Self managed super funds are a hot topic right now as Australia’s ageing population continues to grow. We see more emphasis being placed on self funded retirement. As a result of this, superannuation is a hot topic. This is especially so in the world of family law where superannuation is often the biggest asset after the family home and superannuation splitting orders are being included as part of property settlements more often than not. The type of superannuation entitlement that you hold is important in understanding how a Court in family law proceedings deals with that superannuation. In this article we examine the Self Managed Superannuation Fund – “SMSF” – and the part it can play in your family law property settlement.
The growth of the SMSF
In the 5 year period between June 1999 and June 2014, SMSF assets grew by $183.2 billion, or 49%. This means that in dollar terms, SMSFs continue to have a significant influence in the overall growth of the $1.9 trillion Australian superannuation industry. Total superannuation assets in the period grew by 53% or $645 billion, of which SMSFs contributed 28% in the proportion of overall growth.
SMSF as a trust: “It’s your money, but not yet”
SMSF’s are established under a Trust structure. This is the only way a SMSF can be created. The Trust created by a SMSF is unusual in that the Trustees – often the husband and wife – are also the beneficiaries of the trust. The ATO seeks to explain this situation in its aptly named publication: “It’s your money, but not yet”.
The important documents
When splitting a SMSF, whether by way of settlement or whether you are preparing for a trial the following documents are required to ensure all aspects of the SMSF are considered:
- The Trust Deed;
- A RoCs search – this is a Register of Complying Superannuation search which enables you to check whether the fund is registered as a complying fund;
- The last 3 years of financial statements;
- Member statements.
Valuation of a SMSF
The Family Law Act 1975 prescribes a number of methods to obtain the value of superannuation for family law purposes. With SMSF’s the courts are required to determine the value of the SMSF by whatever method it considers appropriate. The 3 most common forms of investment in SMSF’s are real estate, cash and shares. Real estate and shares should be valued in accordance with the accepted principles of valuation in those areas. Where a SMSF has not complied with the stringent restrictions and rules that regulate these type of funds, the ATO can impose significant tax penalties. These penalties need to be identified and considered as part of the property settlement negotiations.
Superannuation Splitting Orders: the options
When making a Superannuation Splitting Order regarding a SMSF, it is important to consider the type of asset the recipient is receiving. Once the Superannuation Splitting Order is made the Trustee (usually the husband and/or wife) is required to provide 3 options in relation to the superannuation entitlement:
- To create a new interest in the SMSF. This is generally not a wise course of action following separation and divorce;
- To rollover or transfer the entitlement to another complying super fund. The nature of the entitlement – whether cash, real estate or shares – will have an effect on the type of complying super fund that the entitlement can be transferred to;
- To pay a lump sum. This option is only available where the person receiving the entitlement has met a condition of release, for example, retirement.
This is a complex area of the law. It often requires the cooperation of accountants, experienced family lawyers and financial advisers to ensure any superannuation split involving a SMSF complies with the myriad of rules and regulations, and to minimise any taxation consequences associated with the superannuation split.
Contact one of our family lawyers today to gain expert advice in relation to your SMSF and family law property settlement.