The divorce settlements with court order took place on 17 March 2017 re SMSF that each member husband & wife will have 50% of the Net Assets of the Fund. According to the order the wife will resign and get all her entitlements/benefits in the SMSF within 42 days of the order. The wife resigned within 42 days (FY 2015) also updated ATO/ASIC of the resignation but she did not receive her entitlements up to now due to the following reasons:

1. the husband suffered emotional breakdown and severe depression because of the divorce

2. The father of the husband died and mother of the husband is very ill.

3. The wife has not settled the cash settlement of $25k outside SMSF order

4. The wife has resigned but her employer contributions continue till end of FY 2016.

5. The wife has withdrawn $28k FY 2017, but she put it back $28K in FY 2020 as the husband has not deleted her access to the bank . The wife has outstanding loans in FY2019 $5k still not paid to date as the husband has not deleted her access to the bank.

The last tax return lodged by the SMSF is FY 2018. The wife is still showing as members in Financials and tax returns but checking the financials and relevant documents from FY 2016, 2017,2018, only the husband signed all documents since the wife has resigned in FY 2015.

We are now auditing FY 2019, 2020, 2021 and 2022. The accountant has the following queries:

1. Can we zeroed out the wife members balance and transferred it to a liability account - since she is no longer a member.

2. Can we offset the wife unpaid loan of $5k in FY 2019 against her entitlements?

3. Can we offset the wife unpaid cash payable of $25k outside SMSF order against her entitlements.

4. Or wife has to pay first the $30k and then give her the balance of her entitlements.

5. what is the best course of action that you would suggest

What are the contraventions involved.

Thanks for prompt response