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What a relationship breakdown may mean for an SMSF
An unfortunate reality that many Self-Managed Super Funds (SMSF) face is a breakdown in the relationship of the funds' trustees.

SMSF trustees in disagreement may, for instance, be marital or de facto partners, business
partners or such relatives as parents and their children.

Under superannuation law, all SMSF members must be either individual trustees or
directors of a fund's corporate trustee.

And a relationship breakdown - perhaps connected to personal or business differences
and probably unrelated to super in most cases - can soon escalate into problems
with the running of an SMSF.

The Australian Taxation Office (ATO), as regulator of self-managed super, recently published Superannuation and Relationship Breakdowns to remind SMSFs that the duties of a trustee continue even if the trustees are in some kind of dispute.

"Despite any difficulties you may have with an individual on a personal level, as a trustee
you must continue to act in the best interests of all members at all times,"
the ATO emphasises.

A trustee, for example, must not exclude another trustee from decisions concerning their SMSF.
And a trustee must not ignore requests from another trustee to redeem assets
from the fund or to transfer super savings into another super fund.

Failure to comply with superannuation law following the breakdown of a relationship
between trustees can have costly consequences for all members of an SMSF.

The ATO, again in its role as regulator of self-managed super, can revoke a fund's complying
status. Non-complying SMSFs are not entitled to receive concessional tax
treatments and the assessable income of the fund will be taxed at the highest
marginal tax rate.

Disputes between trustees perhaps most often arise if their marital or de facto
relationship fails. Although most separated couples would intend to split their
superannuation and other assets as soon as practicable, this can take time. And
meanwhile, their SMSF must comply with superannuation law.


By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia

17 July 2012


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