17 Sep Self-Managed Superannuation Funds in Family Law Disputes
Self-Managed Superannuation Funds in Family Law Disputes
The rules of compliance for self -managed superannuation funds (SMSFs) are heavy. Many mums and dads who are members or trustees of such funds, are not aware of what they need to comply with, and can make innocent mistakes that could lead to financial penalty or in some cases prosecution. But as they say ignorance of the law is no excuse.
Case scenario – husband takes off overseas with the super funds
In the case of Shail & AAT the husband and wife had $3.5m in their SMSF. They separated and the husband withdrew the majority of the funds illegally and left Australia. The AAT accepted that the wife had no knowledge of, and did not consent to the withdrawal. As neither party had met a condition of release, the Fund was declared by the ATO to be non-complying. The parties were then declared by the ATO to be jointly and severally liable for about $3m in tax and penalties. The AAT upheld the decision.
Did you know that obligations of SMSF members trustees continue after separation?
As a typical case scenario, both parties to the marriage/domestic relationship are trustees of the fund or directors of the corporate trustee of the fund, as well as being members of the fund. Each trustee or director is jointly and severally liable for breaches of the obligations imposed on trustees. That means that if one makes a mistake of non- compliance, it will potentially lead to the other getting the blame as well.
Common breaches of SMSF obligations to be aware of:
- Taxation returns not done; or
- Use of fund bank account for personal purposes; or
- Not investing properly — simply having the funds sitting in a bank account. This is not, in itself, necessarily a breach although the fund is required to have an” investment strategy” and so, this may be an indication that there is no investment strategy or it is not being followed. In these cases, especially in a low-interest-rate environment, parties may be financially better off using an accumulation fund instead of an SMSF unless they have a good investment strategy and actually implement it; or
- Use of fund assets for personal use, eg holiday house and even the family home; or
- Incorrectly categorising the taxation status of funds; or
- Investing in assets which are not approved for super funds.
What to do if you separate and have an SMSF?
If both parties to the marriage/domestic relationship are members of an SMSF, then it follows that both parties must continue to be involved in the trusteeship of that fund after separation until the parties are no longer members of the same fund.
This is important to know- just because one partner was responsible for doing all the book work for the fund and continues it after separation, it doesn’t let the other partner off the hook if they separate. It is important to get disclosure of all the SMSF bank accounts, balance sheets, and SMSF tax returns immediately after separation. In case of suspicious circumstances this is particularly important.
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