Powered by MOMENTUM MEDIA
subscribe to our newsletter

Critical compliance checks flagged with family law splitting process

Critical compliance checks flagged with family law splitting process
Miranda Brownlee
07 January 2021 — 2 minute read

Where SMSF clients have gone through a family law split, SMSF professionals and auditors have been reminded to check that additional steps required under the SISA Act and SIS Regulations in relation to the superannuation split have been followed.

In a recent article, DBA Lawyers senior associate William Fettes explained that where a relationship breakdown has occurred between spouses, the parties’ superannuation entitlements may be subject to an overall family law property settlement.

This may involve one spouse agreeing to or being required to give up some of their superannuation benefits in favour of the other spouse based on drafted orders or financial agreements, said Mr Fettes.

Advertisement
Advertisement

This can be referred to as a splitting order, which could include a split under a court order, a split pursuant to consent orders arrived at by the parties to family law proceedings and also a split in accordance with a binding financial agreement.

Speaking to SMSF Adviser, DBA Lawyers director Daniel Butler said some SMSF professionals and SMSF clients can sometimes wrongly assume that once the court orders or binding agreement are received that the splitting process is completed.

“It’s really important that practitioners are aware that in the family law splitting process, the family court orders or the binding financial agreement are not going to cut it. You’ve got to go through the additional steps of getting the operating standard requirements under SIS complied with, and if you don’t there may be severe downside,” cautioned Mr Butler.

Mr Fettes explained in the article that the superannuation splitting laws refer to the relevant parties as the member spouse and non-member spouse. The member spouse is the party whose superannuation interest is subject to a split. The non-member spouse is the member who receives the benefit.

One of the first steps that must be undertaken, according to Mr Fettes, is the non-member spouse must provide the SMSF trustee with a copy of the splitting orders together with a notice under regulation 72 of the Family Law (Superannuation) Regulations 2001 (Cth) regarding the split in their favour.

The SMSF trustee must then give each party a payment split notice to formally notify the parties that the interest of the MS is subject to a split under the terms of the splitting order.

In addition to the payment split notice, Mr Fettes explained that the SMSF trustee must give the non-member spouse a notice under reg 2.36C of the SISR setting out the particulars of the split and certain other key information.

“Subject to the governing rules of the fund, and the requirements of the splitting order, the non-member spouse must make a choice regarding how the split amount is to be treated and notify the SMSF trustee of that choice,” said Mr Fettes.

“The choice by the non-member spouse must be exercised within 28 days from the payment split notice or such longer period as the trustee allows.”

Once these steps are carried out, the SMSF trustee, he said, is broadly obliged to give effect to the choice of the non-member spouse, subject to the governing rules of the fund and the splitting orders.

“The SMSF trustee must then calculate the amount to be transferred, determine the tax components and the preservation components, and notify each of the parties regarding the split being implemented,” he stated.

“After completion of the allocation to the non-member spouse, a rollover is prepared using the prescribed ATO forms if relevant.”

Mr Butler said failure to comply with these operating standards can result in some negative consequences, including each individual trustee of an SMSF being liable for $4,440 per contravention.

“It could also expose them to further claims from the former spouse and it could have other consequences that potentially render the fund non-complying,” he warned.

“Auditors should be updating their checklist to make sure that they are seeing all of the relevant notifications and disclosures required under each and every operating standard of SIS.”

Miranda Brownlee

Miranda Brownlee

 

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years. 

Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: This email address is being protected from spambots. You need JavaScript enabled to view it.

Critical compliance checks flagged with family law splitting process
daniel butler 800 smsf
smsfadviser logo
join the discussion

Latest poll

Do your clients plan to add additional members to their SMSF if the new six member limit is passed as law?

SUBSCRIBE TO THE
SMSF ADVISER BULLETIN

Get the latest news and opinions delivered to your inbox each morning

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.