Divorce

Assets in an SMSF are regarded to be a part of the matrimonial 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 take decisions in accordance with the super regulations.

Best InterestLegal ProceedingsTrustee Restructures

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
  • 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 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 retails 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’)

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

  • Kamal Pasha

    Just wondering what documentation is required if there is a marriage breakdown between two members of the same SMSF and one spouse wants to transfer all their assets to the other spouse. They don’t have a court order. Will a minute outlining the arrangement and signed by both parties as members and trustees of the fund be sufficient?

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Kamal,

      The first point to consider is a replacement Trustee if the one Trustee wants out and you have an individual Trustee structure in place. See here for guidance:
      https://www.smsfwarehouse.com.au/smsf-setup/single-member-smsfs/

      In order to transfer a Member benefit to a spouse, you will need a court order or binding financial arrangement, noting the terms of the divorce. As the SMSF investments are part of the matrimonial asset base, super may form part of a divorce settlement. On the basis you have this court order in place, you can note the decision in a minute. We give a template you can download and amend accordingly:
      https://www.smsfwarehouse.com.au/smsf-setup/minutes-of-meetings/

      Keep well,

      • Kamal Pasha

        Thanks for that but in this case there is no court order or binding financial agreement. If there is a letter signed by both parties confirming the arrangement, will this be sufficient? Alternatively is there some other way to document the arrangement without incurring the additional court or legal costs?

        • https://www.smsfwarehouse.com.au Superannuation Warehouse

          Kamal,

          My understanding is a separation takes place first and then a formal divorce will occur, usually one year after the separation.

          Even if the divorce is amicable with minimal input from lawyers, the divorce must be in accordance with the Family Law Act 1975. If the superannuation split forms part of the divorce settlement, that would satisfy the criteria.

          However, a mere initiation of the process and the parties separating would not meet the criteria.

          Trust this gives you the guidance needed.

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Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has been prepared without taking into account any of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.