Financial adviser on super bequests and later life divorce

Financial adviser Amanda Thompson answers two of the most-asked questions.

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Q. Who can I nominate to receive my superannuation when I pass and what is the difference between a dependant for super purposes and a dependant for tax purposes?

Amanda Thompson: Your super is likely to be one of the largest financial assets you’ll ever own, and it could include an insurance benefit if you pass away. Under Australian law, your super does not automatically form part of your estate, so making a will isn’t enough. That’s why it’s important to nominate beneficiaries – so you can help ensure your super ends up in the right hands. Nominating beneficiaries for your superannuation is a crucial step in ensuring your super ends up in the right hands after your passing. It’s essential to understand the differences between dependants for superannuation purposes and dependants for tax purposes.

There are two key things to understand here:

1. Dependants for superannuation purposes: These are the people you can choose as beneficiaries for your super. It’s a broad list, including your spouse or partner, your children (including stepchildren and adopted ones), anyone who relies on you financially, and even someone with whom you have a very close personal and financial relationship, like sharing a home and bills. So, it’s quite flexible.
2. Dependants for tax purposes: When it comes to taxes, the rules are a bit more strict. For tax purposes, your dependants usually mean your spouse (that includes same-sex partners) or your kids who are under 18 (or between 18 and 24 and still rely on you financially while studying full time). If the person you want to leave your super to doesn’t fit into these categories, there might be taxes involved when they receive it.

It’s important to nominate beneficiaries according to your wishes and consider the tax implications. As the rules surrounding superannuation and taxation can be complex, it’s best to seek advice from a professional when making beneficiary nominations to ensure your super benefits are distributed as per your intentions and in the most tax-efficient manner.

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Q. How can I safeguard my financial wellbeing in case of a divorce later in life?

Amanda Thompson: Protecting your financial interests from a potential later-in-life divorce requires specific actions. First, aim for financial independence by maintaining separate bank accounts. This step ensures you have access to funds and establishes your financial autonomy.

Understanding your combined financial situation is paramount. Regularly review accounts, investments and debts to stay informed. Consider a binding financial agreement (similar to a prenuptial or postnuptial agreement) to outline how assets and debts will be divided in case of divorce. These legally binding documents offer clarity and protection.

Another critical aspect of safeguarding your financial wellbeing in case of a divorce later in life is to consider your housing situation. If you own a home together, discuss the possibility of what will happen to it in the event of a divorce. Will you sell it and split the proceeds, or will one of you buy out the other’s share? If you are planning on purchasing a new home then consider ‘how’ you will purchase it. Having a clear plan in place can help prevent disputes and ensure that your housing situation is handled fairly.

Revisit estate planning and superannuation beneficiaries to ensure they align with your current intentions. Should you find yourself heading for a divorce, prioritise mediation to reach a fair outcome that avoids unnecessary legal fees, which can escalate quickly. Mediation can provide a more cost-effective and amicable resolution for both parties, preserving financial assets and emotional wellbeing.

Lastly, remember the importance of emotional wellbeing. Divorce can be emotionally taxing, especially later in life. Consider seeking therapy or counselling to help you cope with the stress and emotional challenges that divorce can bring. Taking care of your mental and emotional health is just as important as protecting your financial interests during this difficult time.

Do you have a question for Amanda? Send it to [email protected] and put ‘Ask Amanda’ in the subject line. Amanda will answer a selection of questions.

Amanda Thompson, author of Financially Fit Women, is the founder of Endurance Financial.

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