My previous post explored some of the things to be aware of if you decide to keep a SMSF running with your ex-spouse. This next topic also looks keeping the fund open with one member.
Retaining the SMSF with one member
One member may opt to keep the fund running while the other decides to roll their balance out to an alternative super fund. Firstly, for this to occur there needs to be enough cash or liquid assets that can be sold in order to release the necessary funds. This becomes a particular problem if the fund is invested in a lumpy asset, such as a fixed term deposit or investment property. In the latter case, the property may need to be sold, which could incur fees and capital gains tax. Keep in mind that if a property was bought by pooling together two people’s super balances – and one of those members decides to leave, it may not be viable to keep the property any way.
An important point to note is that super monies are able to be split as part of a settlement, so the amount a member eventually rolls out or ends up with may not necessarily be the balance they started with.
Before any money should exit the fund, special consideration needs to be given to the type of trustee in operation (individual or corporate) and whether any changes will need to be made. This matters particularly if the fund will be left with just one member. To satisfy as a single member fund, either a corporate trustee must be installed with the remaining member as sole director – or if an individual trustee, another non-member trustee must be brought in. This can get complicated for most people so it’s vital to seek advice before any changes are made.
Assuming the fund has liquid assets to sell and a plan has been put in place to ensure the SMSF can continue with one member, the next important issue is ensuring that the exiting member actually exits the fund properly. Unlike an APRA fund (such as a retail or industry super fund), which automatically closes when you roll your money out, a Self Managed Super Fund requires you to resign as a member and trustee. A member of a SMSF with a $0 account balance still has the same roles and responsibilities as anyone else in the fund. This risk cuts both ways for the remaining member and the newly exited member so it’s important that this process is completed in entirety for everyone’s peace of mind.