Is my Superannuation safe if I become Bankrupt?

June 1, 2022
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Some individuals that realise they are heading towards the bankruptcy route will try to funnel their assets in superannuation for an "assumed" protection of these monies and assets. This is simply not the case.

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.[caption id="attachment_2225" align="aligncenter" width="727"]

Is my superannuation safe if I become bankrupt?

The truth about bankruptcy: Although filing for bankruptcy is meant to give people a fresh start by relieving burdensome debt, you must consider pros and cons if you are thinking about this option.[/caption]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;

  1. Were the contributions made to the superannuation fund out of character?
  2. Would the assets have formed part of the bankrupt's estate and otherwise been available to creditors
  3. Is the superannuation fund complying and regulated?

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.

What's not protected?

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.

Bankruptcy Table

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.

Superannuation as an asset protection strategy

If you are considering using superannuation as an asset protection strategy, then it is important that you;

  • Make ongoing and consistent contributions to avoid the possibility of clawback
  • Retain records of your contributions and other financials to prove you were not insolvent at the time of making contributions
  • Keep superannuation in the accumulation phase during bankruptcy (if retired) and only take lump sum payments
  • Talk to your Planning Professional about the best superannuation strategies to achieve your retirement lifestyle goals

What to do if you are facing or considering bankruptcy?

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.[caption id="attachment_2572" align="aligncenter" width="300"]

Australian Personal Bankruptcies 2013 - 2017

*2 S139. Figures are current at 1 July 2017. Refer to Australian Financial Security Authority for current and additional rates.[/caption]This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this fact sheet can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

June 1, 2022

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