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Super remains best bankruptcy safeguard

Owning assets inside an SMSF or any other superannuation structure continues to be the most effective protection against bankruptcy, according to a legal expert on insolvency.

“Superannuation probably remains the best form of asset protection against a future bankruptcy of a trustee that there is as long as it’s not done to abuse the process,” Jones Partners managing partner Michael Jones said.

Jones warned though there were legal provisions in the to prevent abuse of the protection offered through retirement savings vehicles.

“The legislation stipulates if a transfer of assets into a super fund is done with the intent to defeat creditors, it will be void against the bankruptcy trustee,” he said.

“What’s important here is that there are actually no time limits. So it’s not a six-month or a 12-month or two-year relation backdate if it can be defined as a transaction designed to defeat the creditors.”

According to the , a transaction designed to defeat the creditors was one where if at the time the asset transfer into the fund took place the individual knew or ought to have known, having regard to all the circumstances, that they could meet their debts, there was a reasonable inference the transaction was designed to defeat the creditors, he said.

In light of this protection, he warned against the cashing in of any superannuation assets to satisfy creditor demands.

“We discourage people from cashing in assets of their super fund because if they cash them in to pay a creditor that’s been pressuring them, it’s money in the bin in effect because it’s lost its protection,” he said.

While being declared bankrupt had other implications for SMSF trustees, such as no longer being able to continue in a trustee capacity, he said it was better to go bankrupt first because the protection offered by the fund would continue.

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