Self-Managed Super Funds and Property Settlements
When a relationship ends, there are generally a number of issues that need to be resolved, including the division of property between the parties. Superannuation also needs to be properly divided, and this process can be complicated. This is especially so where the couple has a self-managed super fund. One of the reasons that self-managed super funds make property settlements more complicated is that often the assets held by such a fund are more difficult to value than assets held by other types of funds. Also, with this type of fund, the sale of assets is sometimes not possible because the assets held may be relied upon for the operation of a business by one of the parties.
There are several options for dividing self-managed super funds after separation. Which option a couple takes will depend on the individual circumstances of their matter. The relevant circumstances include what assets are held by the self-managed super fund and the state of the relationship between the parties and in particular the level of trust they have in one another.
Remain in the self-managed super fund with your former partner
Sometimes a couple that is separating may decide that it is in both of their best interests for them to both remain in the self-managed super fund despite their separation. The assets of the fund may mean this is the best financial and logistical decision. This may be because it may not be a good time to sell the assets that are held in the fund. Also, fees and charges may be avoided by remaining in the fund, as there will be no transfer or sale of assets. However, for this solution to be workable, the relationship between the parties must be amicable as it will require long term trust and cooperation. If a couple decides to take this option, it is possible to hold two separate accounts in the one self-managed superannuation fund.
However, it is important to remember that even if you hold a separate account in the same self-managed super fund as your former partner, your obligations extend beyond your own account balance. As a member of the self-managed super fund, you still are responsible for the decisions made by the fund and for compliance with the law. In consideration of this, it may be a good idea to introduce a requirement that both parties sign-off on decisions that are made about the fund. This requirement should be formalised by way of a written agreement.
Take your share of the holdings in the self-managed super fund and roll it over into another fund
If this path is followed, it is important that all assets held by the fund are valued so that there is a fair division of the fund. Some of the assets held in the fund may be difficult to value, and expert valuers may be required.
Tax implications will also need to be taken into account if you are considering this solution. For example, capital gains tax may need to be paid in situations where assets need to be sold. However, capital gains tax relief may be available where assets are being transferred between funds. Taxes should be taken into consideration when determining what a fair division of the assets held by the fund is.
Other things that may need to be taken into account include:
- If a member spouse is resigning from the self-managed superannuation fund, the original fund may need to be restructured to reflect this change; and
- The beneficiaries of the original fund may need to be changed as, after separation or divorce, the preferences for who these people are may have changed.
Pay your share of the super holdings as a lump-sum payment
This can occur where conditions of release have been met under superannuation laws.
Many of the same considerations will apply to this solution as to the solution discussed above, where one member moves their superannuation interest into another fund or creates a new fund. Capital gains tax is more likely to be payable in this scenario as relief will not be available as it is when assets are transferred between funds.
Once an agreement has been made between partners about how a self-managed superannuation fund should be split, this agreement should be formalised in one of three ways:
- The agreement can be included in a binding financial agreement. For this to be enforceable lawyers need to verify that legal advice has been received by both parties;
- A consent order must be obtained from the family court that approves the agreement;
- A court order must be made setting out how the self-managed superannuation fund is to be divided.
If you require legal advice or representation in any legal matter, please contact Armstrong Legal.