What Happens to KiwiSaver When You Divorce?

by | Jun 7, 2024 | Wealth Management

Divorce or separation can be a challenging time, especially when dealing with financial matters like your KiwiSaver. After all, you’ve worked hard for these savings, they should remain yours, right?

In a divorce, KiwiSaver accounts are generally considered relationship property, meaning they often need to be split between you and your partner.

This depends on several factors, like, when the account was opened and its balance during the relationship. If you started your KiwiSaver after entering the relationship, the entire account might be split.

This can feel unfair, but understanding the rules can help you navigate the process better. Be aware that your share might be tied up until retirement age, while your partner could walk away with more liquid assets.

Knowing your rights and obligations can help minimise the ‘loss’ of your KiwiSaver during a split, but it goes beyond that. Post divorce, strategic investing can help recover your KiwiSaver to put you back in a better position for your future.

Our expert advisers can help with KiwiSaver advice and management.

Understanding KiwiSaver and Relationship Property

Relationship property includes all assets and debts gained during a relationship. Under the Property (Relationships) Act, this means you must share these assets equally with your partner. This includes items like houses, cars, and savings accounts.

Understanding what qualifies as relationship property is important. In most cases, everything acquired since the start of your relationship is included.

Separate property, like inherited items or assets owned before the relationship, usually stays with the original owner. However, if separate property is mixed with relationship property, it may need to be shared.

Your KiwiSaver is usually considered relationship property. This means contributions made during the relationship, plus any investment gains, may be split 50:50 upon divorce. If you started your KiwiSaver account while in the relationship, the entire balance could be included.

Including KiwiSaver in your relationship property ensures a fair division of all assets acquired during your relationship, as guided by the Property (Relationships) Act. This may seem complex, but understanding these rules protects your financial future.

The Impact of Divorce on KiwiSaver

When you go through a divorce, your KiwiSaver is treated as a part of your shared assets. This can impact your balance and how contributions are divided between you and your former partner.

During a divorce, the balance of your KiwiSaver account is considered relationship property. This means that the value of the account, accumulated during the time you were married, needs to be divided. Even if only one of you contributed to KiwiSaver, it still belongs to both.

Your share might be tied up in the KiwiSaver scheme and cannot be accessed until you meet specific conditions, like retirement age. Because of this, while your ex-partner could get cash or negotiable assets, your share may remain inaccessible for many years.

This can be challenging as you might need cash for immediate expenses but can only access KiwiSaver funds under certain conditions.

Division of KiwiSaver Contributions

The division of KiwiSaver contributions made during the relationship is straightforward but requires careful calculation. Contributions made before and after the marriage are not generally included in the division.

Your KiwiSaver contributions during your marriage are added to your joint assets pool and split equally. For example, if you contributed $20,000 and your partner none, the division would ensure $10,000 goes to each.

The date of separation is used to determine the value of your KiwiSaver contributions at the time of the division.

The law, as outlined by the Property (Relationships) Act, mandates a 50:50 split of relationship assets. Sometimes, one partner might not want to split KiwiSaver accounts, preferring to keep other assets.

In such cases, negotiations or court interventions can help reach an agreement. The division process ensures both partners receive their fair share to move on independently.

If there’s a dispute about how to divide the KiwiSaver, a court order may be necessary. This could mandate the exact division of the funds, helping ensure fairness and adherence to the law.

We recommend getting advice from a lawyer when dealing with your KiwiSaver during a divorce. Your lawyer will help you understand your rights and obligations. They can guide you through the division of your KiwiSaver and ensure that you follow correct legal procedures.

One key step is signing a separation agreement. This agreement outlines how your assets, including your KiwiSaver, will be divided. The agreement must be fair and legally binding, and your lawyer will help draft and review it to protect your interests.

Valuation and Splitting of KiwiSaver

To determine the value of your KiwiSaver, the typical practice is to use the value at the date of separation. This ensures fairness, as only the contributions made during the relationship count as relationship property. You can get an official statement of the KiwiSaver value from your provider.

Independent valuations might be needed if there are disputes about the balance at the separation date. This ensures transparency and equality in the process. The court often relies on these professional valuations to make fair decisions. Keeping all records updated and accurate is essential to avoid complications later.

Negotiating Settlement and Achieving Fairness

In a divorce, lawyers or mediators will help you negotiate a settlement including your KiwiSaver to ensure fairness. During this process, consider all assets, including property, savings, and investments.

You can offer other assets to retain your KiwiSaver intact. This approach helps balance the value of assets each party receives. Open communication and compromise are key to reaching a fair agreement.

Financial Implications and Adjustments

After your separation, your KiwiSaver account will be evaluated based on the date of separation. Contributions made during the relationship, including those from your employer and the government, are usually considered relationship property.

This means the value of these contributions and any returns on them will be split 50:50 between you and your ex-partner.

Immediate steps to take:

  • Contact your KiwiSaver provider to notify them of the separation.
  • Talk to our KiwiSaver advisers to review your retirement plan and make necessary adjustments.
  • Ensure all paperwork and legal requirements are met for the division of assets.

Planning for the Future

Post-divorce planning is crucial. You need to rebuild your savings and adjust your retirement plan. Start by analysing your current financial status and focusing on your future goals.

Key actions:

  • Evaluate your monthly contributions and adjust if needed.
  • Talk to our financial advisers to redefine your investment strategy.
  • Plan your budget to accommodate any changes in income and expenses.

By taking these steps, you can regain control of your financial situation and ensure a more stable future for yourself.

Special Circumstances in KiwiSaver Division

In the division of KiwiSaver during a divorce, certain special circumstances may affect how the assets are split. Factors such as pre-existing exemptions, international considerations, and other specific situations play a role.

Exemptions and Exceptions

Certain KiwiSaver accounts might be exempted partially or entirely from division. For example, if you had a KiwiSaver account before entering the relationship, only the contributions and growth during the relationship would be considered relationship property. The funds accrued prior are typically seen as your separate property.

Additionally, you may choose to protect your KiwiSaver by agreeing to distribute other assets of equal value. This could involve negotiating terms where other investments or properties get divided instead.

Family Trusts and business structures sometimes have specific clauses that protect assets like KiwiSaver from being split, depending on how they are structured and the legal agreements in place.

Understanding these exemptions can help protect your interests, especially if significant contributions were made before the marriage. Keep in mind that legal advice is essential when dealing with these exemptions to ensure the correct application of the law.

Cross-border Divorce Considerations

When dealing with an international divorce, the division of KiwiSaver can get more complex. If one partner lives in a different country, cross-border laws come into play. Different countries have different rules regarding the division of assets, including retirement funds like KiwiSaver.

For example, superannuation schemes in Australia might have different treatment in comparison to KiwiSaver. Negotiating a fair split that complies with both jurisdictions can be challenging. Legal advice from experts familiar with cross-border divorce cases is a must here.

Furthermore, transferring KiwiSaver funds across borders may not always be straightforward. You might face restrictions or additional taxes, which could impact the final division of assets. Therefore, it’s important to consider both legal and financial implications when navigating these complex scenarios.

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