SMSF trustees need to consider their own estate planning needs during a divorce to avoid the possibility of any disputes around death benefits or superannuation assets covered by a will.
SuperConcepts technical and private wealth executive manager Graeme Colley said superannuation splitting orders that were signed remained active even if one or both marriage partners died during a divorce settlement and unchanged estate planning may result in an ex-spouse directing the estate of their former partner.
“With the death of one of the parties after the agreement has been made, the order will operate in those circumstances because you’ve got an agreement on the splitting of the assets on a particular date,” Colley said during a recent webinar.
“In those circumstances, there will be death benefits payable out of that superannuation fund and the death benefit nomination might nominate the ex-spouse.”
He noted that if the surviving partner had left the SMSF, then the fund would need a replacement trustee and it was unlikely it could be the surviving former member.
“In this case, you might have to apply to the court in relation to the appointment of a person as the trustee of the superannuation fund or director of the corporate trustee,” he said.
“The other thing you need to think about, if the spouse becomes the director or the trustee of the superannuation fund in which one of those parties has died, is the conflict of interests that might arise.”
He said this was a real possibility where both partners die during a divorce proceeding.
“The splitting order operates and you need to consider the impact of the death benefits where both spouses might have nominated each other in the binding death benefit nomination,” he said.
“While you might think the death benefit of one party is paid to the other, because they’ve been nominated, it doesn’t work that way.
“What happens is that the benefits are petitioned and if both spouses have died, then any other dependants who are living at the time of the death of the individual will then be the recipient of that benefit.”
He noted that if both spouses were the only members and trustees of the fund, a replacement trustee would need to be found and this process would require a court order if the divorcing members died without a will.
“If they die intestate, you will need to seek letters of administration from the court in relation to their estate and then the person who is granted the letters of administration can then take over as the trustee of the superannuation fund,” he said.
“In a blended marriage, you would hope that is an independent person as that cuts out all that conflict of interests and hopefully creates an objective decision on who receives the death benefits in relation to it.”
