Superannuation and Bankruptcy

If a person is bankrupted, many of their assets are available to the trustee in bankruptcy to be realised and applied for the benefit of the trustee’s fees and creditors.  But does this include amounts in a superannuation fund?

The answer is generally no, however as is typical, there are exceptions.  While each matter depends upon its own particular circumstances, generally:

  • The bankrupt’s interest in a regulated superannuation fund is likely to be protected from creditors;
  • If the superannuation fund is non complying, then their interest is potentially not protected;
  • Amounts withdrawn from the superannuation fund prior to bankruptcy are not protected, but withdrawals accessed after bankruptcy generally are;
  • Amounts taken out as a pension or annuity are potentially subject to income contributions during the bankruptcy, depending upon the amount received and the number of dependents that the bankrupt has.  Income (from all sources) up to about $68,000 is generally safe from income contributions;
  • Contributions made to the superannuation fund with the intention of defeating creditors can potentially be clawed back by the trustee in bankruptcy.  As an example, if a large lump sum contribution was made to a person’s superannuation fund when they were subject to a debt or litigation that they could not pay, then it might indicate that the contribution was made so as to protect those funds from bankruptcy, and they might be the subject of action to claw them back;
  • If the fund is a SMSF, then the bankrupt cannot be a trustee of it, nor can they be a director of a corporate trustee for the SMFS.

For advice in respect of these matters and dealing with superannuation funds generally, please contact Peter Muller at peterm@qbmlaw.com.au