Self-managed superannuation funds (SMSFs) play a significant role in family law property settlements, but their inclusion introduces unique challenges. SMSFs are often more complex than other financial assets, requiring specialised knowledge and careful handling to ensure compliance with legal and financial regulations. This especially the case when drafting Orders relating to the division, winding up, or rolling out of a SMSF.
This blog explores the common issues associated with SMSFs in family law matters and offers strategies to address these complexities effectively.
Common Challenges with SMSFs in Family Law
1. Understanding what the funds owns:
2. To determine the value of the fund, lawyers must not only request copies of all financials but must understand the asset holding structures of each of the assets owned by the fund. For example, any property purchased within a SMSF that required a mortgage will require a bare trust to be established managed by a separate corporate trustee that holds the asset on trust for the SMSF or corporate trustee of that fund. This must be tracked and mud mapped out to ensure that there is a through understanding of the assets within the fund and who controls them.
3. Valuation Difficulties: Determining the value of SMSF assets, such as property, shares, or other investments, can be complicated. Accurate valuations are essential to ensure a fair division of assets. The first step is to determine what is included with in the SMSF as an asset as stated above, and then to have these assets valued.
4. Compliance Issues: Missteps during property settlements can lead to breaches of superannuation laws, resulting in penalties. Compliance with the Superannuation Industry (Supervision) Act 1993 is critical. This means you must have an understanding of the obligations on Trustees of a SMSF and what they can and can not do to affect the agreement the parties have made. You also must be aware of self-reporting responsibilities if you become aware of actions taken within the SMSF previously and what that might mean for the value of the fund and superannuation interest as part of the property settlement.
5. Tax Implications: Transferring or splitting SMSF assets can have significant tax consequences, adding another layer of complexity to property settlements. It is important that you engage the parties accountant or an agreed expert to assist you to draft orders/reach an agreement that minimises the taxation consequences in the long term for the parties.
Legal Considerations for SMSF Property Settlements
Handling SMSFs in family law matters requires a thorough understanding of both the Family Law Act 1975 and superannuation laws. Obtaining binding financial agreements or consent orders is essential to ensure that asset divisions are legally enforceable and compliant with SMSF trust deeds, and all relevant legislation.
Orders should only be drafted by someone who has knowledge across both areas of law, as you may inadvertently create significant issues and non-compliance for you client, which can have devastating financial effect.
Strategies for Resolving SMSF Disputes in Family Law
To navigate the complexities of SMSFs in family law matters, consider the following strategies:
· Engage Experts: Work with financial advisors, accountants, and SMSF specialists who can provide valuable insights and ensure compliance.
· Understand Trustee Obligations: Ensure that all actions align with the SMSF trust deed and superannuation legislation.
· Focus on Effective Communication: Encourage open dialogue between parties to minimise disputes and foster agreements.
· Engage a Legal Expert for drafting: lawyers who do not have specialist knowledge sufficient to draft orders and agreements relating to SMSF should engage an expert like the team at Family Law Education Network to bespoke draft the orders your client requires to effect the agreement they have reached,.
SMSFs add complexity to family law property settlements, requiring careful handling to ensure compliance, fairness, and efficiency. By understanding the unique challenges associated with SMSFs and implementing strategic solutions, lawyers can achieve better outcomes for their clients. Ongoing training and collaboration with experts are essential for navigating this specialised area of family law successfully.
