A self- managed super fund (‘SMSF’) is a special type of superannuation arrangement.
Generally speaking, superannuation is generally treated in one of two ways as part of a family law property settlement. The first is that each party retains the superannuation they already possess. The second is that superannuation is ‘split’. A superannuation split involves a transfer of assets (usually cash) from one party’s superannuation account to the superannuation account of their former spouse. These two basic alternatives apply a SMSF, just as they would to other superannuation accounts.
All of the above applies to SMSFs, but there are other factors that also need to be considered where this special type of super fund is involved. To continue meeting the definition of a SMSF (and therefore qualifying for the preferential taxation treatment super funds receive) a number of compliance points must be satisfied. One of these is that SMSFs require all members to also be trustees. In a typical SMSF where husband and wife are the only members of the fund, this means that both are required to be trustees (where the trustees of the fund are individuals) or directors of the trustee company (where a company is the trustee). So one of the issues with a SMSF on separation is how, if one party leaves the fund, how the fund can be restructured in order to continue as a SMSF. Usually one partner leaves (most frequently the one who didn’t have the idea of starting an SMSF in the first place) and the other stays in the fund. In summary, the SMSF usually continues with one of the members ‘rolling out’ of the fund into different superannuation arrangements.
Where there is a split of superannuation money from one member to another, further issues arise. In a non-SMSF super split the trustee of the fund would convert fund assets into cash in order to pay the spouse receiving the super money. With a super split conducted from a SMSF, the asset make up of the split may be by way of cash or, possibly, by an in specie transfer.
An in specie transfer is where value is transferred in a non-cash form. For example, if member A is entering into a super split to member B from an SMSF for $800,000, rather than the fund paying $800,000 in cash to member B’s new superannuation fund there may be an asset owned by the SMSF (an investment property, for example) valued at $800,000 which could be transferred to member B to satisfy the superannuation split.
In summary, there are a number of things which might make separation different where the parties are both members of an SMSF. If you have a SMSF and are embarking on a family law property settlement (or thinking about doing so) there is an added level of complication which must be considered and planned for.
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