When our economy wobbles – a little like it is doing now! – it’s not uncommon for clients to worry about what might happen to their superannuation should they become bankrupt.
In fact, we hear the question often: Is a person’s super balance protected from creditors in the event of bankruptcy?
As a general rule, the answer is yes, although it’s not always that simple. We know that most people, when faced with the prospect of insolvency, will try to protect whatever assets they have, even going to the extent of deliberately hiding assets from creditors. This sometimes involves placing assets into their super fund in the hope they can’t be touched.
When a person becomes bankrupt their assets immediately vest in a trustee whose role is to collect and liquidate all of those assets and pay the available funds to creditors.
A person’s super contribution cannot, however, be touched except where the main purpose in making contributions or transferring assets to a fund is to prevent, hinder or delay the transferred property from becoming divisible among the bankrupt’s creditors.
To determine the main purpose for specific contributions, regard must be had to whether, during any period ending just before the transfer, the transferor had established a pattern of making contributions to one or more eligible superannuation funds. If this is not the case, then the transfer, when considered in the light of this pattern, may be considered out of character.
For more information, please don’t hesitate to contact Legal Services on 1800 773 477.