Performance will determine spousal splitting method

SMSF performance spousal splitting

Fund performance plays a significant role in determining how splitting orders will be executed when spousal members of an SMSF separate.

Practitioners need to acknowledge the performance of an SMSF is strongly correlated with the chosen method for splitting the assets of a fund when there is a relationship breakdown between spousal members, a specialist lawyer has said.

In the event of receiving court orders to divide an SMSF’s assets between spousal members who have separated, a choice has to be made as to which method will be used to split the fund assets – the base amount payment split method, predicated on a fixed amount plus interest, or the percentage interest payment split.

DBA Lawyers senior associate William Fettes told delegates at his firm’s latest SMSF Online Update last Friday the performance expectations of an SMSF in the immediate future will play a significant role in determining which method is ultimately used for the spousal splitting process.

“[The base amount method] might favour the beneficiary, so the non-member spouse, where they’re a bit pessimistic about the portfolio of the super fund. They might think [they] don’t know if it’s really going to hold its value, so in a downward trending market maybe locking in that base amount is going to be favourable because they are going to at least get the base amount plus prescribed interest,” Fettes said.

“[On the other hand] if your client is not the party getting the benefit of the split, [so] they’re giving up the super, maybe the base amount [method] is really good for them if they are very bullish on the market and the performance of the fund’s assets,” he noted.

Similarly, if the non-member spouse was optimistic about future market performance, they may favour the percentage interest method, he said.

“The non-member spouse, as the beneficiary of a particular split, can get the benefit of the uplift in the value of the fund that occurs between the time of the orders and when the split is actually implemented under a percentage split approach,” he said.

“So it’s not really a one-size-fits-all approach, it’s about what’s appropriate, who your client is, who you’re representing and making sure that it’s something that can get the settlement over the line.”

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital