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Super rules drive renewed care on divorce

Greater attention to detail must be applied when dealing with SMSF clients undertaking a divorce as the incoming super changes starting on 1 July will provide both positive and negative opportunities.

“I’m working with a client at the moment who is amicably divorcing and he has a market-linked pension, and it’s a fantastic planning strategy at the moment because he would’ve been in excess of the $1.6 million transfer balance cap,” Cooper Partners Financial Services director Jemma Sanderson told the recent SMSF Association 2017 National Conference in Melbourne.

“But now we’re able to commute that pension [under the incoming super changes].

“So there can be opportunities that come up with divorce.”

Sanderson reminded SMSF advisers to be wary of dealing with clients going through a divorce regardless and to be mindful of how assets would be divided as it was commonly a precarious life event.

“I’m not sure how many of you have gone through a divorce with an SMSF, but practically it can be a real nuisance because at any point in time we don’t know what each member’s benefits are worth because it clicks and changes with valuations and interest that’s credited to a bank account or dividends that may not have been received yet but are payable, et cetera,” she noted.

“Often when we’re looking at these sorts of things for our clients, it can be better that they’re receiving a fixed amount from the fund or a fixed proportion of the assets, so 50 per cent for example.”

She highlighted the biggest consideration here was to look at what that percentage looked like and how that was going to work.

“Before they even split the fund, it might be easier to change the trustee, so you’ve got to update all the asset registrations, such as property assets in the fund, so making submissions to the state revenue office to change that trustee, so that’s a process in itself,” she noted.

“But at least when one member does depart the fund, they just then resign as a director.

“So it’s much easier at that point to deal with it. That’s something to take into consideration.”

Insurance benefits within the SMSF was another area to keep in mind, Sanderson said.

“If someone leaves, can that insurance be transferred to a new fund or can they keep that insurance?” she said.

“It’s not just about [splitting the balance of the fund], there are other areas in the periphery that we need to consider, even just from the superannuation fund perspective.”

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