Go bankrupt lose Super? Bankrupt widow keeps Super

Go bankrupt lose Super?

Go bankrupt and lose your superannuation? But isn’t Superannuation protected from bankruptcy? The 3 common safe havens to protect assets from insolvency are:

  1. ‘Clean skin’ Family Trusts (eg, doesn’t employ people)
  2. Low-risk spouse (eg. spouse is a school teacher)
  3. Superannuation

With huge wealth moving into Super the Trustee-in-Bankruptcy has its eye on Super. The case of Morris v Morris shows how desperate the Trustee-in-Bankruptcy has become – such underhand tactics puts greater risks on the accountant and financial planner.

What are the ground rules for bankrupt lose Super?

  1. The Trustee-in-Bankruptcy usually can’t touch your Superannuation assets: s116 Bankruptcy Act 1996
  2. After bankruptcy, he still can’t touch your Super received as a lump sum: s116


  1. The Trustee-in-Bankruptcy takes your Super where:

3.1 you transferred assets into Super to defeat creditors; and

3.2 you, as a bankrupt, get pension payments from Super: s 139L Bankruptcy Act 1996.

  1. The Super is not protected from taxation debts via a garnishee notice: s 260-5, Sch 1, Tax Admin Act 1953Denlay v FCT [2013] FCA 307 & para 118 PS LA 2011/18.
  2. The Family Court can rip into your Superannuation if your spouse, mistress and gay partner separate from you. (Bigamy is legal, as you can, under State law, be ‘married’ to your spouse, defacto and gay partner, all at the same time.)

Bankruptcy Trust in Wills

What happens when a bankrupt gets your superannuation? Bankrupt lose Super
Morris v Morris (Bankrupt) [2016] FCA 846

Bankrupt lose Super. Is it always true? If you go bankrupt and then get your Superannuation payout as a lump sum it is protected from creditors. But what happens if you go bankrupt and get someone else’s superannuation? Does the protection from creditors extend this far?

Mrs Morris was bankrupt. She then received $110k from her dead husband’s super fund. Her trustee-in-bankruptcy said, ‘hand it over Mrs Morris’. She said no. It went to Court.

The Court held that when you die the Super that you give to a bankrupt is protected.

What about life insurance and anti-detriments?

Mrs Morris also separately received $312k by way of a life insurance and related anti-detriment adjustment payment. This was automatically protected and not in contention. See the Sir Thomas Clyne report, which led to the enactment of the Bankruptcy Act. In that report, at para 156, as Burchett J noted, it was stated:

It has been for many years the policy of Parliaments throughout Australia to give protection to policies of life insurance against the claims of creditors.

Members fighting in a Self-Managed Super Fund

Fire-proof your client’s Superannuation after the Morris Case

There are 5 ways to protect Super at death:

  1. Build an SMSF Deed that contains insolvency protection. See Sample here. Or update your SMSF Deed.
  2. if you have a 3-Generation Testamentary Trust in your Will then:
    • the ‘at risk of bankruptcy child’ gets the Superannuation (which is protected for them)
    • while the other child gets other assets in the Will
  3. Put a Superannuation Testamentary Trust in your Will so your protection is carried forward to your beneficiaries – even if a beneficiary is bankrupt the super is protected in their hands.
  4. Put a Bankruptcy Trust in your Will – so that the Trustee-in-Bankruptcy can’t touch any of your assets – including Superannuation.
  5. Reconsider Reversionary Pensions. If the person getting the pension is at risk of bankruptcy, then don’t set up a Reversionary Pension. If Mrs Morris had received, instead of a lump sum, a reversionary pension, then it would have been lost to her because she was bankrupt.

Assets not held in SMSF. So divisible among creditors of bankrupt

Frigger v Trenfield (No 10)

Are the assets owned by the bankrupt or their Self-Managed Super Fund?

Obviously, if you are bankrupt you want to argue that as many assets as possible belong to your super fund. Superannuation assets are usually protected.

This issue is considered in the bizarre case Frigger v Trenfield.

The court rules that certain assets of two bankrupts are not held in their self-managed super fund (SMSF). Therefore, the assets are divisible among the creditors of their bankrupt estates: Frigger v Trenfield (No 10) [2021] FCA 1500 (Federal Court, Jackson J, 1 December 2021).

Frigger v Trenfield facts

The applicants, Mr and Mrs Frigger (Friggers), go bankrupt in 2018. They had accumulated significant wealth running a BP service station and investments in property and shares.

The respondent, is the trustee-in-bankruptcy. He is the nice man trying to get what ever assets the the Friggers have left. So that he can give them to the creditors.

The Friggers dispute:

  • The trustee-in-bankruptcy argues that all the Friggers property are property divisible amongst their creditors. This is under s 116(1)(a) Bankruptcy Act 1996.
  • But the Friggers argue that the assets are held in their SMSF (Frigger Super Fund).

