Tax, Preservation and Legal Guidance for Accountants and Advisers Navigating SMSF Divorce

With approximately 40% of marriages expected to end in divorce, family breakdown is an all-too-common reality for clients. For financial advisers and accountants supporting clients through this process, understanding how SMSFs are split in divorce is not just helpful, it’s essential.

The role you play during this time goes beyond financial advice. You’re often the steady hand navigating legal complexity, tax implications, emotional tension, and the long-term financial consequences of a poorly executed SMSF split.

This guide walks through the key issues: legal, tax and compliance and gives you a structured process you can use to support clients with confidence. Whether you’re an accountant, financial adviser, or SMSF administrator, this is where your technical skills and professional judgement really matter.

The Role of Advisers in SMSF Divorce Cases

Your role in SMSF divorce matters is broader than just crunching numbers. At a minimum, you’re likely to:

• Interpret family law orders or superannuation agreements.
• Calculate accurate member balances, including tax and preservation components.
• Manage SMSF liquidity, rollover relief, and CGT.
• Liaise with legal counsel, actuaries, and administrators to ensure the fund complies with family law and SIS regulations.

But in practice, you’re also the one guiding client through highly emotional decisions, often helping them slow down, weigh up their options, and avoid costly mistakes they might not see coming.

Key Considerations When Splitting SMSF Assets

Helping your clients get the best (and most tax-effective) outcome from an SMSF divorce split starts with working through a few key decisions early.

• Does the SMSF continue or get wound up?
  If one member exits and the other remains, as in many cases, the structure and remaining assets may no longer be viable.
• How will the asset split be calculated and executed?
  Asset revaluation, interim accounts, and capital gains exposure must be considered, especially if assets are sold or transferred.
• What are the preservation and tax components of each member’s balance?
  It’s not enough to transfer a certain amount. Understanding the makeup of each dollar is vital to maximising client benefit.
• What about unlisted or illiquid assets?
  These often create the most contentious and complex issues in an SMSF divorce.

Let’s explore a practical example.

Case Study 1: David and Jennifer’s SMSF Divorce

David (65) and Jennifer (60) are divorcing. They jointly own an SMSF. Here’s the context:

• The SMSF holds an unlisted asset that David believes may still hold value, but for now is valued at nil.
• David’s member balance:
  • 100% unrestricted non-preserved
  • 100% tax-free
• Jennifer’s member balance:
  • 100% preserved
  • 100% taxable (taxed element)

Jennifer wants out. David wants to stay and retain the unlisted asset.

Step 1: Decide on the SMSF’s Future

The first step is confirming whether the SMSF will continue or be wound up.

• If David remains and Jennifer exits, the fund’s ongoing viability must be reviewed.
• Ensure the governing rules of the trust deed allow for a single-member structure.
• Consider if the remaining asset base is sufficient to justify the fund continuing.

Risk: Failing to address the fund’s long-term viability post-exit can create future compliance breaches or member dissatisfaction.

Step 2: Prepare Interim or Current Accounts

Next, provide interim financials or the latest audited accounts. These will:

• Identify current member balances
• Assist in valuation and split of assets
• Enable CGT and rollover relief calculations

This step ensures transparency and compliance when preparing to execute a payment split under a court order or binding agreement. Where valuations are uncertain or member components are complex, SMSF Engine can assist with a clear member benefit statement.

Step 3: Structure the Split Strategically

Let’s assume David agrees to transfer $50,000 of value to Jennifer.

Rather than a straight cash transfer, you might advise a tax-efficient reverse-split as follows:

• $100,000 transfer from David to Jennifer, giving her unrestricted, non-preserved, tax-free super.
• $50,000 transfer from Jennifer to David, giving him preserved, taxable-taxed super.

Here’s why this works:

• David is 65+. This makes his preserved component immediately accessible.
• Jennifer receives tax-free, accessible super. This is better outcome than receiving her own preserved, taxable amount.
• David may withdraw the $50,000, then re-contribute it as a non-concessional contribution, converting it to tax-free.

Adviser Tip: You’re not just executing a split. You’re shaping their future access and tax profile.

Tax and Preservation Components: What to Watch For

Splitting “value” isn’t enough. Advisers must assess:

• Tax-free vs taxable components
• Preserved vs unrestricted amounts
• Eligibility for contributions or withdrawals
• Impact of age, condition of release, and work test status

Poor structuring can result in:

• Unnecessary tax liabilities
• Loss of access to funds for the exiting spouse
• CGT triggered unnecessarily

Adviser Tip: Always specify which superannuation account is subject to the split. Especially if multiple accounts or SMSFs exist.

