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SMSF Separation and Divorce

Summary

SMSF, Separation and Divorce – A Guide to managing your Super
In today’s world, the unfortunate reality is that a significant number of marriages end in divorce. According to the ABS, 42.7%* of marriages ultimately dissolve, and many SMSFs face this issue

SMSF, Separation and Divorce – A Guide to Managing Your Super

In today’s world, the unfortunate reality is that a significant number of marriages end in divorce. According to the ABS, 42.7% of marriages ultimately dissolve, and many Self-Managed Super Funds (SMSFs) face this issue. As a result, it’s essential to know how to manage your SMSF during separation or divorce.

This comprehensive guide will provide you with valuable information, tables, FAQs, and steps to help you navigate your SMSF through separation or divorce efficiently.

Summary of Key Strategies for SMSF Divorce Management

StrategyDescription
Leave the SMSF Assets UntouchedWait for a later date or a trigger event before making changes.
Split the SMSF AssetsSuper assets can be split by court order or mutual agreement, following the Family Law Act 1975 and SIS Act 1993.
Splitting SMSF Assets

Splitting SMSF assets is the most common step couples take during divorce. Super assets in a union are divisible by a court order or by agreement. Aim for an agreement with your spouse to divide your super equally or provide additional funds based on mutual understanding.

Steps for Splitting Your Super

  1. Contact your SMSF Administrator/Accountant

    • Request the fund’s last tax return and member statements.
    • Review the value of the fund’s assets in the latest completed tax return.
    • Examine member statements to see contributions by each member.
    • Identify the fund’s total assets and liabilities from the financial statement.
  2. Assess Property & Loans

    • If property with a loan is held, ensure the loan can be funded with a single member’s super contribution and rental income.
    • Consider refinancing the loan or selling the property if needed.
  3. Obtain Updated Valuations

    • Use online property valuations and portfolio/investment reports for shares and ETFs.
  4. Agree on Asset Split or Obtain a Court Order

    • Try to agree on a split of assets or apply for a court order.
    • Document the asset split and get independent legal sign-off.
    • Inform the super fund administrator/accountant of the court’s decision.
  5. Decide Who Maintains the Fund and Who Rolls Out

    • One partner may retain the fund while the other rolls out to a retail fund or sets up a new SMSF.

Key Points to Remember

  • Super assets are divisible by court order or agreement as per the Family Law Act 1975 and SIS Act 1993.
  • In amicable separations, mutual agreements are often reached, and decisions are made on fund maintenance.
  • In non-amicable separations, both partners typically engage lawyers.

A Guide to Property Division in SMSFs

ScenarioOutcome
Refinancing the LoanAllows one member to maintain property ownership in the fund by refinancing the loan based on a single super contribution and rental income.
Selling the PropertyIf refinancing is not feasible, the property may need to be sold to meet asset division requirements.
Property ValuationsObtain up-to-date valuations through online resources or professional assessors to facilitate fair distribution.

FAQs on SMSF, Separation, and Divorce

Q1: Can SMSF assets be split between partners without court intervention?
A1: Yes, SMSF assets can be split via a mutual agreement without court intervention. Documenting the agreement with independent legal sign-off is crucial.

Q2: How does the Family Law Act 1975 impact SMSF asset division?
A2: The Family Law Act 1975 allows superannuation to be considered property. This means that SMSF assets can be divided under court order or by mutual agreement.

Q3: What happens if we cannot agree on an asset split?
A3: If partners cannot agree on asset division, a court order will be required. Legal advice should be sought, and costs may increase significantly.

Q4: Can one partner retain the SMSF while the other rolls out?
A4: Yes, it is possible. One partner may retain the fund while the other rolls out to a retail fund or establishes a new SMSF.

Q5: What role do property valuations play in asset division?
A5: Up-to-date property valuations are crucial to ensure a fair distribution of assets.

Steps to Navigate Your SMSF Separation or Divorce

  1. Engage Your SMSF Provider/Administrator

    • Seek general information on SMSF splits.
  2. Seek Financial Advice

    • Obtain financial advice on separation strategies.
    • Ensure compliance with SMSF and tax regulations.
  3. Consult Legal Advisors

    • Approach lawyers only as a last resort.
    • Legal costs can be extremely high when engaging lawyers for SMSF splits.
  4. Review Inheritance Implications

    • Understand how SMSF and super assets can pass on as inheritance.
    • Super cannot be accessed or moved overseas until a condition of release is met.
  5. Document Asset Division

    • Record the asset split decision.
    • Obtain independent legal sign-off.

Conclusion

Separation and divorce can be a challenging time, but managing your SMSF doesn’t have to add undue stress. By following this guide, seeking sound advice, and understanding the rules, you can ensure a smoother transition and equitable asset distribution.

Key Takeaways:

  • Communication: Open communication with your partner can prevent lengthy legal disputes.
  • Professional Advice: Financial and legal advice ensures compliance and smooth resolution.
  • Documentation: Proper documentation of agreements avoids potential future disputes.

Further Reading and Resources

Glossary of Terms

TermDefinition
SIS Act 1993Superannuation Industry (Supervision) Act 1993, governing super funds.
Condition of ReleaseCircumstances under which super can be accessed.
Roll OutThe transfer of super assets from one fund to another.
Court OrderA legal document issued by a court outlining asset division.
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