What happens if my ex-partner stole from my SMSF?

Whether you were in a relationship with your ex-partner as a legal spouse, a de facto couple, or a same-sex couple, your ex-partner breaches the superannuation laws if they steal from your SMSF. See below a simple example of what happens when your SMSF and divorce does not go according to plan and the steps that can be taken.

Example: ex-partner stole from our SMSF

My ex-wife cleared out the bank account of my SMSF. We are already divorced, having ended our relationship after making a superannuation agreement to split our super balances in accordance with the Family Law Act 1975 (FLA).

Like many married couples, we set up a new SMSF soon after we married in 2016. We both rolled over our super balances from our retail funds into our SMSF, and our employer contributions were made to it, along with some personal non-concessional contributions. My ex-wife reduced her working hours to have children, so the balance in our SMSF was about 70% mine before our divorce in 2023.

Our superannuation agreement required me to split 65% of my super balance with her and for her to roll over all of her super into a retail fund of her choice. She would resign as director of the SMSF corporate trustee and transfer her shares to me, and I would retain the SMSF as the sole director and sole member of the fund.

After the rollover from the fund, my SMSF had $73,000 in cash and an investment property. My ex-wife, who was still a signatory on the fund’s bank account and a director of the corporate trustee, withdrew $70,000. She kept $10,000 and contributed $60,000 to her own retail fund.

What can I do now?

As unfair as it may sound, even though your ex-wife has taken the money, you are both still liable for the breaches under superannuation laws. Directors of an SMSF corporate trustee are jointly and severally liable for any ATO administrative penalties imposed on the corporate trustee. You can report it to the police as theft and provide that evidence to the ATO to limit or remove any ATO penalty that may be imposed on the SMSF trustee for breaching superannuation laws.

It is crucial to make an SMSF voluntary disclosure to the ATO as soon as practicable, especially if the fund is unable to pay its debts due to theft. The ATO is more likely to be lenient with a trustee who makes a voluntary disclosure. The disclosure must be made before any ATO audit activity. Early engagement with the ATO is more likely to result in remission of administrative penalties.

Working with your family lawyer is crucial in considering the following options:

• You could obtain a flag order under the FLA to prevent the trustee of your ex-wife’s super fund from paying out any of her super balance until a new order is made. Contact the trustee before seeking a flag order. Your ex is not required to consent to this order. However, she may access her superannuation on compassionate or hardship grounds.
• An alternative is to obtain a court injunction, which is likely to be more expensive and requires convincing a court that there is sufficient evidence to grant it.
• The Family Court can set aside the transaction, provided you can show it was unauthorised, and order your ex-wife to repay the money to your SMSF.
• A splitting order can be obtained under the FLA, requiring her to repay the money from her current super balance. After the removal of the flag order, the trustee of your ex-wife’s super fund is required to action the splitting order.
• Ensure your wife resigns as a director of the SMSF trustee and transfers her shares to you, and remove her as a signatory on the fund’s bank account and online banking access.

Seek advice from your family lawyer as this is a family law issue more than a pure SMSF issue. Our team is here to help with the SMSF side of things however, only your family lawyer can work to force your partner to cooperate.

What can I do if my ex-partner refuses to cooperate with the SMSF?

If your ex-wife refuses to cooperate and resign as a director of the SMSF corporate trustee, there are other options to consider.

Review the SMSF corporate trustee’s constitution to determine how a director can be removed. Clauses may provide for removal if a director formally resigns or is removed by a shareholders’ resolution. Typically, an SMSF corporate trustee has two shareholders, each owning one share, which can lead to a stalemate. However, if you hold the controlling shares, either by number of shares or, if the constitution allows, by a larger member balance in your SMSF, you may be able to remove your ex-wife by a majority vote or a casting vote.

You can apply to the Supreme Court of the relevant state for court orders that include provisions allowing the court registrar to sign documents on your ex-wife’s behalf. However, this is a complex and costly way to remove an unwilling person and may be a last resort.

What super laws may be breached from SMSF theft?

There are a number of superannuation laws that may be breached, and these include:

• Illegal early access to super by your ex-wife, the $70,000 could be included as assessable income in your ex-wife’s tax return.
• Breaching the cashing regulations as the withdrawal of the cash did not meet a condition of release. This can result in penalties imposed on the SMSF trustee, despite you being an innocent party.
• The sole purpose test may be breached because the withdrawal of cash was not made for the sole purpose of providing retirement benefits to the fund’s members.
• The ATO may disqualify a director of the corporate trustee, which may be a suitable outcome under the circumstances if they only disqualify your ex-wife.
• The fund can be made non-complying and the fund taxed at 45% on its existing assets and income – this may be unlikely given the circumstances, provided the ATO accept the evidence.
• By breaching the covenants that each director must act honestly, exercise care, skill and diligence when making decisions, and act in the best interests of the fund’s beneficiaries, you may be able to sue your ex-wife for the loss incurred, but you will need to take her to court, which will be time-consuming and expensive.