Practice Note: 29/10/2021
Superannuation – Also a Risk Management Tool
A common stress for older people who need to become bankrupt is that they will not have time to recover from the financial adversity they have experienced.
COMMENT: Funds held in a regulated superannuation fund are protected and are not available to the bankruptcy estate.
COMMENT: All debts caught by bankruptcy are permanently extinguished.
For persons near retirement age, the combination of debts being permanently extinguished by bankruptcy and regulated superannuation funds being protected can greatly assist their financial recovery.
A regulated superannuation fund has several benefits for people who experience financial adversity and are at or near retirement age. These benefits include:
- Funds accumulated over time in a regulated superannuation fund are protected and are not available to the bankrupt estate.
- Once bankrupt, if retired, lump-sum funds properly received from the regulated superannuation fund are protected and are not available to the bankrupt estate. Further, assets purchased during bankruptcy with these funds are also protected.
- Financial recovery can commence as soon as a person becomes bankrupt. There is no need to wait till the bankruptcy is finalised in three years\’ time.
WARNING: Funds accessed from a regulated superannuation fund prior to bankruptcy are not protected. Only funds accessed once bankrupt are protected.
TIP: It is important to maintain a money trail to evidence assets purchased during bankruptcy with funds received from the regulated superannuation fund.
EXAMPLE: If the family home is jointly owned and the husband who is at retirement age becomes bankrupt, the husband can save the family home by using a lump sum from his regulated super fund to buy out the interest of the bankrupt estate in his share of the home.
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This newsletter is provided as general information only and is not advice. If you have any questions or would like to discuss your client\’s circumstances, you are welcome to give us a call 1300 060 122