Leanne Martinez: Splitting a self-managed superannuation fund after a divorce requires careful planning

As anyone who has faced the challenges of financial settlements can tell you, divorce can have significant negative repercussions on a person’s financial standing. This is particularly true for individuals in their late 40s and into their 50s. Recent data from the Australian Institute of Family Studies indicates that the median age for divorce continues to rise — it’s now at 47 for men and 44 for women. At this stage in life, couples may have accumulated substantial wealth with sophisticated financial structures such as family trusts and self-managed superannuation funds. These factors add layers of complexity to the asset division process, making it more challenging to reach a fair and equitable settlement. An exercise in forward planning and financial modelling prior to finalising a settlement can be a powerful tool to help individuals understand how the asset base — including the superannuation assets — can best support them after divorce. At a time of heightened emotions, this process helps people make well-informed decisions on the assets which should be prioritised, allowing people to re-establish their financial position moving forward. SMSFs add a particularly complex layer to divorce proceedings, requiring careful management and compliance with strict regulations. Unwinding them will take time and requires attention to detail. There are significant administrative and legal hurdles, particularly if both parties are trustees/directors of the SMSF, and superannuation splitting can be particularly complicated when there are large lumpy assets within the fund. Even more challenging is when SMSFs are associated with the couple’s business, such as a business premises that sits within the fund. If there are sufficient other liquid assets within the fund to compensate the existing member, it can sometimes be easier to resolve issues. But when this is not the case, co-ownership of the assets in separate funds or sale may need to be considered. Going down the co-ownership path should be considered carefully, as it may be a source of additional future tensions between the couple. A clean break is usually preferred. When splitting assets out of the SMSF, it’s also appropriate to examine whether an SMSF is the right superannuation vehicle for both parties after settlement. It may have had a specific purpose when the couple were together, but that doesn’t automatically mean that should apply to a single person. SMSFs indeed provide a range of benefits in the right circumstances, however they do come with significant responsibilities, higher administration and potentially additional costs. It is essential to re-evaluate whether they can and want to handle the complexities and responsibilities associated with managing an SMSF. The decision should consider their financial literacy, willingness to adhere to regulatory obligations, and the cost-effectiveness of an SMSF compared to other superannuation options. In some cases, transitioning to a simpler superannuation fund might provide greater peace of mind and allow the focus to be directed towards other aspects of financial planning and personal wellbeing. Navigating the complexities faced by clients going through a divorce requires a nuanced understanding of the financial and emotional challenges involved. Advisers can provide valuable support in making decisions in relation to superannuation and the intricacies of SMSFs, including looking at the most appropriate arrangements moving forward. The loss of shared income, the costs associated with legal fees, and the potential sale of family homes or businesses can all contribute to a diminished financial outlook during a divorce. But careful consideration and strategic planning are important to mitigate the impact of these decisions and ensure a secure financial future for all parties. Leanne Martinez is a strategic wealth adviser at Pitcher Partners Perth