What happens to your SMSF in a Family Law dispute?

30 Jan 2020

What happens to your SMSF in a Family Law dispute?

Many couples these days have made the decision to start a Self-Managed Superannuation Fund (“SMSF”). But what happens to your fund if you separate?

What was supposed to be a financial and taxation “wise move” has suddenly become a nightmare of epic proportions. The family law and taxation rules that govern SMSF are complex and hard to navigate unless you obtain competent legal and taxation advice.

Here at MST Lawyers, our family law team can help you find a way through the dispute with your spouse and the possible other third parties who are involved in the SMSF. We work closely with clients’ financial advisors and accountants to get the best possible outcome for them.

How Can I Split my SMSF?

Superannuation is regarded as property for the purposes of the Family Law Act (1975). As part of an overall property settlement, you and your spouse may enter into a financial agreement or consent orders which determine your interests in a SMSF. If you can reach an agreement, you and your spouse can sign a Binding Financial Agreement. This allows you to reach an agreement on your own terms, rather than have a judge decide.

If it seems that you are unable to reach agreement, which sometimes happens due to many factors including on-going tensions between former spouses and the interest of  third parties such as business partners, it will be necessary to engage a family lawyer and even commence court proceedings.

The Family Court may find you have to pay your spouse a certain sum from the fund and it is up to you to decide how you will meet that payment.  If there are insufficient liquid assets in the SMSF, you might decide to sell other assets to make the payment and possibly come to some agreement with other members of the fund if there are any who are affected.

What if you can’t agree on the value?

Any interest in a SMSF must be valued. Sometimes, it might be necessary to use a licensed valuer to value assets in the fund such as real estate. Otherwise, the fund’s accountant will be able to value the interest of each member of the fund. The sooner you do this the better.

Things can become difficult if the main asset is a business and the SMSF doesn’t have enough free cash. What if the asset is the business premises and a sale would affect the other business partners? What about the Capital Gains Tax (“CGT”) the sale will incur?

There might be other options available to you after you have sought the advice of your financial adviser and or accountant.

Capital Gains Tax Issues.

Rollover relief is available for the transfer of assets in a family law matter so that the leaving spouse does not pay CGT.

Special rules apply to the transfer of an asset (other than the family home) from one spouse to the other by a court order or financial agreement under the Family Law Act. These rules apply to defer the liability to pay capital gains tax until the asset is sold and the spouse to whom the asset was transferred will be liable to pay the tax on any gain made when the asset is eventually sold. Assets can include shares, leases and rights of various kinds.

CGT may also be payable for which you will require taxation advice.

The special rules that govern roll over relief in a family law property settlements also apply to the transfer of these assets if the transfer is pursuant to an order or agreement under the Family Law Act (1975).

SMSF and the Family Law Process– What Can I do?

Family Law disputes can be a long and stressful process.  MST Lawyers can assist you in resolving a property settlement including dealing with your SMSF on separation from your spouse.  

Alternatively if you are considering entering into a Financial Agreement in contemplation of marriage or entering into a defacto relationship, we are able to advise you.

Being prepared is the best thing you can do to protect your business and or personal assets. Your financial advisor or fund accountant can advise you further.

Please call our friendly and highly experienced family law team for further advice.