Transferring Benefits as result of a Divorce Settlement or Family Court Order

This article guides processing a divorce settlement payment, which includes interest splits between members and how to roll out interest. 

Example 1 - Cash Transfer of Balance from one member to another member in another fund. 

A fund member may be required to leave the fund as a result of a divorce settlement and take with them their appropriate share of the fund's cash interests, as determined by a court.

Often, the members' current interests in the fund are different from those determined by the court, which will require an adjustment prior to processing the departing member out of the fund.

This will be achieved by using the following steps in Simple Fund 360:

1. Create Entries to the day before the transfer so Simple Fund 360 correctly calculates each member's account balance.
2. Cease income streams (if they exist) for the member leaving the fund back to accumulation.
3. Process an internal transfer from the appropriate member to reflect the members' interests as determined by the court.
4. Process a lump sum payment/rollover for the member leaving the fund

Example

A husband and wife are two members of a fund. A court ruling has determined that the interests of the fund should be split 50:50. This is shown below:

This will require an internal transfer of $250,000 from the husband to the wife before the wife is processed out of the fund to achieve the interests determined by the court.

1. Internal Transfer
Process an internal transfer of $250,000 from John Jones' accumulation account to Mary Jones' accumulation account to reflect the members' interests as determined by the court.

This example assumes that both members are in accumulation mode. If members are in pension mode this will require manual journal entries.

2. Process member leaving the fund
Process a rollout via SuperStream or lump-sum payment of $500,000 for Mary Jones leaving the fund. 

Regarding interest splits following a divorce, where the receiving member is a non-SMSF member, the ATO has noted that both the SuperStream and paper form methods are acceptable. 

Example 2 - Transfer of cash + in-specie Transfer

A more common scenario is where the fund has a combination of cash and non-cash assets. A member, either through agreement with the other member or ordered by a court, will transfer a non-cash asset to the other member as an in-specie transfer.

This example builds on the previous one and considers the scenario in which the member receiving the asset will not remain in the existing fund and will instead receive the asset in their new fund.

As in the previous example, the current members' interests may not reflect those decided by a court, which means that an internal transfer will be required to achieve the split in interests determined by the court and agreed upon by the members.

Consider a fund with the following member balances where a split of interests of 50:50 is determined:

Which owns the following investment property:

It is determined that Mary will receive the Investment Property and that the $50,000 shortfall will be comprised of $20,000 of BHP shares and the rest in cash:

Image sourced from: SuperStream Rollover v3 - Supporting Information

Whilst processing the rollover in this case via SuperStream is currently unsupported in Simple Fund 360, users may proceed to use the paper form method in sending the RBS to the APRA recieving fund. 

Example 2 - Transfer of non-cash assets

1. Internal Transfer
Process an internal transfer of $150,000 from John Jones to Mary Jones to reflect the members' interests as determined by the court.

2. Untick Asset subject to CGT
If applicable, the asset(s) being transferred will need to have its Asset subject to CGT box unticked. This will prevent any CGT events occurring when the asset is transferred at market price to the departing member. Please see the section Acquiring 'in specie' super assets on the ATO's website for more information regarding CGT exemptions.

This can be done by navigating to the Chart of Accounts and clicking on the asset being acquired.
 
Click the  text to expand the account details and untick the Asset subject to CGT box :

3. Process in specie transfer of the asset to the departing member at market value.
The general transaction format that would be posted is:

a. Benefit Payment
Click on the  button for the benefit payment entry and select the appropriate Type of Payment from the drop-down menu.

As the member is transferring the asset out of the fund, Cashing Out / Benefits Paid has been selected. If the member was transferring the asset to a new fund, you would select the Transferring from one Super Fund to another option.

b. Asset Disposal
Click on the  button for each of the asset disposal transactions and ensure that the Disposal Method is set to Manual to allow you to select which parcels (if applicable) the disposal will be sourced from.
Enter the Contract Date details and check that no CGT has been calculated in the Calculations section under each of the Disposal Details screen.

4. Process member leaving the fund
Process a rollout via SuperStream or lump-sum payment of $300,000 for Mary Jones leaving the fund. 

Additional Information

• Superannuation and relationship breakdown - Australian Tax Office
• Superannuation splitting laws - Attorney-General's Department
• Superannuation - Family Law Courts
• Instructions for completing the RBS
  
  

  Note

  BGL does not provide accounting or taxation advice. The following is designed to act as a guide for Simple Fund 360 users. It is not designed to be accounting or tax advice and should not be taken as a strict guideline. Other methods that are more suitable may be used instead of these steps.

  The division of a fund's assets is a complex issue, therefore, before undertaking any of the actions below, professional financial and legal advice should be sought.