Divorce – What happens to your assets, superannuation and your business

We are aware that breaking up is hard to do. Beyond the emotional and financial turmoil divorce creates, several issues need to be resolved.

While it is a complex topic to cover, we have summarised a few things to consider if you or a loved one are faced with this challenging position.

What happens when there is a family company?

For couples that have assets tied up in a company, the tax consequences of any settlements paid from the company will need to be assessed. Settlements paid out by a corporate entity can sometimes be treated as taxable dividends and taxed at the relevant spouse’s marginal tax rate.
Suppose you receive assets from a corporate entity as part of a property settlement. In that case, it’s essential that you understand the tax implications prior to settlement, or a sizeable portion of the settlement could go to the ATO.
For business owners, outside of the tax and financial issues, it’s essential not to lose focus on what’s important to keep the business running efficiently.

What happens to your superannuation in a divorce?

A spouse’s interest in superannuation is a marital asset and can be split as part of the breakdown agreement. However, it’s important to be aware that superannuation cannot be paid directly to a spouse unless the spouse is eligible to receive superannuation (they have met a condition of release). Still, it can be rolled over into the spouse’s fund until they are eligible to receive it. Laws exist to prevent taxes such as CGT from being triggered when superannuation assets are transferred. This is particularly important where your superannuation fund holds property.
A Court order or Superannuation Agreement is required to give effect to the agreed split in the SMSF assets or to execute a rollover eligible for the CGT rollover concession.
If you have an SMSF and both spouses are members, it’s essential to get advice to ensure that all of the appropriate administrative issues are handled. Where a divorce is not amicable, it’s important to remember that the SMSF trustee is required under law to act in the best interests of the fund and its beneficiaries. Anything less, and the fund members may seek compensation for loss or damage.

Can you protect both parties from divorce?

In a divorce, assets are split based on several factors, such as earning capacity, maintenance of children, and the assets held pre-marriage. Many couples don’t go through their marriage with an equal view of how assets and income should be attributed until something goes wrong. Suppose there is a disparity between the income levels of each spouse. In that case, there are a lot of benefits to the household in general, especially in the evening-out how income flows through to the family. If your partner earns less than you, there is a genuine financial benefit to topping up their super, as superannuation has preferential tax rates. The same goes for taxable income. If you can even out income coming into the household, it spreads the tax burden. Good planning can make a difference.

We’re here to help

Contact us today if you or a loved one need help understanding what happens in a divorce or separation or protecting your assets. We can provide clarity and support during this period of uncertainty.