Divorce

Assets in an SMSF are regarded to be a part of thematrimonial asset base and also to be a family’s retirement nest egg. However, there are circumstances where it may not go as planned and there is a relationship break down; for example, separation or divorce with your spouse.

As the balance in an SMSF grows it can be a sizable asset to be dealt with, in an event of divorce. Trustees must ensure to make decisions in accordance with the super regulations.

  • The Trustees need to continue to act in the best interest of all Members even though the Members and Trustees of the Fund may have difficulties with their partner on a personal level.

    In addition, the Trustees of the Fund cannot:

    • Exclude another Trustee from the decision-making process,
    • Ignore requests to redeem assets and roll money over to another regulated complying super fund,
    • Or take any action not allowed by Superannuation Legislation and the Trust Deed

  • In the event of a divorce or a relationship breakdown, there will be legal proceedings through Family Court or there will an out-of-court settlement to determine the division of super. The steps that should be taken are as follows:

    • Request information about spouse’s super from the SMSF
    • Determine the value of the super balance of the spouse
    • Reach to an agreement via an out-of-court settlement and obtain formal consent from the Family Court or apply for a court order if the individuals cannot come into an agreement
    • Send a copy of the agreement or court order to SMSF Trustee
    • If we are the accountant for your SMSF, please ensure to forward us a copy of the sealed court order when providing us with the supporting documents for the year end process. Please see here for more guidance on the annual process.

    The content of this page only contains factual information and does not constitute legal or financial advice. Please ensure to seek legal aid from a family law specialist as they can offer valuable guidance on relationship breakdown and superannuation split.

  • In a Fund where the initial Trustee structure was set up as Individual Trustees and if there is a relationship breakdown, most likely one of the Trustees may leave the Fund. In this circumstance the remaining Trustee will need to appoint a new Trustee or appoint a Special Purpose Trustee Company. The Trustees must ensure to have all the assets of the SMSF to be registered under the new Trustees. See our Trustee Structure page for more information.

Guidance on the rules relating to Family Law and superannuation

Options

Dissolve the current Fund and roll out the balance to a Retail Superfund or another complying SMSF

In the event of a Divorce the Trustees may decide to wind up the Fund and roll out the super to their respective retail funds according to the settlement or court order.

One Spouse to remain and one to exit

The Trustees of the Fund may decide for one spouse to exit the Fund and one to remain. In this instance the Trustees need to ensure there is enough liquidity in the Fund to pay out the exiting Member. SMSF assets can be rolled over from one spouse to the other. The rollover doesn’t apply if you and your spouse divide the SMSF assets under a private or informal agreement. The rollover applies to CGT events that happen because of either:

  • an order of a court or a court order made by consent under the Family Law Act 1975, or a similar law of a foreign country
  • a court order under a state, territory or foreign law relating to breakdown of relationship between spouses
  • a financial agreement that is binding under section 90G of the Family Law Act 1975 (known as a ‘binding financial agreement’)

Questions and Answers

Q: Is it advisable to get the courts involved if we are separating?

Answer: It doesn’t matter whether the divorce is amicable or not, you and your partner will require binding financial agreements or orders, which will involve the assistance of a lawyer to confirm this splitting arrangement of the Member balances.

Q: Do I have to get legal advice in order to make a payment splitting agreement?

Answer: Yes. If you don’t get legal advice, the payment splitting agreement won’t be binding on the Trustee of the superannuation fund. To make the payment splitting agreement to be binding, each party is required to obtain independent legal advice and a legal sign-off regarding the Member balance split. This is noted in the page 17 of Super Splitting issued by Attorney-Generel’s Department. 

Q: Can we make our own arrangement and not get the courts involved if we are separating?

Answer: Although it is advisable to get the family court involved to confirm this splitting arrangement of the Member balances, you can do it yourself. The SIS Act is silent on this issue, but trustees can come to an arrangement. Be mindful this may be open to legal challenge later on if not stamped by the court.

See our Transferring Benefits Out page for more information and to download the rollover form.

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