If the Friggers are correct, then the assets are protected as SMSF assets. If correct the Friggers can rely on section 116(2)(d)(iii)(A) Bankruptcy Act. This provides an exception for:

“the interest of the bankrupt in … a regulated superannuation fund (within the meaning of the Superannuation Industry (Supervision) Act 1993)”.

The disputed assets included:

  1. cash in two bank accounts (one of which holds more than $2.8m)
  2. a share portfolio with CommSec (valued at $2.5m); and
  3. two residential properties in Perth.

Sadly, for the Friggers, these assets are recorded in their own names. With little clear evidence of ownership by the SMSF.

Frigger v Trenfield decision

  • The Friggers fail to prove that they hold the assets for the Friggers SMSF.
  • It follows that the Friggers’ interests in the disputed assets are not part of their interests in a superannuation fund. See section 116(2)(d)(iii)(A).
  • The assets do not belong to the Friggers’ SMSF.
  • Therefore, the assets are not protected superannuation assets.
  • Instead, the assets belong to the bankrupt couple.
  • Accordingly, the assets are to go to the creditors.

There is no evidence that the Friggers recorded ownership of the assets in their capacity as trustees of the SMSF. They seem to have purchased the assets with their own money. And treated the assets as though they were their own assets.

Also, where are the signed instruments that allow the SMSF to argue it owns the assets? There are none.

Perhaps the Friggers should have had a look at the ATO guidelines “Ownership and protection of assets”.

You must clearly distinguish SMSF assets from personal assets. For example, you record the ownership of the fund “as trustees for” the SMSF.

The Friggers did not comply with the ATO guidelines. This supports the argument that the disputed assets are not part of the SMSF, the Court said.

Bank account used for both private and SMSF purposes!

The Court accepts that the bank accounts received rental income for the SMSF’s commercial properties in Hobart and Perth. This is not in dispute. But the Friggers fails to establish that the bank accounts are held on trust for the SMSF deed.

Sure, the bank accounts are used for SMSF transactions. But they are also used for many personal and business-related purposes. And, the bank accounts as a whole are not SMSF assets. The Court accepts that they contained some SMSF moneys. However, the Court rejects the Friggers’ attempt to reconcile or ‘trace’ amounts attributable to the SMSF. The court states that their attempt at the analysis is ‘opaque’ and ‘unreliable’.

The Court also rules that an attempted declaration in 2014 does not result in a contribution of the disputed residential properties to the SMSF. Rather, the Court considers that the purported declaration creates a trust over the properties. This is with Mrs Frigger as trustee and Mr and Mrs Frigger as beneficiaries. But the Court states they are not trusts where Mrs Frigger held the properties in any capacity as trustee of the SMSF.

You cannot transfer the Friggers residential property into their SMSF

Further, the Court said any contribution of the residential properties to the SMSF breaches s 66 SIS Act. It also breaches the Friggers SMSF deed. The disputed properties do not fall within the exception for ‘business real property’ in s 66(2)(b). This is because the properties are ‘residential’. They are not ‘business real property’.

Accordingly, the illegality of any contribution of the residential properties to the SMSF meant that they could not have become part of the SMSF. This is because the the trust deed (stupidly in our view) requires the trustees not to accept any contribution ‘not permitted by superannuation law’.

The Friggers also failed to establish that any of the share portfolio is contributed to the SMSF or held by them on trust for the SMSF. The Commsec share trading account is established in their own personal capacities. But then purportedly used to acquire investments for the SMSF.

It does not matter on what you do to your SMSF – it is always a ‘regulated superannuation fund’

The treatment by the Friggers of their SMSF is a travesty of justice. It makes my feel pyhsically sick. And I have great sympathy for their advisers and accountants.

While there looks to be terrible abuse on the SMSF, the Court still finds the SMSF is a ‘regulated superannuation fund’. And so it must. For under section 19 SIS Act once a fund becomes a regulated superannuation fund, it always has that status.

Non-compliance with other requirements of the SIS Act may result in the SMSF losing concessional tax treatment. But whether the SMSF is still a ‘complying superannuation fund’ does not bear on whether it is a regulated superannuation fund, the Court said.

SMSF member overseas or of unsound mind? 47% tax penalty. POA to the rescue?


Morris (Bankrupt) v Morris (Bankrupt) [2016] FCA 846
Di Cioccio v Official Trustee in Bankruptcy (2015) 229 FCR 1
Lin, Re; Law v Lin (1960) 18 ABC 142
NM Superannuation Pty Ltd v Young (1993) 41 FCR 182
Sainsbury v Inland Revenue Commissioners [1970] Ch 712
Bankruptcy Act 1966 (Cth) ss 58, 58(1), 116
Superannuation Industry (Supervision) Act 1993 (Cth)

Legal Consolidated Barristers & Solicitors Australia Brett Davies

Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm

National:   1800 141 612
Mobile:      0477 796 959
Email:       [email protected]

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