SMSFs present new divorce challenges

Date: Nov 16, 2011

The increasing popularity of self-managed super funds (SMSF) amongst families and couples has the potential to cause problems in the event of a separation, according to an industry expert.

CEO of the Association of Superannuation Funds of Australia Pauline Vamos said that the growing use of SMSFs was most likely due to the number of financially-savvy professionals choosing to take their own path to retirement.

"An ageing population and growing account balances ... has meant that people have wanted more control," said Vamos.

These sentiments were echoed by the CEO of the Self-Managed Super Fund Professionals’ Association of Australia Andrea Slattery, who said that a number of surveys had found people who were used to being in charge - such as managers and business owners - wanted increased control over their of their savings as well.

Slatterly said: "People who have control over other aspects of their lives want to have control over their savings and retirement plans as well - and this is true no matter what age you are."

But some problems can arise if a couple reach a point where they part ways simply because one partner is usually more involved in the fund than the other - especially if they have not sought family law advice as part of the process.

Vamos refers to these individuals as being the "dominant" SMSF trustee and argues that partners have been entering into these arrangements without sufficient prior planning.

"A lot of people understand they're in a self-managed fund because they are able to manage their tax, which is great, but do they know the risks?" she queried.

"Have they taken into account what happens in divorce?"

Technical services director at SMSF advisory firm Multiport Philip La Greca agrees that the ongoing industry growth could pose a problem without further regulation, as personal tensions between partners affects the smooth running of these financial instruments.

La Greca said: "At a trustee level, you have a two-member fund, both members are trustees and - theoretically - any decision that needs to be made has got to be agreed to by both."

He continues by saying that - due to personal tensions between the partners - decisions about the fund cannot be easily resolved as the decision makers may be unable to break the deadlock as they both hold an equal amount of power.

While the guidelines surrounding SMSFs continue to develop and change, gaining advice from a family lawyer is a good idea before entering into any sort of joint financial activity with a partner.