Trustees need to follow a two-step process to effectively divide a self-managed super fund (SMSF) when a marriage breaks down, a family law specialist said.
In the event of a marriage breakdown, where trustees want to go their separate ways, there is a clear two-step process in order to split the SMSF effectively, Certus Law director Stephen Bourke said.
Bourke was speaking to delegates at last week's 2012 SMSF Self-Managed Super Funds Professionals' Association of Australia (SPAA) National Conference in Sydney.
He said the majority of SMSFs have a husband and wife in the fund, with the husband typically having the greater interest and being an active trustee.
The wife typically has the lesser interest and acts as the 'sleeper', he said.
"The first step is the Family Law Act provisions, which are technical, and require the making of orders to divide one of those entitlements, typically the bigger one," Bourke told delegates.
"[Secondly] we need to link [the division of entitlements] in with the tax consequences of that to determine whether we need to get capital tax gains rollover relief.
"To do that, we need to pick up not only the bit that is going to be split, but also the wife's own interest as well. They both might need rollover relief."
Bourke also offered suggestions as to how to divide an SMSF when there is a limited recourse loan in place.
"In most cases, you're probably going to have to undo the limited recourse loan in some form and it might involve sale of the property," he said.
"If the property market has plunged and the trustees take a bath, so be it."
To view video coverage of the 2012 SPAA SMSF National Conference, please visit InvestorDaily's video page.
