Superannuation interests, particularly in SMSFs, require careful handling in family law settlements. Although court orders and binding financial agreements (BFAs) operate to determine the intended Division between the parties, SMSF trustees must still comply with the Superannuation Industry (Supervision) Act 1993 (Cth) (SISA) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SISR) to properly implement a split and avoid penalties and compliance risks.
This SISA/SISR framework influences drafting choices, timing issues, pension treatment and the notices and procedural steps that must be followed once orders are in place.
This article examines several key compliance and technical tips and traps that arise in the SMSF context and provides practical guidance for advisers to help clients avoid costly mistakes and penalties.
Why SMSF splits require more than a court order
The starting point is that SMSF trustees must implement any split strictly in accordance with superannuation law. Part 7A of the SISR, read together with the Family Law (Superannuation) Regulations 2025 (Cth) (FLSR), provides a detailed procedural framework governing how a split must occur, what notices must be exchanged and how the split amount is created, transferred or paid. These requirements apply even where the parties have already adjusted member balances or arranged transfers or rollovers to give practical effect to the split. Accordingly, SMSF trustees must still comply with these superannuation law rules to avoid a breach of the operating standards.
We now consider several issues that commonly arise in practice.
Missing or incorrect notices under Division 7A.2
A correct sequence of documents and notices must be followed to give effect to a split. The typical steps include:
- A notice from the non-member spouse (‘NMS’) to the trustee under s 144 of the FLSR. This notice typically encloses the orders or agreement and provides confirmation of required details for the NMS, including their name, date of birth, confirmation of membership status and contact details or the details of a legal representative, support worker or other nominated person.
- Payment split notices from the trustee to both parties under reg 7A.03 of the SISR.
- A reg 2.36C notice from the trustee to the NMS setting out prescribed information for the split.
- The relevant Division 7A.2 pathway request (typically made by the NMS) confirming how the split is to be allocated, transferred or paid.
- Final notices from the trustee to both parties confirming the implementation of the split.
Failure to issue these notices within prescribed timeframes will give rise to a contravention of s 34 of the SISA. This provision is linked to 20 penalty units under the administrative penalty regime, and penalties apply on a per-trustee basis.
We also regularly come across matters where the parties have not completed the documents to ensure compliance with the SISA and SISR rules, leaving the trustees exposed to significant potential penalties.
SMSF auditors are increasingly alert to deficiencies and omissions in relation to compliance with Part 7A of the SISR. It is therefore not uncommon for trustees to have implemented a split, yet still face the risk of an auditor contravention report being lodged and potential penalties being imposed where the relevant steps have not been completed.
Orders that do not properly align with Division 7A.2 mechanics or structuring considerations under s 17A of the SISA
Well-drafted orders should identify and appropriately address various key points:
- The method of split, being either:
- a base amount (fixed or formula-based); or
- a specified percentage.
- The operative time concept, noting that operative time is prescribed under s 90XI of the Family Law Act 1975 (Cth) where a superannuation agreement is used as part of a binding financial agreement.
- Whether a pension must be commuted.
- The intended Division 7A.2 pathway (eg, creation of a new interest or transfer to a nominated fund).
- How the NMS’s own membership entitlements are to be dealt with.
- What assets are held in the SMSF and whether any relevant assets are to be allocated to a particular spouse.
- The timing of any required changes to the trustee structure under s 17A of the SISA, including the removal of the departing spouse as a trustee, director or shareholder and the appointment of any replacement person needed to satisfy the trustee-member rules.
Where orders are silent or ambiguous, advisers may be forced to fill in the gaps or overlook key requirements needed to implement the split in accordance with the SISA and SISR. This can result in compliance difficulties, timing disputes, or in some cases, the need to seek revised orders or remedial documents.
Incorrect or missing election of the Division 7A.2 pathway
A split can be implemented in one of three ways:
- Creating a new interest in the SMSF for the NMS.
- Transferring transferable benefits to the NMS’s nominated fund.
- Paying a lump sum (where a condition of release has been met).
Each pathway has distinct tax, timing, and SuperStream consequences. For example:
- A transfer of transferable benefits under reg 7A.12 is outside SuperStream.
- A rollover of the NMS’s own existing entitlements under Division 6.5 of the SISR must satisfy SuperStream standards unless entirely in specie.
- Broadly, the split amount (new interest/transfer of transferable benefits/lump sum) will reflect the member spouse’s tax components and preservation status in the same proportions.
Where the NMS does not make a valid election within the permitted time and the orders do not specify the pathway, the trustee must issue further notices and, if there is still no direction, must consider transferring the benefits to an eligible rollover fund.
Conclusions
SMSF super splits require careful attention to both the family law regime and the SISA/SISR rules. Missing notices, poorly drafted orders, misunderstandings about tax and preservation components and a failure to consider the fund’s compliance history can create significant issues. A methodical approach helps ensure a compliant, timely and appropriately structured settlement outcome for all parties.
In Part 2 of this series we will address further technical issues, including pension commutations, tax components and compliance history considerations.
