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All SMSF scenarios must be considered in divorce

When a client is facing divorce, they must take into account all relevant scenarios when it comes to their retirement benefits, including the option of splitting superannuation assets outside the SMSF, a leading lawyer servicing the sector has said.

“Don’t always assume you split [the SMSF’s assets within the super system]. Are you better off in fact with one person taking the money?” Cooper Grace Ward partner Scott Hay-Bartlem said last Monday at the 2014 SMSF Professionals’ Association of Australia State Technical Conference in Perth.

“That means doing the split outside the superannuation system and maybe leaving it there or putting it back in.

“There are files I’ve had where the lawyers have been so focused on how we apply the split within the system they overlooked the fact that one [member] was over 65 and had no money outside of the super system.”

Hay-Bartlem said another critical decision to make in relation to a split of super assets upon divorce was whether each party wanted to remain as a trustee of the fund because doing so could result in being held liable for any compliance breaches of the SMSF, as was illustrated by the Shail Superannuation Fund and Commissioner of Taxation case.

In that case, Mr and Mrs Shail had divorced and Mr Shail subsequently withdrew all of the $3.46 million worth of assets in their SMSF and disappeared overseas.

The Australian Taxation Office (ATO) subsequently held Mrs Shail responsible for the missing assets and issued her a notice of non-compliance with an associated tax penalty of $3,059,206.

While she appealed the decision in the Administrative Appeals Tribunal, she was held to be responsible.

“I’ve seen five cases like this come through my office where you’ve got parties where one really hasn’t been very involved in the fund, one has done something which gives compliance issues and you end up with a negotiated position,” Hay-Bartlem said.

He said those circumstances generally involved one party threatening the other, saying “you do something or I’m going to the ATO and we’re all going to go down”.

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