Spousal members of an SMSF can implement a multiple splitting order to achieve a more equitable financial result in the event of a relationship breakdown, a technical specialist has said.
SuperGuardian education manager Tim Miller noted this was an option for SMSF members who are subject to splitting orders, but are concerned market movements will adversely affect one of them.
“What we do see a lot in this situation is what you would classify as a multiple split order. This is where the members may split 100 per cent of [say] member B’s amount to member A, and then after that transaction has occurred, split 50 per cent of member A’s account to a new interest for the non-member spouse,” Miller explained.
“That’s how you would achieve [splitting] of the 50 per cent of the balance of the fund by applying that percentage split to the entirety of one [member’s balance], having had all of the fund’s interest transferred to that member in the first instance.
“So you do see those multiple splits occurring and achieving the desired outcome of not being really impacted by market movement.”
With regard to equitable outcomes, he warned individuals considering using the dollar-base-amount splitting method not to rely on the indexation provisions applicable to this course of action as a pathway to guard against market fluctuations due to the way indexation is actually implemented.
“The thing about the indexation of the base amount, and having an adjusted base amount, is that it’s ultimately and effectively an average weekly ordinary times earnings plus [an approximate] 2.5 per cent interest rate,” he said.
“So it’s not actually based on the actual investment returns of the fund; it’s based on a legislated amount that is updated each year.”
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