Superannuation And Divorce

A family’s super balance is counted towards a family’s assets.

So if a couple are in the unfortunate situation of becoming divorced, the balance in their super fund is also divided up in the Family Court.

In many situations, the court awards half the family super to each spouse.

But how does this really work? And what are the practical issues? Please read on to find out more.

Splitting superannuation on divorce

Take the situation of a couple who co-manage their Self Managed Super Fund (SMSF). One person has a large balance of $300,000 and the other a smaller balance of $100,000.

If the court directs that the family’s assets are split 50/50, then the second member is due to receive an additional $100,000. Let’s also assume that the second member decides to leave the fund and set up their own SMSF:

  • The first step would be to set up a new super fund and rollover the second member’s balance of $100,000 to the new SMSF.
  • The additional $100,000 will then be transferred from the first member’s fund to the second member’s fund.
  • The second members’ balance will now be $200,000.

The transfers are not taxable to the recipient or deductible to the payer, they are classed as lump sum super rollovers on marriage breakdown.

Funding the superannuation split payment

If the transfers are made in cash then the paying member may have to sell down investments to pay out the benefit. In this case, they will probably have to pay some capital gains tax.

However, unknown to most is a capital gains tax exemption for asset transfers on marriage breakdown if they are ordered by the Family Court.

So if the paying member chooses, they can transfer an asset to the other member rather than the cash.

How does this work?

So, taking this example, there is a $100,000 additional payment to be made. It so happens that only liquid assets are $100,000 of shares (with a cost $70,000).

If the member funds the transfer by selling the asset and paying cash they will only have $97,000 after tax (that is, $100,000 less 10% capital gains tax on the $30,000 gain). They will need to find the money elsewhere.

But if the member transfers the shares directly, the whole $100,000 of market value can satisfy the payment due. This will generally be the case.

If you are going through a divorce and want to know what impact this will have on your SMSF, please enquire online today and our SMSF experts can provide you with the advice you need to effectively manage your fund.

What happens to the fund during the members divorce?

Unless a member quickly leaves the fund, there is usually a period where both divorced members must make joint decisions as trustees.

This can be difficult as cheques, tax returns, financial statements etc. are usually co-signed by both members.

It can be a good idea for each member to have their own SMSF specialised accountant to assist each party to properly fulfill their duties during this time.

This gives a certain amount of impartiality to the activities of the fund until the divorce procedures are complete.

Can my ex-husband / ex-wife claim any of my super after I die?

This is an interesting question. If you have a binding benefit nomination you would hope the fund trustee would follow your wishes.

If you do not have a death nomination or a will, it is up to the executor of your estate to decide who gets the cash.

Without any direction, they have discretion to pay the money to any of you dependents. Your ex-spouse can actually be considered as your “superannuation beneficiary” and may be eligible to receive some super money, if they make a claim.

Speak to us!

It is very important to consider these estate planning issues so that you can will be prepared if any unforeseen circumstances arise.

A SMSF specialist can assist you the event of family breakdown or divorce. Enquire online today to find out how we can help!

Note: this website is for informational purposes only and should not be substituted for professional financial or taxation advice.