This article was first published in The West Australian.
Key points
- The median age for divorce continues to rise, bringing with it complex financial concerns
- Those with a self-managed superannuation fund can face complicated asset division
- Advisers can provide valuable support in navigating the intricacies of divorce and SMSFs
As anyone who has faced the challenges of financial settlements can tell you, divorce can have significant repercussions on finances. Dividing assets can be complicated enough, but if either (or both) parties are involved with a Self-Managed Superannuation Fund (SMSF), it adds extra financial and legal complications. But what are the complications of SMSF during divorce, and how can they be managed?
The benefits of financial planning
Recent data from the Australian Institute of Family Studies indicates that the median age for divorce continues to rise – it’s now at 47 for men and 44 for women. At this stage in life, couples may have accumulated substantial wealth with sophisticated financial structures such as family trusts and SMSFs
These factors add layers of complexity to the asset division process, making it more challenging to reach a fair and equitable settlement.
An exercise in forward planning and financial modelling prior to finalising a settlement can be a powerful tool to help individuals understand how the asset base, including the superannuation assets, can best support them post-divorce.
At a time of heightened emotions, this process helps people make well-informed decisions on the assets which should be prioritised, allow people to re-establish their financial position moving forward.
The complications of SMSF and divorce
SMSFs add a particularly complex layer to divorce proceedings, requiring careful management and compliance with strict regulations. Unwinding them will take time, and often, expert advice.
There are significant administrative and legal hurdles, particularly if both parties are trustees/directors of the SMSF, and superannuation splitting can be particularly complicated when there are large lumpy assets within the fund.
Even more challenging is when SMSFs are associated with the couple’s business, for example, if a business premises sits within the fund.
If there are sufficient other liquid assets within the fund to compensate the existing member, it can sometimes be easier to resolve the proceedings, but when this is not the case, co-ownership of the assets in separate funds or sale may need to be considered.
But going down the co-ownership path should be carefully considered, as it may lead to additional future tensions between the couple – a clean break is usually most beneficial.
When splitting assets out of the SMSF all parties should consider if it is still the right superannuation vehicle for both parties post-settlement. It may have had a specific purpose when the couple were together but no longer be appropriate for the individuals.
SMSFs provide a range of benefits in the right circumstances, however they do come with significant responsibilities, higher administration and potentially additional costs.
The decision should consider the financial literacy of individuals, willingness to adhere to regulatory obligations, and the cost-effectiveness of an SMSF compared to other superannuation options.
In some cases, transitioning to a simpler superannuation fund might provide greater peace of mind and allow focus to be directed towards other aspects of financial planning and personal wellbeing.
Advisers can provide valuable support in making decisions in relation to superannuation and the intricacies of SMSFs, including looking at the most appropriate arrangements moving forward.
The loss of shared income, the costs associated with legal fees, and the potential sale of family homes or businesses can all contribute to a diminished financial outlook during a divorce, It’s important to consider all financial vehicles and longer-term financial strategies to help alleviate some of this financial stress. Careful consideration and strategic planning are important to mitigate the impact of these decisions and ensure a secure financial future for all parties.
Disclaimer
Leanne Martinez (1003829) and Pitcher Partners Wealth (WA)Pty Ltd (127 4651) are Authorised Representatives of Sentry Advice Pty Ltd, (ABN 77 103 642 888) AFSL 227748.
The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances
