When partners in a SMSF separate, there are specific legal and tax implications that should be considered.
It is possible to split super benefits, i.e., transfer assets, such as property, from one super fund into another and roll money over to another fund; however, trustees need to keep the following in mind:
- Separating couples need to work out how they will split their super. They can choose to enter into a formal written agreement, seek Consent Orders, or if the separating couple cannot reach an agreement, they can seek a court order.
- It is important to have necessary documentation in the event of an ATO audit including financial and non-financial records. Due to the tax outcomes of splitting super in an SMSF, it is essential to have documentation, such as the notice for splitting the super, to show a genuine separation.
- There is the potential for SMSFs with property as a major form of investment to create a liquidity problem; however, this can be addressed with future contributions. Individuals will also need to be aware of the market valuation rules for real estate in SMSFs.
- If one member establishes a new single-member fund it is advisable to incorporate a special purpose company as the trustee. This avoids having a second person as a trustee.
- Trustees can now acquire assets from a related party of the fund (in-house assets) as a result of marriage breakdown. Legislation was recently amended to broaden the scope to the breakdown of opposite-sex and same-sex de facto relationships. Where in-house assets are acquired as the result of a relationship breakdown, transitional exemption provisions apply.