Dealing with self-managed super, death and divorce

David Shirlow’s tip for financial planners working on estate plans for divorced clients is to ensure those clients make binding or non-lapsing nominations on their superannuation, particularly in situations where they have remarried and have children from both marriages.

Shirlow, the head of technical services for Macquarie Financial Services, says the first thing an adviser needs to do in relation to the client’s super is to identify who will have the decision on how the superannuation benefit is to be paid, following the client’s death.

If the decision is to be made by an arm’s length trustee, that trustee will usually write to all the potential beneficiaries indicating how the benefit will be paid. Those people have the opportunity to agree or disagree, but if they fail to respond they will have no recourse to the Superannuation Tribunal.

Shirlow estimates that 25 per cent of cases currently before the tribunal relate to disputes over how the benefit will be paid.

The other area for concern, according to Shirlow, is self-managed superannuation, whereby the current surviving spouse is likely to be the trustee of the fund. If there are children who are not related to that surviving spouse, that spouse might have a conflict of interest.

“The spouse, who is both trustee and member of the SMSF, may not act in the best interests of the family,” he says.

The only way clients can exercise any real control from the grave is to make a binding nomination — and that nomination needs to be reviewed whenever the client’s circumstances change.

“The best time to do this is when the client is coming to an agreement on how the super is to be split following the breakdown of the marriage,” Shirlow says.

“Some binding nominations hold fast even post divorce, as incidentally, do some wills.

“If the binding nomination was made in favour of the ex-spouse and the client has not changed that nomination following the divorce, the superannuation benefit may well pass to the ex-spouse.”