Splitting Self Managed Superannuation Funds

Splitting assets held in a self-managed superannuation fund (SMSF) following the breakdown of a marriage or relationship can be complex.

What is a Self-Managed Superannuation Fund?

A SMSF is a private superannuation trust fund established under a trust structure that you manage and oversee including choosing investments and ensuring that the fund complies with superannuation and tax laws. Its sole purpose is to provide its members with retirement benefits.

SMSFs commonly have diversified assets classes including shares, investment income, real property, and cash.

Considerations for splitting SMSFs

When considering a SMSF split in a family law separation, matters to keep in mind include:

1.       Documents

Copies of the following documents will help you to better understand the SMSF:

• the most recent up to date Trust Deed.
• A Register of Complying Superannuation Funds (RoCS) Search via the Australian Tax Office [ATO] website – to ascertain whether the SMSF is registered as a complying fund.
• Member Statements.
• The three most recent years financial statements, to:
  • augment your understanding of the nature of the SMSF’s assets and its financial position; and
  • show whether the SMSG has been audited and any areas of concern as to compliance.

2.       Valuation

It is vital to determine the value of the superannuation interests. 

A SMSF’s financial statements often document the values of its assets. 

3.       Tax Implications

There may be tax implications dependent on the nature of the assets to be split.

Non-complying funds potentially have tax liabilities and ATO penalties.

An asset may have latent Capital Gain Tax (CGT). In certain situations, CGT rollover reliefs provisions may be available to reduce or eliminate CGT.

Seek specialised tax advice before deciding whether to roll out your interest into another SMSF or an industry regulated fund.

4.       Membership and restructure of an SMSF

A member of an SMSF is also a trustee with ongoing responsibilities. You must decide if you wish to remain in the SMSF, commence a new SMSF, or open a different type of fund such as an accumulated regulated fund. 

Splitting a SMSF typically requires the fund to be restructured to comply with superannuation regulations and laws.

Types of Spitting Orders

A SMSF interest may be split in a financial agreement or by a court order.

A SMSF interest can be split either as a specific dollar amount (base amount) or as a percentage of the balance of the superannuation entitlements.  A base amount payment guarantees the amount that a non-member spouse will receive from the split, while a percentage split may be higher or lower than the estimated value of the interest, depending on the interest’s value when the fund’s Trustee gives effect to the court order. 

Once the superannuation interest becomes subject to a payment split, the non-member spouse can: 

1. create a new interest in the same fund –– this option however may be precluded under the SMSF Trust Deed and is not recommended if the separation is acrimonious; or
2. transfer or rollover the interests into another complying fund (including a new SMSF or an industry regulated superannuation fund). If the non- member spouse does not wish to set up another SMSF and there is insufficient cash to be rolled over into an accumulation fund, SMSF assets may have to be sold; or
3. if the non-member spouse has met conditions of release under superannuation laws – receive the amount as a lump-sum payment.

Once the non-member spouse has selected how the superannuation interest should be split, the SMSF trustee must give effect to that choice.