Splitting a SMSF in a Divorce
What you need to know!
Just like your family home or any other assets, superannuation savings are included in the asset pool for divorce purposes.
This means that not only are they taken into account when valuing your total pool of assets, but the savings themselves can be divided between parties by agreement or court order.
If your superannuation savings are in a self-managed super fund (SMSF), splitting the asset can be a little more complex.
The breakdown of your relationship does not absolve you from your responsibilities as a trustee. Trustees must act in the best interests of all members at all times as well as remaining compliant with super laws. Consideration also needs to be given to correctly valuing the assets, dealing with any property the SMSF owns and making arrangements for the ongoing membership of the SMSF.
Considerations for SMSFs
1. Valuation of SMSF assets
Assets such as cash, shares and term deposits are easily valued at the chosen date of division. SMSFs with real estate, art, wine or investments in private companies or trusts are more difficult to value in that you need to determine current ‘market value’ as well as consider the potential for appreciation or depreciation in the future.
2. SMSF property and divorce
Problems can arise when the only asset (or major asset) of the SMSF is the premises of the family business. The business needs to retain the premises in order to continue to operate, but the SMSF may not have enough liquidity to pay out the other member. Do you sell the premises and incur all the costs involved in moving the business? Can we borrow funds (depending upon the structure)? Are there other business partners or fund members who would be affected by this? An advisor in this scenario would need to consider SMSF borrowing rules, the mix of assets, Capital Gains Tax (CGT) implications and the effect of all of these on the net position of both members.
3. Ongoing membership of the SMSF
As a member of a SMSF, you are also a trustee. This means your responsibilities extend beyond your own account balance. You’ll need to decide if you want to remain in the SMSF, start a new SMSF, or move to a different super fund.
The right decision will be different for each person. It may be affected by how amicable the split is and quite possibly by the underlying assets. For instance, there may be certain assets in the fund that would need to be sold if a member was leaving the SMSF but now is not the right time to liquidate them. Or perhaps you are on good terms with your former spouse and would be happy to remain in the fund with them. You could both continue as members of the fund with your individual interests being held in separate accounts. This would require long-term trust and cooperation with your former spouse and you’ll need to consider if this will be possible.
Professional legal and financial advice is vital
Where a SMSF is involved, it is best to ensure that your advisors are experienced in dealing with the unique considerations within SMSFs, particularly where both spouses are trustees of the Fund. There are likely to be legal, accounting and tax implications which will affect your future independence.
Not only do you need professional assistance to manage the separation of SMSF assets, you’ll also need to readjust your estate planning instruments in light of the marriage dissolution.
If you find yourself facing a relationship breakdown and your superannuation assets are in an SMSF, you should seek advice from both an experienced family lawyer and an accountant with separation and divorce expertise. Both your lawyer and accountant can work with your financial advisor to coordinate options to divide the SMSF assets and secure the best outcome for your financial future.