Options for managing your SMSF in the event of divorce

Outside of the family home, super is often one of the biggest assets a couple holds, however when a marriage ends it can be overwhelming knowing how to manage splitting and subsequently rebuilding your super. This is especially so when divorce occurs later in someone’s career and often means that both people may have to work longer to rebuild their financial position.

Marriages are lasting longer but one in three marriages end in divorce

In fact they last around 12.1 years on average¹, which means that for the third of Australians going their separate ways, decisions about how to divide super can become very complex. Since 2002, super has been able to be split under the Family Law Act and is equally applied to de facto relationships (same-sex and heterosexual).

Trustees have options for dividing their assets while keeping their super in an SMSF

Most SMSFs operate as two-member funds, so in the event of a marriage breakdown it’s important to understand your options prior to a decision being made on the division of assets – either through a Family Court or via an out-of-court settlement. Two of the more common approaches are:

1. Continuing to operate the SMSF until a formal separation agreement is obtained

Leaving combined benefits within the SMSF defers administrative changes and costs, but any continued activity or investment decisions must occur with the full and uninhibited agreement of both trustees. All losses and gains would also be applied across both accounts. It’s important to be aware that one or both trustees may adopt different investment goals or change their retirement plans, and communication may become stressful or difficult – particularly if it takes a long time to reach a formal agreement. However, once an agreement has been reached adjustments can be paid and each trustee can move their allocated funds to a new SMSF.

2. Rolling your individual account balance into your own separate SMSF

If both trustees agree, one member may establish a new SMSF and transfer their benefits as a single member fund. This can occur while legal discussions continue in a separate but parallel process. In this context, rolling over a balance to another super fund is not considered a Family Law split of the joint super because each member can only access their own account balance. Capital gains tax relief won’t apply but normal costs associated with establishing a new fund will. If adjustments to balances are required as part of the finalised divorce terms, this must be done separately.

Divorce is rarely easy so it’s vital to get professional legal and financial advice

If a separation is handled through court, specific orders regarding the division of super will be determined. A separation agreement will note the agreed terms for an out-of-court settlement. In each situation there are likely to be legal, accounting and tax implications. Either way, seeking independent advice from a family law specialist can offer valuable guidance. They can also work with your financial advisor to coordinate options for dividing SMSF assets. For fairness, cost efficiencies and for the long-term benefit of each person’s retirement nest egg, in every scenario the transparent management of asset sales is critical. A financial advisor can help you with this and with thoughtful and prudent financial planning to smooth the rebuilding of your financial security.

This insight contains factual information and was prepared without taking into account your circumstances, objectives, financial situation or needs. This insight was prepared for information and interest only.  It is not intended to be comprehensive and does not constitute, and must not be relied on as legal or financial advice. While we attempt to ensure that the information in this insight is accurate and current when published, we do not guarantee that it is. As always, your personal circumstances are critical and seeking both legal and personal financial advice that is tailored to your circumstances is highly recommended.