Many people setup a SMSF (Self Managed Super Fund) because of the “asset protection” benefits it offers… but what happens if a member or the trustee of the SMSF files for bankruptcy? Are you assets still protected? Does the SMSF hold up? Read on to find out some info I came across while researching the subject…
Superannuation Laws, Bankruptcy, And You…
If you run your own business and become insolvent – or bankrupt – this means that you will generally go under administration, such as if you were in the situation where you became in the position of being undischarged bankrupt… This is important if you run or are a member of a SMSF (Self Manager Super Fund)
If you as an individual become bankrupt, or even enter into a personal insolvency agreement (which is similar to bankruptcy (being one of the many bankruptcy type situations that you could find yourself in under bankruptcy laws) and are a trustee of, or a member of a SMSF (Self Managed Super Fund) then there are serious ramifications under the current Superannuation Laws…
In these situations, the super laws would classify you as a ‘disqualified person’ which means that you cannot act as a trustee of a SMSF. Also, it means you cannot act as a Director of a Company that is a corporate trustee of a Self Manager Super Fund.
Asset Protection and Self Managed Super Funds
A large reason many people move their superannuation into a Self Managed Super Fund is for the asset protection benefits that it can provide. There are many other reasons, such as;
- having more control over your own superannuation
- choosing which assets you invest in
- investing in real estate
- and even leveraging your super via your SMSF and non-recourse borrowing arrangements to purchase investment properties with loans
But asset protection is also a huge part of having, owning, running, being a trustee of and being a member of a SMSF…
The asset protection part of the whole ‘SMSF gig’ is sometimes a big factor for many people, while others are unaware of these benefits and are purely investing their superannuation into their SMSF to invest in assets they choose in order to protect their super from large industry funds losses, etc…
Bankrupt Trustee’s and Members of SMSF’s – What Happens?
This article is by no means a detailed or complete information source on the ins and outs of what happens if you go bankrupt (or enter into a bankruptcy like agreement) while you are a trustee, member, or acting as a director of a corporate trustee for your SMSF, but there is one piece of information that always stands true in regards to SMSF’s and Bankrupcty.
A bankrupt persons superannuation in a regulated super fund is protected from creditors
This statement generally holds true for almost all circumstances… unless you have purposefully moved money and/or assets into the super fund in an attempt to hide them in anticipation of going bankrupt.
Essentially, if you are obviously doing the wrong thing and trying to shove your assets into a SMSF to protect it before going bankrupt then creditors can potentially claw back these investments.
But if you have legitimately saved your superannuation into your SMSF and go bankrupt, your super is in most cases quite safe.
*It should be noted that this information should in no way be considered legal advice. This is simply a short article on the bottom line regarding bankruptcy and SMSF’s.