What Happens To An SMSF In A Divorce?

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What Happens To A Self-Managed Super Fund In A Divorce?

Written by: Canny Advisory


According to the Australian Bureau of Statistics, in 2020 78,989 marriages were registered in Australia, representing a 31% decline compared to 2019 which indicates that the COVID-19 pandemic has had a substantial impact on couples making it down the aisle to say their “I do’s” with a 30.6% decrease from 2019.

There is so much to look forward to with the thought of getting married; a life partner, someone to help pair the socks that the washing machine keeps trying to steal and the option of joining forces to bring your finances together with the aim to be able to set yourself up for your retirement years.

But how many people get divorced?

Finder.com.au states that in 2019, there were 49,510 divorces granted in Australia.  The average duration from marriage to divorce is 12.1 years while the average duration to separation is 8.4 years.  Whilst the divorce rate has been steadily falling over time, down from an average of 2.8 divorces per 1,000 people in 1999 to 1.9 divorces per 1,000 people in 2020, there are concerns that due to the pandemic, there could be a sharp rise in the number of divorces and separates in the coming months and years.

What these statistics show us is that one in every three marriages will end in divorce.  So, what happens to your joint assets and in particular the superannuation that you have put into a self-managed super fund over the entirety of your working life together with your partner or spouse?

Advantages Of A Self-Managed Super Fund

A self-managed super fund is simply a type of superannuation fund.  It is a superannuation trust structure that provides benefits to its members upon retirement.  The difference between an SMSF and other types of funds is that the members of the self-managed super fund are also the trustee and a self-managed super fund is established to provide retirement benefits to its members.

Entering into retirement is one of the biggest life changes that will happen to us throughout our lives.  With a self-managed super fund, you have complete control over your biggest asset that you have worked towards your entire life.

A self-managed super fund can have between one and six members where each member acts as trustee of the fund or if there is a corporate trustee, each member acts as director of the company.  Therefore a self-managed super fund is well suited to individuals, couples and families.  All members of the self-managed super fund must be trustees, and all trustees must be members.

Call In The Financial Professionals To Help

Usually, when it comes to divorce and super funds are in industry/retail funds the split is somewhat simple and can be broken down into four steps as outlined below;

  1. Get valuations
  2. Apply to Family Court
  3. Response from the other party
  4. Consent order issues

That’s a very simplified version of events as one partner could have no super accounts due to a variety of reasons, or both people could have similar amounts and they walk about with their own funds.  Sometimes, extra superannuation can be offered up in lieu of other assets during the relationship breakdown.

Given the complex nature of self-managed super funds, it’s understandable that divorce/relationship breakdown proceedings and splits have added more complexity to them than what usually occurs.  The process of dividing assets in a self-managed superfund is often complex given the personal dynamic of the superfund’s trustees and members.  It is also important to understand that divorce has no impact on the ongoing obligations of the fund’s trustees: they’re still required to act in the interest of all members of the superannuation fund.

Financial Advice For the Road Ahead

Superannuation is considered “property” under the Family Law Act (1975).  It is important that expert advice be obtained, which could include accountantsfund auditors/actuaries, financial advisors, and solicitors, which sounds like a lot of input, but given the nature of self-managed super funds, receiving comprehensive advice could save you a significant amount of money and hurt in the long run.

When it comes to splitting orders in a self-managed super fund, you can be defined as a member spouse or a non-member spouse.  It’s important to note that the use of the term member here isn’t necessarily relating to being a party to the fund, it just means that the person has an entitlement to funds in a split.  A member spouse is one in which they are a member of the fund whose super is subject to splitting, as a result of orders.  A non-member spouse is a spouse or former spouse who will receive a split, and increase their superannuation benefits.

Financial Goals When There’s A Split!

There are two types of splits – a base amount order and a percentage split order.

  • Base Amount Order

A base amount order can be agreed upon in advance and have interest accumulate up until the time that this amount is paid out to the recipient, whether as a transfer, rollover or cash payment, depending on the circumstances.  Interest is earned on this amount until paid out at 2.5% plus the full-time adult ordinary times earnings, which is listed by the ABS.  This approach is simple as it is agreed upon by both parties and can save time and effort, as mentioned before, can be the result of negotiations of other assets that may be in play.

  • Percentage Split Order

A percentage split is just that!  A splitting order will dictate what this amount is and many factors can be taken into consideration as to what they deem the fair split to be.  Where the professionals come into play here is that the valuation taken upon which the split is based needs to be on updated financials and management accounts, which allocate for the period returns or losses.  Under this method, only at the time of payment, transfer or rollover is the actual amount known.

It is important to note that splitting orders does not facilitate the actual split of superannuation.  The reason for this is that the SMSF Trustee isn’t actually bound by a splitting order (due to the nature of the self-managed super fund structure where there are members and trustees).

SMSF Adviser outlines the steps in broad terms:

  • Step 1: The NMS serves the Splitting Order on the SMSF trustee together with a notice under reg 72 of the Family Law (superannuation) Regulations 2001 (Cth)
  • Step 2: The SMSF trustee gives each party a notice, called a ‘payment split notice’.  This notice is the formal notification to each of the parties that the MS’s superannuation interest is to be split under the terms of the Splitting Order
  • Step 3: The NMS makes a choice regarding how the split is to be implemented (eg. to create new interest, roll over the amount or pay a lump sum) and notifies the SMSF trustee of this choice.  (A modified process under reg 7A.10 of the SISR applies if the NMS does not make a choice.)
  • Step 4: The SMSF trustee must give each party a notice that the split has been implemented

There’s a lot to unpack there, and as mentioned, it is a complex process and one in which you must involve professionals to ensure that everything runs as smoothly as possible, especially considering what else you might be dealing with at the time, and to ensure that each party achieves the best results possible.

Canny Advisory + Your SMSF Advisory Needs

Whether you’re at the start of your self-managed super fund journey or you’re well established in your superannuation plan, it is important to understand how the different scenarios will play out if there is a falling out between the members of your self-managed super fund.

We house a team of experts in self-managed super funds, with our very own SMSF Specialist Adviser putting our clients in the safest of hands.

If you would like to learn more or have any questions about what is going to happen to your self-managed super fund if you’re about to go down the road of a divorce or are already on the road, get in touch with our team and we can work through it with you to get the best outcome possible.

Canny Advisory Team consisting of Helen Yau, Samantha Butcher and Chris Graham

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