Divorcees create super opportunity for planners

FINANCIAL planners should be on the lookout for substantial new business opportunities as a result of the soon to be implemented legislation changing the way superannuation is split between divorced or separated couples, a leading superannuation specialist has urged.

On December 28, changes to family law will enable divorcees to divide superannuation and retirement income streams following separation. But lawyers lack the financial expertise to advise couples on how to split their superannuation, and are likely to look towards financial planners to fill the knowledge gap.

“Superannuation isn’t easy to understand and it comes in a whole variety of forms. Different funds have different structures and benefits, and financial planners are best positioned to offer this knowledge,” Merrill Lynch Investment Managers technical services manager Sue Merriman says.

Under the new legislation, couples will be able to draw up superannuation agreements to instruct the trustees of their super funds on how to split their superannuation. A divorcee may decide to set up a new account within the same fund, or roll the money into a new fund, or agree on a single lump sum payment. Divorcees might also need advice on how to select underlying investments for their superannuation, and whether to take out death and disability insurance via their super — information that would be best supplied by a financial planning expert.

Financial planners with existing lawyer relationships will be best placed to benefit from business arising from changes to family law, Merriman says.

“Those financial planners that already have a business model where they use other professionals to bounce business off each other in areas like estate planning, and who already work in a network environment, stand to benefit from this legislation,” she says.

Planners who deal with self-managed funds could also see their business boosted, by advising clients who are trustees to their own funds on how to meet requirements resulting from the new legislation, Merriman says.

According to the Australian Bureau of Statistics, 43 per cent of all Australian marriages and 50 per cent of all second marriages are likely to end in divorce. The bureau also calculates that most people divorce after more than five years of marriage, with 32 per cent of marriages ending within 20 years of marrying, and 39 per cent of marriages breaking down within 30 years. During these timeframes, couples accrue significant amounts of superannuation, making the option of drawing up superannuation agreements extremely desirable.

Under the current law, couples cannot divide their superannuation. In practical terms, this has often meant that one partner ends up with significant superannuation assets in a divorce settlement, while the other gets a greater share of other assets, such as the family home.

The situation is considered less than ideal, as it results in one partner being left with large assets in retirement but little to live off in the present, while the other partner is left without any significant retirement savings.