division is amicable and agreed upon by both parties without relying on a court decision. When neither of the parties has met the conditions for release of their super, decisions can still be made about how it will be split when those conditions are met.
In order to ensure that an agreement is formalised, there are checklists you can follow to ensure that both parties are considered fairly in any division of superannuation. It is possible to defer the decision until retirement by making a flagging agreement to prevent the superannuation fund from making a future payout until the flag is lifted. This can give additional time for both parties to reach an agreement.
You might be forgiven for thinking that all you need to do to pass on your superannuation is to specify the details in your will. Unfortunately, super isn't considered part of your estate, and so instead of being the responsibility of your executor to distribute, the rules of the super fund determine the way it's paid out.
Thankfully, there are guidelines that have to be followed, and even better, there is a way to specify exactly whom should receive the benefits of your life's hard work.
Binding Nomination vs Non-Binding Nomination
A Binding Nomination ensures that your superannuation will be paid out to the person(s) you choose, however only certain people, such as a spouse or child, can be nominated. This can make the transfer of the funds smoother and easier as the trustee of the super fund does not have to investigate your circumstances. Binding Nominations lapse every three years, and require you to renew them, however some super funds offer a non-lapsing Binding Nominations which remain in place until cancelled or a new benefit Nomination is made. You can even nominate the executor of your estate to receive the super funds and then distribute them according to the terms of your will.
A Non-Binding Nomination allows the trustee to make the final say over how your super funds are distributed, taking into account your personal relationships and your circumstances when you die. They may choose to make a different distribution to what has been specified in the Nomination if, for example, you have remarried, or divorced since the Nomination was put in place. The trustee may also choose to pay the funds to the executor of your estate, but this is not guaranteed. These Non-Binding Nominations do not expire, which means you need to remember to update them in the event of a major life event, such as a birth or death.
Ideally, at the end of the day, we'd go through life without needing to consider either of these issues. Unfortunately, the future is a journey of excitement and we never know what might be around the corner. By being aware of some of the things we can do, like getting our nominations in place, good planning now might save us, or someone we love, a lot of trouble down the road.
* The information provided in this article is general information only and does not take into account your objectives, financial situation or needs. Before making a financial decision, please assess the appropriateness of the information to your individual circumstances and consider seeking professional advice.