According to the Bankruptcy Act, superannuation is usually a protected asset and falls under the category of ‘non-divisible’ property. Non-divisible property is property which a trustee cannot take from a bankrupt. In relation to super, it is the interest that a bankrupt has in a regulated superannuation fund or a payment from such a fund received on or after the date of bankruptcy that may be at risk.
The Bankruptcy Act was modified with effect from 28 July 2006 to prevent debtors from funneling their assets into their superannuation to protect their monies from creditors. When a trustee is looking at contributions made after this date and prior to bankruptcy they will consider the following;
If the answer is ‘no’ to the first two questions and ‘yes’ to the last, then it is very likely that the superannuation funds are protected from creditors. Trustees will look at inconsistent payments and this can include where a debtor funnels their wages into superannuation instead of receiving them into their bank account or additional salary sacrifices are made above and beyond past contribution levels.
Your superannuation made by your employer and any normal salary sacrifice arrangement or personal contributions are usually safe from bankruptcy. Assets purchased by the superannuation fund are also protected if they were purchased without the intent to defeat creditors.
Any assets put into your superannuation account that are deemed to have been made to avoid paying creditors can be clawed back. If you are already retired and withdrawing an income from your superannuation, then this amount is not protected if the withdrawal amounts exceed the below income limits.
Any lump sum withdrawals you made before becoming bankrupt are also not protected and any remaining balance in your bank account will form part of the assets available to creditors. Conversely, lump-sum payments made after bankruptcy are protected.
If you are considering using superannuation as an asset protection strategy, then it is important that you;
Never go on this route alone. At RJS Wealth Management, we’ve mastered the six stages of financial planning. Find out how we use them to help you reach your financial goals. Contact us on 1300 888 803. There are many other options available and utilising your Planning Professionals knowledge of the law and creditors can help you prevent going down this route. For assistance with debt related issues, bankruptcy and superannuation matters, we are here to help. Please give us a call on 1300 27 28 29 to discuss these matters with you confidentially.
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