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Stephen Chiang

Jan 20, 2024

divorce settlement

in SMSF Technical Forum

A cheq from the SMSF was deposited into QSuper account in the name of a former spouse. An email was sent by the ex husband/trustee to QSuper confirming the deposit being a divorce settlement from court order. Should this transaction have gone through Super Stream and was dated 15 Sept 2022 and that the SMSF contravented payment process?

Is this email sufficient as audit evidence, if not, is the auditor entitled to get a copy of the relevant extract of the court order? Privacy concern could be a factor.

Is the proportional method used to allocate the tax components in the SMSF?

Appreciate your comments

1 comment

Comments (1)

The Auditors Institute Ltd

Jan 21, 2024

Hello Stephen

Thanks for a very good question.

Whilst not suggesting anything untoward has occurred in this situation, the letter/email from the ex-husband/trustee of the fund advising that a payment has been made under a super split is not of itself sufficient evidence.

As you allude to, it would be an appropriate degree of evidence to have a copy of the Family Court Order or other legal documentation which gave rise to the split.

The trustee of the SMSF would have the Family Court order in its possession in order for it to have a legal basis upon which the super split for the benefit of the fomer spouse could occur.

Hence, it is reasonable for the fund auditor to request and be provided with the relevant court order.

The extract below from the ATO website (link is provided immediately below) indicates that a family law super split under a prescribed splitting order (either a Family Court Order or a Binding Financial Agreement) does not have to be undertaken through SuperStream.

https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-electronically-through-superstream/in-detail/rollovers/superstream-rollover-v3-supporting-information

Family Law Super split

Does a rollover resulting from a family law super split that is subject to a prescribed splitting order need to be undertaken in SuperStream?

No. Funds do not have to make rollovers resulting from a family law super split that is subject to a prescribed splitting order, via SuperStream. They can choose to do so if they have all of the required information.

The reason for this is that SuperStream applies to transactions according to division 6.5 of the SISR. This applies where the member makes a written request to rollover all or part of their benefit within the super system.

This is separate from family law super splitting rollovers, which are made under a different part of the law. These rollovers are made under Part 7A of the SISR which deals with payments as a result of an arrangement whereby the member’s super interest is subject to a payment split under the Family Law Act 1975. Regulation 7A.03D of the SISR provides for the non-member spouse to request a rollover or transfer of benefits.

As family law superannuation split payments fall outside Division 6.5, it is not compulsory that SuperStream be used to affect the rollover.

You are also correct to conclude that a a proportionate approach is to be applied where there is a transfer of an interest from what is referred to as the "member spouse" (the person who is giving up part of their interest in super) to the "non-member spouse" (the person is receiving extra funds in their superannuation fund from their former spouse).

For example, if the member spouse had a 70% taxable/30% tax-free interest, from which a super split payment was being made, the super split payment to the non-member spouse's super fund will have taken to have been made in the same proportion.

Where the non-member spouse already has an interest in accumulation phase in the fund receiving the super split payment, this will mean that the non-member spouse's fund has to recalculate the taxable and tax-free components of the accumulation interest once the super split payment has been received.

The terminology, "member spouse" and "non-member spouse", which is used in relation to super splits arising as a result of a divorce, can be confusing - as both individuals could be members of the same SMSF both before and after the split.

Edited