Retirement
Separating? Important things to know when splitting super
There are a number of “incorrect and dangerous” misconceptions around the splitting up of superannuation if couples separate, a lawyer has warned.
Separating? Important things to know when splitting super
There are a number of “incorrect and dangerous” misconceptions around the splitting up of superannuation if couples separate, a lawyer has warned.
Peter Townsend, the principal of Townsend Business & Corporate Lawyers, has reminded individuals that Family Court orders that do require the splitting of superannuation “are often not precise”.
There are a number of reasons for this, he said.
Often, splitting orders will depend on the type of superannuation interest and whether it is in the growth phase or the payment phase.
This is also true of SMSFs, which “must always be compliant with the applicable superannuation and tax laws”.
Mr Townsend explained that because assets in an SMSF are often diverse, there is no standard approach to valuation.
When it comes to a court-ordered split of such assets, usually an independent expert valuer is chosen by the parties or appointed by the court to conduct a review of the fund.
The lawyer highlighted three common ways in which superannuation interests are commonly split:
- An order for a member to roll over their interests into another fund (which also means the member leaving the SMSF);
- An order for a member to pay a percentage or dollar amount of their pension to the other member; or
- An order that one of the members give their superannuation interest in the fund to the other member.
But on the other hand, some interests are unable to be split, Mr Townsend conceded.
These include, but aren’t limited to, contributions made with a personal injury election, transfers from foreign funds, government co-contributions and super interest subject to another unrelated payment split, such as a previous divorce.
According to Mr Townsend, the conversion of a member’s entitlements under a super split “can only be undertaken pursuant to the provisions of Part 7A.2 of the Superannuation Industry (Supervision) Regulations 1994”.
He noted that these are lengthy and can be difficult to comprehend.
It’s why he highlighted two “incorrect and dangerous” notions around the splitting of super.
He shut down the idea that super splitting converts the fund into a cash asset.
“Unless members have reached retirement or preservation age, any interest within the fund must not be paid out to a member (or any other individual),” he stated.
He also holds concern around the mistaken belief that parties can just agree on what should happen to the super.
Mr Townsend said parties can’t “simply sign resolutions giving effect to that agreement”.
Instead, the lawyer advised that splitting couples should “always seek independent legal advice on how to give effect to super splitting orders and on the options for reinvesting their respective interests into another fund while ensuring that any action taken remains compliant within the law”.
He has observed that a failure to comply with these regulations “will likely cause material adverse tax consequences for the members and the fund”.
nestegg recently looked at one industry super fund that is looking to develop a streamlined process for the splitting of super after divorce that doesn’t require legal involvement. Read all about it here.
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