SMSF interests in a family law property settlement

Why might an SMSF need a valuation when a couple separates?

Because super is treated as property, and the value of a member's interest in an SMSF depends on what the fund's assets are worth. The ATO says super is treated as property under the Family Law Act 1975 but differs from other property because it is held in a trust. Cash and listed shares have a price. A private company, a unit trust or a business owned through the fund does not, so someone has to value it.

The Federal Circuit and Family Court's fact sheet on family law and superannuation says the splitting law sets valuation methods for most types of super, with exceptions that include self-managed funds. It says SMSFs are generally valued with the assistance of an expert such as an accountant.

The first step is an information request. The court says a party gives the fund's trustee a Form 6 Declaration and a Superannuation Information Request Form, and the fund may charge a fee for the information. The trustee's information may be enough to value the super. Where an interest is complex, an expert may need to provide a further valuation, which is where a valuation of the fund's unlisted assets comes in.

What does the superannuation splitting law let a couple do?

It lets separating couples value their super and split super payments, though this is not mandatory. The court says a couple can:

• enter a formal written agreement, where each person instructs a lawyer who signs a certificate that independent legal advice was given
• seek consent orders from the court
• seek a court order if they cannot agree

Splitting does not turn super into cash. It stays subject to super law and is usually retained until retirement age is reached. The court also says all super must be disclosed in proceedings, even if no split is intended, and that you should get legal advice about your options.

What does separation mean for the trustees of an SMSF?

The trustees, who are often the members, must make sure the fund complies with any agreement or order. The ATO says the same splitting options apply to SMSF members and that trustees are responsible for ensuring the fund complies with a super agreement or court order. Splitting may mean restructuring or winding up the fund, and whether a former partner can stay as a member depends on the trust deed.

If the fund's rules allow it, the non-member spouse can open a new account in the same fund. If not, the fund can transfer or roll over the interest to another fund in the non-member spouse's name.

The ATO also says the usual ban on acquiring assets from a related party does not apply where the acquisition results from a member's relationship breakdown, and that splitting a pension can have transfer balance cap consequences for both spouses. Whether a particular transfer or split is available is a question for the couple's lawyers and the fund's adviser.

Which assets in a fund can be valued for a settlement?

The ones with no ready price. Our family law practice values:

• Shares in a private company the fund owns, including a company that runs a business.
• Units in a private unit trust, including a trust related to one of the spouses.
• A trading business interest held through the fund.

Where a trust or company owns property, the property figure comes from a valuation by a registered or certified property valuer, used as an input to the value of the shares or units. Listed shares and cash are valued from prices and balances. Which valuation date applies is for the parties' lawyers to settle, so confirm it before you instruct.

What do lawyers ask about a fund's unlisted assets?

• Which entities does the fund own, and is any of them linked to either spouse?
• When were the unlisted assets last valued, and on what evidence?
• Has any value stayed the same for several years?
• Do the fund's accounts carry the assets at cost?
• Is there a loan, lease or other dealing between the fund and a related entity?
• Is a pension being paid, and does the split affect it?

These are the points a fund valuation for a settlement should address. The ATO says signed, audited statements that carry assets at cost are unlikely to be sufficient evidence of an unlisted asset's value on their own.

How do you engage a valuation of an SMSF interest in a separation?

The engagement and the fees go through our dedicated family law practice, Family Law Valuations. A Settlement Valuation is $1,495 + GST for a business with annual turnover under $2 million, or $2,495 + GST. An Expert Report is $4,495 + GST. SMSF Valuations does not charge a separate family law fee. Its which report guide explains the difference. You can also use our quote form, choose family law as the purpose and we will put the enquiry with Family Law Valuations.

Documents go only through the private upload link on the matter, never by email. Neither we nor Family Law Valuations give legal advice: whether and how a fund's interest is split is a question for your lawyers.