What happens to my retirement savings if we separate?

The savings are property

The instinct that a retirement account is somehow personal, because it has your name on it and you cannot reach it yourself, is wrong in all three of these countries.

KiwiSaver

• A court order under section 31
• Or an agreement between you

Section 127 makes the interest unassignable, and then names that order as the exception.

Australian super

• A superannuation agreement
• Or a court order

Both parties need independent legal advice before a super agreement binds.

401(k) and IRA

• A QDRO, for a plan
• The decree itself, for an IRA

The order has to qualify. A plan is not bound by an order that does not.

New Zealand: the one named exception

Start with the lock, because it is absolute on its face. Section 127 of the KiwiSaver Act 2006 says a member's interest and any future benefits "must not be assigned or charged or passed to any other person whether by way of security, operation of law, or any other means".

Then subsection (2) opens a door, and names what comes through it:

Subsection (1) does not prevent a member's interest or any future benefits ... from being released, assigned, or charged, or from passing to any other person if it is required by the provisions of any enactment, including a requirement by order of the court under any enactment (including an order made under section 31 of the Property (Relationships) Act 1976).

The Property (Relationships) Act 1976 is the enactment that matters. Section 8(1)(i) makes relationship property include "the proportion of the value of any superannuation scheme entitlements ... that is attributable to the marriage, civil union, or de facto relationship".

Read the proportion point carefully, because it is the whole of the arithmetic. A superannuation scheme entitlement is defined as one "derived, wholly or in part, from contributions made to the scheme after the marriage, civil union, or de facto relationship began or from employment or office held since the marriage, civil union, or de facto relationship began". What you built before the relationship is not in the pool. What you built during it is.

Section 31 lets the court make an order conditional on an arrangement or deed "designed to ensure that the other spouse or partner receives his or her appropriate share of that property". A copy can be served on the scheme's manager, and once it is, the manager "shall, notwithstanding the provisions of any Act, deed, or rules governing the scheme, be bound by the provisions of the arrangement or deed".

Notwithstanding any Act or rules. That is the sentence doing the work.

Australia: split by agreement or by order

Australia's framing is the most direct of the three. The Australian Taxation Office states it plainly: "Superannuation is treated as property under the Family Law Act 1975 but differs from other types of property because it's held in a trust."

The splitting laws "generally enable super interests (accounts in super funds) or super payments (pensions or annuities) to be split by agreement or court order if a relationship breaks down". A spouse for this purpose "is a person who lived with you on a genuine domestic basis in a relationship as a couple", married or de facto.

What happens to the money afterwards is the point most people have not thought through. "If the fund's rules allow it, the non-member spouse can open a new super account for themself in the same fund. If not, the fund can transfer or roll over the interest to another fund in the non-member spouse's name."

So it moves from one super account to another. It does not become money to live on. Only "if a non-member spouse meets a condition of release" can they access it immediately, which for most people means reaching preservation age and retiring.

The ATO also notes that the tax-free and taxable components are worked out immediately before the split and "divided between the split interests or payments in the same proportion", so neither side can be handed the taxable half.

And where one party is not being straight about what they hold: "The ATO may be able to provide information to the family courts on the assets of the other party in family law proceedings where there are concerns that they have not fully disclosed."

The United States: a QDRO, and a useful side effect

An American employer plan is divided using a qualified domestic relations order. The IRS defines it as "a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant".

The person receiving is called the alternate payee, and can be a spouse, former spouse, child or other dependent.

Two features worth knowing.

It has to qualify. A divorce decree that says the right thing is not automatically a QDRO. The order has to meet the statutory requirements, including naming each alternate payee and stating the amount or percentage, and a plan is not bound by an order that fails to.

It is one of the early withdrawal exceptions. A domestic relations order sits on the IRS's own list of exceptions to the additional 10 per cent tax on early distributions. A payment to a former spouse under a QDRO does not attract the extra charge that the same withdrawal would otherwise.

On tax, the IRS says "a spouse or former spouse who receives QDRO benefits from a retirement plan reports the payments received as if he or she were a plan participant". The tax follows the money to the person who receives it.

An IRA is a different instrument and is not governed by the QDRO rules in the same way, which is one of several reasons the two kinds of American account are not interchangeable here.

The pattern

Three systems, one shared design. Retirement savings are property, they can be divided, and a specific legal instrument exists to make a fund do something its own rules would otherwise forbid.

And in all three, what the receiving partner gets is usually still retirement money. Locked, preserved, and subject to the same access rules as if they had saved it themselves. A settlement that treats a super or KiwiSaver balance as though it were cash is valuing it wrongly, because the person receiving it may not be able to spend it for twenty years.

What this guide does not tell you

It does not tell you how the pool is divided, only that these savings are in it. New Zealand's general rule, Australia's just-and-equitable assessment, and the American state-by-state position are all outside this page.

It does not cover what happens to a government pension on separation, which follows its own rules in each country.

It does not cover the cross-border case, where savings sit in one country and the separation is dealt with in another, which raises questions none of these three sets of rules answer on their own.

And it is not a substitute for advice on your own separation, which is one of the few areas in this library where the published rules genuinely cannot be applied without someone looking at your particular facts.