DIVORCE ORDER AND PENSION / RETIREMENT FUNDS DIVISION

Divorce can be an emotional and at times challenging experience, not only do you have come to terms with the end of a life-long partnership, but also the difficulties of dividing properties accumulated during the marriage. Division of the marriage estate is an unavoidable consequence of Divorce, how the estate shall be divided will depend upon the type of Marital regime the spouses entered at the start of the marriage.

The Divorce Act 70 of 1979 provides that a member’s pension interest in a retirement fund (pension fund, provident fund, retirement annuity fund or preservation fund) forms part of the member’s assets. It is hence accounted for when determining how the parties’ assets are divided upon divorce.

In granting a divorce order, a court may include an order for a portion of a member’s pension interest to be awarded and paid to the ex-spouse by the member’s relevant Pension fund. This is done in terms of section 7(8) of the Divorce Act.

It is important to bear in mind that the right to claim a share of the member spouse’s pension interest only applies to couples who are legally married. If a couple is cohabitating the non-member spouse will not be entitled to a portion of the pension because there is no existing and legally valid marriage.

Pension Interest

When negotiating a divorce settlement agreement, it is important to comprehend how the pension interest is calculated for the purposes of such a claim. In respect of pension, provident and preservation funds, the pension interest is the total benefit to which the member would have been entitled to in terms of the fund rules if the membership had terminated due to resignation at the date of divorce. In the case where the member spouse has invested in retirement annuity, the pension interest refers to the total amount of the members’ contribution to the fund up to the date of divorce including interest at the prescribed rate. It should be bone in mind that the “Pension fund” is a general term which refer to all retirement funds that fall within the ambit of the Pension Funds Act.

In CM vs EM (1086/2018) [2020] SA (SCA) 48, the legal issue as whether living annuities form part of a spouse’s estate for the purposes of accrual calculation was dealt with by Supreme Court of Appeal. In deciding whether the living annuities held by the husband formed part of his estate for purposes of accrual calculation, the Court made a distinction between:

(1) the capital invested in the living annuities and;

(2) the right to receive a regular annuity payment from the insurer based on the capital value of the underlying investment.

In its ruling, the Supreme Court of Appeal confirmed the current position that the capital portion of the annuity reflects on the insurer’s balance sheet and therefore belongs to the insurer. As such, the annuitant only has a contractual right to receive regular payment from the insurer and the capital value cannot be taken into account when determining the accrual.

Matrimonial Property Regimes

The matrimonial regime in which couples are married will have an impact in such a pension fund claim. Where couples are married in community of property, the pension interests of each spouse will form part of the joint estate, and each spouse will be entitled to claim 50% of the pension interest at the date of divorce. In circumstances where a couple is married out of community of property with the accrual, each spouse’s retirement fund value will be taken into consideration when determining the value of their respective estates for accrual determination.

Exceptions

  1. Should the member spouse resign from his employment prior to Divorce, then the non-member spouse will not be able to claim from the Pension Fund provider, but rather the pension pay-out will accrue as cash assets to the estate to be divided upon divorce.
  1. Pension interest cannot be brought in respect of living and life annuities, the capital portion of the annuity is reflected on the insurer’s record and annuitant only has a contractual right to receive regular payment from the insurer. The capital value cannot be considered when determining the accrual.

The Divorce Order

Where a court has awarded the non-member spouse an amount from a retirement fund in terms of a valid divorce order, the retirement fund is obliged to give the non-member spouse the right to decide how the benefit will be paid out. The Pension fund pay-out is taxable.

To give effect to the claim, it is of the utmost importance that the retirement fund clause in the settlement agreement is correctly drafted and meets all legal requirements. The Divorce order must indicate in specific detail the name of the retirement/pension fund, member’s pension fund number and the percentage or the amount of pension interest to be paid over to the non-member spouse, and any vagueness can result in the order being rejected by the fund. An incorrectly drafted clause in the divorce order can result in the fund rejecting the settlement agreement and refusing to pay out the pension interest  which in turn would require the non-member spouse to bring a costly court application to vary the divorce decree.

Sources

  1. Marriage Act, 1961 (Act No. 25 of 1961)
  2. Civil Union Act, 2006 (Act No. 17 of 2006)
  3. Income Tax Act, 1962 (Act No. 58 of 1962)
  4. The Divorce Act, 1979 (Act No. 70 of 1979)
  5. CM vs EM (1086/2018) [2020] SA (SCA) 48
  6. Pension Funds Act, 1956 (Act No. 24 of 1956)
  7. Matrimonial Property Act, 1984 (Act No. 88 of 1984)
  8. Recognition of Customary Marriages Act, 1998 (Act No. 120 of 1998)

Disclaimer: The articles on this website are provided merely for general information purposes. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal issue or matter.

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