Self-managed superannuation funds (SMSFs) are increasingly common – and while the extremely favourable taxation environment is appealing when you are working together with your spouse, if things fall apart, then dividing up your SMSF may cause complications and traps for the unwary individual or family lawyer.
Central to the difference between SMSFs and most superannuation funds is that your entitlement or member balance in an SMSF is very closely related to the actual asset that the SMSF owns – maybe some property, a business, shareholdings, artwork or investments. While your industry / standard fund may own those types of assets, the scale of items owned means that your entitlement is more abstracted. In that case, you usually own ‘units’ in the funds (basically, small portions of the total conglomerated whole).
What does that matter? When you ‘split’ or divide an industry fund 50/50 between parties to a marriage, the industry fund in essence assigns 50% of the units held by one party over to the other. ‘Rolling out’ or transferring that value is easy, because the fund will hold a lot of cash or equivalents to transfer to a different fund.
But with an SMSF, often a large percentage of the portfolio owned is made up of illiquid assets – property, or closely-held / private shares that cannot be sold at the drop of a hat. A 50/50 split may require a sale of a property in order to get enough cash into the fund to allow the transfer to happen. This can add many months to what is otherwise a quick process. Then the SMSF may be left with the costs of the sale, any taxation consequences and so forth lowering the total fund balance. Sometimes people are happy to retain items in the fund ‘in specie’ (meaning the actual thing, rather than cash). Someone may happily retain shares in a company producing great dividends, and want those transferred over to a new SMSF instead of simply selling up and getting cash.
Meanwhile, actually giving effect to legally transferring these items and causing any sales to occur is a minefield even for accountants experienced in the area.
So don’t let your lawyer handwave away this aspect as ‘easy’ or overlook the complexities of SMSF splits in family law. Our Family & Relationships lawyers has the expertise to guide you through the process with clarity and confidence. Contact us today on melbourne@nevettford.com.au for peace of mind.