Bankruptcy and Superannuation:

There are various methods to protect your superannuation from the reach of creditors. Pension payments are treated as income and, as such, only receive partial protection from creditors. By comparison, an interest in a regulated superannuation fund or a lump sum paid after the date of bankruptcy is fully protected.  Also, you can make Binding Death Benefit Nominations (BDBNs). Most people consider that if they make a reversionary pension it is legally binding on the trustee. However, in most cases, a reversionary nomination is not legally binding as the trustee generally retains a discretion to revert or commute the pension (and, say, pay out a lump sum). Put simply, a reversionary nomination is generally a mere wish. However, a valid BDBN will generally override a member’s reversionary wish in their pension documents. Thorough and detailed legal advice from a Superannuation and Taxation Lawyer should be sought in this regard to ensure you are  informed of the greatest insolvency protections for your superannuation.

In addition, SMSFs are able to provide protection from creditors for those assets which may be leased to related parties of the fund. This would apply to business property or certain in-house assets which can be owned by the fund and as a general rule cannot be accessed by creditors of the fund members. This contrasts with larger funds that usually do not permit the lease of fund property to members or related parties. There is no limit to the amount that can be held in the fund and protected from creditors. As a consequence the bankruptcy legislation has been strengthened to ensure that amounts transferred into superannuation with the aim to defeat creditors can be accessed. Consultation with an experienced Tax and Superannuation Lawyer can ensure your superannuation is afforded all the available bankruptcy protections.

Recent developments in Superannuation Law mean that in some cases a trustee in bankruptcy may be able to recover superannuation contributions made by a person before bankruptcy with the intention to defeat creditors in the same way as other payments or transfers to defeat creditors. In respect of superannuation contributions made in the past, a bankruptcy trustee may be able to recover the value of contributions made to an eligible superannuation plan by a bankrupt to defeat creditors. Also, a bankruptcy trustee may be able to recover contributions made by a person other than the bankrupt for the benefit of the bankrupt where the bankrupt’s main purpose in participating in the arrangement was to defeat creditors. Consideration given by the superannuation trustee for the contribution will be ignored in determining whether the contribution is recoverable by the bankruptcy trustee. The court may consider the bankrupt’s historical contributions pattern and whether any contributions were “out of character” in determining whether they were made with the intention to defeat creditors. Also a superannuation fund will not have to repay any fees and charges associated with the contributions or any taxes it has paid in relation to the contributions and the Official Receiver is empowered to issue a “freeze” notice to the superannuation funds holding the contributions to prevent the bankrupt from rolling them over into another fund or otherwise dealing with them in circumstances where the trustee is entitled to recover them. Advice from a Superannuation and Taxation Lawyer allows you to ensure that you a fully briefed and made aware of these potential problems to structure your superannuation is armed with the greatest insolvency protections.

There are substantive provisions that prescribe when a superannuation contribution made prior to bankruptcy is void against a trustee in bankruptcy. There are certain conditions which must be satisfied for a superannuation contribution to be void. In particular, in determining whether the transferor had the requisite purpose in making the contribution, regard must be had to that person’s pattern of contributions and whether, in light of any such pattern, the contribution in question is out of character.  An “out of character” contribution is not automatically assumed to have been made with the intention to defeat creditors. Rather, an “out of character” contribution could indicate that the transferor was aware of impending insolvency and, as such, the transferor should be put on notice that he or she may be required to explain the purpose to the court’s satisfaction. Professional and holistic legal advice from a Superannuation and Taxation Lawyer coupled with sound financial advice may be hugely beneficial to ensure your superannuation is coupled with all the bankruptcy protections possible.

If you would like further information or wish to discuss your superannuation matter with us please do not hesitate to contact our firm by telephone on (02) 9233 4048 or by email to info@navado.com.au. 

This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.