Katie Timms, national director, superannuation and SMSF services, RSM Australia, said when people are establishing and running an SMSF they spend time planning for incapacity and death, but should also consider the possibility of a relationship breakdown.
“What we spend far less time planning for is what happens in the event of a relationship breakdown and the proposed changes to the legislation will certainly have an impact here as well,” she said.
“Where I think there may be some changes is in the decision-making that may have to be made between now and post-2025 when the changes are proposed to come in. They will have to consider, in the splitting of assets, whether it will tip them over the $3 million cap or if it doesn’t immediately, will the growth of that asset pool tip them over in the future.”
Ms Timms said it also important for SMSFs to consider that many who do go through relationship breakdowns are often at an age where there is limited recourse for them to be able to make alternate decisions in regard to contributions.
“For example, if they are a few years away from preservation age and can’t take the assets away and whether they can decide not have the balance of their assets in superannuation,” she said.
“There is a lot of uncertainty around this and we don’t have the draft legislation yet so there is uncertainty around decisions in regard super splitting and division of family assets and whether SMSFs want to now think about negotiating a different settlement structure.
“Asset values move so quickly so you may be dealing with a number now that in 18 months will increase and put you closer to the $3 million limit.”
She said there is a lot SMSFs can do around assets and to find ways that can alter or improve preservation such as multi splits if there is an age disparity between parties, or looking at the asset mix in the fund and deciding whether they want income, capital growth or a balance of two.
“And the time is now to think about the type of assets you may want. If you are going to be taxed on unrealised gains perhaps you would rather have income-generating assets,” she said.
“Separation can take a long time so it’s best to start thinking about the changes that are being proposed and looking at how to structure an SMSF now.”
Ms Timms said although 30 per cent of first marriages end in divorce, and higher percentage for subsequent marriages, how to divide the assets of an SMSF in case of a relationship breakdown is rarely considered.
“You can’t plan for divorce and it’s an uncomfortable conversation to have,” she said.
“We all know death is coming and loss of capacity and that is a risk we should mitigate against, but a lot of people don’t talk about relationship splits.
“It’s a good idea to look at the complex asset structuring and borrowing arrangements in superannuation and consider all the ways that they can exited that don’t decimate the fund.
“And what we find is that second marriages often involve blended families and there has to consideration about what happens in this instance.
“People do put in place binding financial agreements, but it is best to be transparent at the outset and think about exit strategies in case something does go wrong so everyone is protected.”
