Approximately 30% of first marriages in Australia end in divorce, and unfortunately, a lot of people don’t learn the first time, with 60% of second marriages ending in divorce. Keep in mind that these figures represent the proportion of marriages that end in legal divorce, but don’t account for the breakdown of de facto relationships.
These numbers reveal that a big number of people reading this have been impacted or will be impacted by divorce. Further, it isn’t just the divorcees impacted, but eventual beneficiaries of those estates, which have now been split out in difference directions.
In many instances, the super balances of the respective spouses are vastly different at the time of divorce, with women averaging 25% less super than men, and median balances for women in their early 60s are about $50,000 less than men’s. Lower salaries and stereotypical parental roles often lead to fewer opportunities for many women to build their superannuation toward retirement.
A common question received from recent divorcees is how much of my divorce settlement can I put into super?
Firstly, it is less about the source of the funds and more about working within superannuation contribution rules.
Thankfully, there is a range of opportunities, outlined below:
- Firstly, you can contribute up to $30,000 each financial year under concessional tax rules, also known as ‘pre-tax’ contributions. Once you have made a cash contribution from your divorce settlement to your super fund, you can claim a tax deduction on this contribution and include it in your tax return. Keep in mind, the $30,000 annual limit is made up of any concessional contributions that you have claimed a tax deduction, employer superannuation guarantee contributions & salary sacrifice, so make sure you do not exceed $30,000 each financial year.
- Secondly, you can make further contributions under non-concessional tax rules, also known as ‘after-tax’ contributions, up to $120,000 per financial year, plus you can also bring forward the next 2 financial years. For example, you could contribute $360,000 today from your divorce settlement, which is your $120,000 contribution for 2025/26, 2026/27 and 2027/28. This assumes you have not made any non-concessional super contributions under the bring forward rules within the last 3 financial years.
- A common scenario in divorce is selling the family home and downsizing. In that case, you might also be able to make a downsized contribution of up to $300,000. This is a special rule, designed to free up housing stock for growing families, allowing people aged 55 or older to put $300,000. From the sale of their home into the fund. There are a few extra rules, including owning the home for at least 10 years, and you need to make the contribution within 90 days of settlement. If it’s been more than 90 days, you can ask the ATO for an extension. You’ll also need to fill out a form for your super fund.
- Finally, depending on whether you are working or retired, keep in mind that your super (including any new contributions) may not be accessible until you turn 65. You need to make sure you aren’t going to need some or all of your settlement prior to that age.
