SMSF trustees facing bankruptcy need to time the payment of any benefits and withdrawals carefully to avoid giving creditors the ability to make a claim on those monies, an specialist lawyer has warned.
DBA Lawyers lawyer Shaun Backhaus said SMSF practitioners and trustees needed to be aware superannuation provided some protection for assets from creditors as long as they were properly documented and access to those assets took place at the right time.
“If there is a withdrawal of any lump sums [from an SMSF] before bankruptcy, there is no protection available,” Backhaus said in a webinar last week.
“Once those sums are out of superannuation, they are just going to be considered normal assets, and the assets of the bankrupt person can be divisible among their creditors.”
He said SMSF practitioners should be raising awareness of this with trustees, particularly where they may be running a business as well as their own fund.
“There might be a tendency, if someone is facing financial problems, to dip into super to save the business, but going to super should really be the last thing you would want to do because that’s where you have the protection,” he said.
“This is something to tell clients about before they’re facing those problems and if they’re starting an SMSF, clients might see it as just another bank account they can access, but keep them very separate.”
Despite this warning, he added there were no restrictions from accessing superannuation as a lump sum after declaring bankruptcy.
“After you’ve become bankrupt, and you could still be in that period of bankruptcy, a lump sum will still be a protected asset and that will also apply to other assets that are purchased using that protected money,” he said.
“While the creditors might not like a bankrupt person buying a new beach house, if they can prove that that money was an interest in superannuation and paid from superannuation and not a pension, and can prove that flow of money through the bank accounts was only used for that particular asset, it will be a protected asset.
“Conversely, a pension will be income to the bankrupt person or will add to other income they receive and form part of income calculations which can be applied towards any income contributions they are required to make during bankruptcy.”