Managing Unlisted or Illiquid Assets in a Split

Unlisted assets, like private companies, unit trusts, or direct property, pose serious challenges:

• How do you value the asset?
  • Independent valuation is essential, even if “nil” is used now.
• Who takes the asset?
  • If David takes it and it later appreciates, he alone benefits.
• Is future recoverability accounted for?
  • Jennifer may feel disadvantaged if the asset later yields value.

Adviser Tip: If a nil value is agreed, ensure the split agreement reflects that finality to prevent future claims.

Rollover Relief and Capital Gains Tax Implications

Under s126-140 of ITAA97, rollover relief may apply to SMSF asset transfers after divorce. However:

• Since 2017 pension reforms, if the asset was supporting a pension, rollover relief may no longer apply.  The tax exemption only applies while the pension runs normally. Once it stops or changes, the exemption can be lost, and rollover relief usually isn’t available.
• If relief isn’t available, CGT applies, even in a divorce split.
• Advisers must calculate:
  • Potential CGT payable
  • Whether rollover is applicable
  • Timing of asset transfers and tax events

Common Trap: Assuming rollover relief always applies. It doesn’t.

What Happens After Jennifer Leaves the SMSF?

Once Jennifer exits, the fund becomes a single-member SMSF with David as the only member.

This is allowed under the SIS Act, but there are some structural changes that must be made to keep the fund compliant:

David has two options:

• Appoint a second individual trustee (someone other than himself, like a trusted adult child or adviser), or
• Convert the fund to a corporate trustee structure, with himself as the sole director.

You’ll also need to help David:

• Update trustee arrangements (including minutes and declarations)
• Submit a Change of Details form to the ATO
• Review and potentially update the trust deed
• Ensure the fund’s operations, such as bank accounts and investments, reflect the new structure

Adviser Tip: This is also the right time to consider the fund’s long-term viability.
Is it cost-effective to run a fund with only one member and a hard-to-value unlisted asset? Does David have an enduring power of attorney in place if he becomes unwell? Who will manage the fund when he can’t?

Case Study 2: Amir and Leanne – Winding Up and Splitting Property

Amir (62) and Leanne (58) are divorcing and have agreed on one thing: neither wants to stay in the SMSF. The fund holds a commercial property, some shares, and cash. But the property makes up most of the value.

They’ve decided to wind up the fund and split everything 50/50.

The Challenge

The property is owned by the SMSF and has a tenant in place. Selling it means triggering capital gains tax, and there’s timing to consider, especially with the lease. There’s also no rollover relief available because both members are exiting and the fund is being closed.

Adviser Tip: In a full wind-up, CGT is often unavoidable. Help clients understand the tax outcome early, so there are no surprises later.

The Process

• The fund’s assets are revalued, and the property is put on the market
• Final accounts are prepared, including estimated CGT
• Once sold, 50% of the net proceeds go to each member
• Amir and Leanne roll over their entitlements into new APRA funds
• The fund is then formally wound up, and the ATO is notified

Adviser Questions to Ask

• “Are you both comfortable closing the SMSF completely?”
• “Do you want help managing the property sale and timing?”
• “What type of fund do you want to move your super into next?”

Practical Adviser Checklist for Managing SMSF Divorce Splits

Risks Advisers Should Watch For

• Misunderstanding of preservation and tax components
• Incorrect valuation of unlisted or nil-value assets
• Assuming rollover relief applies to all asset transfers
• Failing to specify which fund/account is subject to the split
• Poor communication between legal and financial advisers

Key Education Points for Clients

• “Equal” super doesn’t mean equal access or tax treatment
• Preservation age and condition of release impact future access
• Not all SMSF assets are equal, liquidity matters
• Consider the long-term impact, not just the short-term value

Conclusion: The Adviser’s Value Is Strategic, Not Just Administrative

Divorce is emotional. SMSFs are complex. And your role sits right in the middle. You are helping clients make clear, confident decisions when everything else feels uncertain.

It’s not just about splitting balances. It’s about helping your client understand what they’re getting, how they can access it, and what it means for their future.

Faced with a complex SMSF divorce scenario?

If you’re navigating preservation differences, tax implications, or illiquid assets, our technical team is here to assist.

You can also view our SMSF audit fees or contact us  for confidential support on structuring and executing SMSF splits with clarity and compliance.