July 21st 2015 Australian Property Investor
At the Australian Property Investor our focus is to find the best way for you to achieve your property ownership and goals sooner. On this journey many couples contemplate establishing a SMSF and borrow to purchase their property.
We interview Certified Financial Planner Peter Horsfield of SMART advice for his thoughts about SMSF, property ownership within SMSF and divorce.
“If you’re going to have a super fund, you can make it as complicated as you want or as simple as you want,” explains Peter Horsfield, a certified financial planner with expertise in advising on SMSF structures. Like most experts, he prefers a structure that sets up a company to own the property as corporate trustee, with the fund members as directors of that company.
“It comes at a cost, but if anything happens later on, then you have that scope and flexibility later to do things. If not, then it costs more later on because you have to unwind things, including sell assets,” he explains.
Neither path is necessarily simple.
Even where an SMSF is set up with a corporate trustee that allows a member to leave without necessarily dissolving the fund, the member’s balance must be extracted. That means that if the fund doesn’t have other assets of shares or cash, and the other member can’t make a personal contribution into the fund, then the fund must sell a property to raise that balance. But what if the asset has dropped in value, or the timing’s bad?
“If there’s going to be a relationship breakdown,” Horsfield says, “then most of the time there’s a component of money involved. When money is tight, that generally means assets are performing poorly. So you may be, at that high emotional state, selling something as a fire sale.”
Quite apart from the capital gains implications that flow from selling property before retirement, there’s the dreaded spectre of having to sell for less than the fund bought it for. In that case, you could lose not only your expected capital gain but other assets besides.