Tag Archive: Divorce

  1. Divorce on the horizon?

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    Aside from the emotional turmoil that a divorce brings to a family situation, there are an enormous range of financial issues to be worked through.  Here we breakdown the key issues from an SMSF perspective:

    1. Despite the extent of breakdown in the marriage, the law is very explicit about the expectations of all Trustees to continue to “act in the best interests of all members at all times”.  Specifically it spells out that Trustees cannot:

    • exclude another trustee from the decision-making process;
    • ignore requests to redeem assets and roll money over to another regulated complying super fund;
    • take any action that is not allowed by the Superannuation Industry Supervision (SIS) Act 1993 or the SMSF’s trust deed.

    2. A recent case highlighted the ongoing compliance responsibilities that any Trustee continues to carry, particularly if established as individual trustees, despite a marriage breakdown.  When the Shail’s divorced, Mr Shail withdrew $3.46m of the SMSF assets and took off overseas.  Despite appealing the original decision, it was upheld that Mrs Shail was jointly responsible for the missing assets, with the ATO issuing a penalty for non-compliance of nearly $1.5m and a devastating tax bill to boot of over $1.5m, both of which the individuals, not the super fund itself, were liable for!  (Check out a recent blog for more about the new ATO penalty regime.)

    3. When it comes to the divvying up of financial assets, you need to consider all of the assets before applying any super splitting, taking into account any tax or access implications.  Often lawyers and advisers can overlook the ages and personal situations of each of the members, missing opportunities to provide earlier access to an older member, or consider the future contribution opportunities of a younger member, for example.

    4. Payment flags can be applied to unlisted assets until they have been properly valued, preventing those assets from being liquidated before agreement has been met.

    5.If an asset needs to be sold down in order to split the superannuation (in the case of property for example), consider whether it is possible or feasible for the super fund to borrow money (either from a related party or bank) to meet the cash requirements.  This would only be possible however if the asset was originally set up to be held within a unit trust which was owned by the super fund.

    6. If the fund has not initially been set up with a Corporate Trustee and the split leaves a single member running the Fund, a new Trustee will need to be added or a new Corporate Trustee put in place.  This isn’t a costly exercise, but it will require all assets to be transferred to the new name.

    7. Liquidating assets to then “rollover” to another fund will create a Capital Gains Tax event that the Fund will need to pay before the proceeds can be rolled over.  In the case of divorce, CGT rollover relief is available where assets can be transferred to another SMSF set up by the exiting member.  In this case, the new fund takes on the original cost base of the asset.

    Extreme care in the strategy and record keeping needs to be taken to avoid costly mistakes, which is often challenging when communication breakdowns occur.  Make sure a trusted source of advice is guiding you every step of the way.  Better yet, avoid it completely if you can!

  2. Oops – divorce on the horizon? What now?

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    Divorce is the worst-case scenario for a marriage. Amongst the emotional, legal and financial turmoil – which is only compounded if there are kids or pets involved – it can be easy to forget about your super.

    If you are already within an SMSF, chances are your soon-to-be ex-partner is also a trustee. So what happens when retirement plans, like so many other things, were built with a shared future in mind?

    Superannuation splitting within an SMSF does not differ greatly to super held within a traditional fund structure in the eyes of the law. Any difficulties are mostly commonly caused by the relationship between the trustees and the nature of assets held in the fund. Superannuation splitting laws exist to make sure a settlement is fair however, there are still several things to be aware of to avoid an unfair distribution of super.

    Here are our top 4 things to keep in mind when navigating SMSF and super splitting due to divorce.

    1. If you were married before 1975 make sure that your Deed allows for the requirements set out by the Family Law Act 1975.

    Make sure your SMSF Trust Deed to reflect the requirements set out by the Family Law Act 1975. If your deed hasn’t incorporated the requirements, it won’t stop the law – it will just make things confusing for your Fund’s trustees. We can help you both through the process, set out below:

    • Obtaining information
    • Determining the documentation method
    • Determine the splitting time and calculation
    • Serving the superannuation agreement/order
    • Notifying the parties
    • Implementing the superannuation agreement/order and making payment.

    2.    Use a Family Court Document to request all of the information you will need.  You will need to submit this yourselves, but you can get help from your adviser or accountant (or Greenlight).

    3.    Use your Consent Order (where the parties agree), Court Order (where the parties don’t agree) or a Superannuation Agreement to document how your combined super assets will be split. Just make sure you’re not planning to rely on a Stat Dec as it won’t suffice. Never heard of a Superannuation Agreement?

    If you opt for a superannuation agreement, Greenlight can help you manage the process with your legal representatives or contact a specialist advisor on your behalf.  Together, we will make sure your superannuation agreement is in the correct format, obtain signatures from both yourself and your partner, and organise a legal declaration which states that each party has received independent legal advice.  This legal declaration will be accompanied by a statement from each legal practitioner that advice was provided. Superannuation agreements are a more expensive option across the board because of the added necessary legal expertise than the first two options.

    4.    The hard bit – splitting the assets.  You’ll either be physically separating the assets immediately (Payment Split) or flagging the arrangements until a condition of release (such as Retirement) is met.  This is called Payment Flagging.

    There are two main payment types:

    A payment split – the super payment is made now.
    This payment type is the most consistent with the Family Court’s desire that property settlements represent a clean break.  It involves creating an interest for the non-member spouse, either in the same fund or in a fund of their choice, which cannot be cashed until the non-member spouse meets a condition of release.

    A payment flag – the super payment is deferred until a condition of release is met.
    When the condition of release is met, the trustee notifies the court that a splittable payment will become payable. These may be suitable for defined benefit funds where a retirement benefit significantly larger than the current withdrawal benefit may be payable in the near future. However, they are rarely used in an SMSF.

    The three main methods of calculating the amount of a payment split are:

    • A percentage amount – a percentage of the account balance is payable
    • A base amount – a fixed dollar amount is payable
    • A calculated base amount – a method by which a base amount can be calculated

    The hardest part about this when parties are in dispute is realising asset values, especially if valuations fluctuate considerably.  Don’t make this time any harder on yourself, make sure you’re across all the facts and secure your retirement future.