The controversial, big-spending tour created a golf divide when launched in 2022 but has endured a tumultuous year after losing its Saudi investors that pumped about $A7 billion into the project.
LIV Golf has filed for bankruptcy in New Jersey, saying it intends to restructure its business with a $A68.7 million bankruptcy loan provided by the Public Investment Fund (PIF) of Saudi Arabia.
Smith and fellow major winners Jon Rahm, Bryson DeChambeau and Dustin Johnson - all lured from the PGA Tour on huge-money deals - were the leading four creditors listed.
LIV Golf said the bankruptcy would allow it to move forward with the support of a new backer, BC Partners Advisors LP, and transition to a player-first ownership model that will compete across five continents and introduce a cut in an expanded 75-player field.
But BBC reported players do not have to sign on to LIV 2.0, regardless of their contract status, freeing them up for a return to other tours.
Smith's five-year automatic exemption - courtesy of his 2022 Open victory at St Andrews - for the Masters, PGA Championship, and US Open expires next year.
Consistently preaching the merits of LIV's lighter schedule and team-based format, the "sustainable" LIV 2.0 touted by chief executive Scott O'Neil could keep Smith invested.
But should he want out, a two-year European tour exemption is the prize at next month's Alfred Dunhill Links that's contested at the Old Course, Carnoustie and Kingsbarns.
Ripper teammate Marc Leishman is in the same boat, currently without status on another tour.
Last year's Australian PGA Championship winner Elvis Smylie was given an exemption to play on both Europe's DP World Tour and LIV this year, while Lucas Herbert has Asian Tour status thanks to a win in Japan last year.
PGA of Australia chief executive Gavin Kirkman said the domestic body would support players given the "many unanswered questions, including around playing rights and pathways forward".
"Professional golf is in the middle of its most significant structural shift in decades," he told AAP.
"The developments around LIV Golf are part of a broader reshaping of the global tour landscape.
"LIV Golf has provided a valuable platform for a number of leading Australian players, giving them the opportunity to compete at the highest level on a global stage.
"For the Australian players involved, this is ultimately about their playing futures and the decisions they'll need to make about where and how they want to compete."
O'Neil attempted to talk down the precariousness of their position, saying the process "gives us the structure and time to pursue a landmark transaction and begin the next chapter of LIV Golf."
He said the team concept would be built around nationalities and that LIV would continue to tap some of its more successful markets in Australia, South Africa and Asia.
"Plenty of well-known companies have taken this path before us ... our objective is not simply to preserve what we have. It is to make it better."
The 2026 LIV season ended earlier than planned after the cancellation of the team championship in Detroit.
LIV confirmed it was "scaling back operations", and some employees were laid off at the start of this month.
The intention is to resume competition next year, with Adelaide's Kooyonga Golf Club to host the popular Australian leg before a move to North Adelaide Golf Course - currently undergoing $45 million redevelopment - in 2028.
But a LIV Golf statement said "no definitive decisions regarding the 2027 schedule or individual events are being announced at this time".
- with AP
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