Article by listed attorney: Fawzia Khan
Up until 1989, a divorced spouse had no entitlement to claim any portion of the retirement fund benefits of the other spouse. This is because the pension interest of a member of a pension fund was not regarded as an asset in the joint estate. This is because the pension fund was seen to belong to the pension fund rather than to the member.
The South African Law Commission recognized even though the retirement fund benefits of a member could not be immediately available on divorce, it did form an important part of the assets of the member’s estate. The member’s right to such benefits was referred to as the member’s “pension interest”. The SALC also recognized that the non-member divorcing spouse had a direct interest in the member’s pension interest and that on divorce the pension interest of a spouse who is a member of a retirement fund must be regarded as being part of his or her assets.
This would allow the non-member spouse the right to share in the retirement fund benefits of the member spouse, depending on what type of marital system the couple had entered into.
The value of the pension interest of the member spouse therefore had to be easily ascertainable on divorce, in order to effect a division of the assets of the estate of the divorcing couple. Hence In 1989 we saw an amendment to the Divorce Act 70 of 1979 (the Act), which changed stated that a “pension interest” will be deemed part of the assets on divorce.
This means that either spouse has a claim against the pension fund of his or her spouse on divorce. The court would be empowered to order that the non-member spouse be paid out a portion of the member spouse’s pension fund. A pension fund is only allowed to make deductions from a pension benefit as set out in sections 37A and 37D of the Pension Fund Act.
‘Pension interest’ is defined in the Divorce Act for every type of fund except a preservation fund. According to the Pension Funds Act, ‘pension interest’ may be any one of the following types:
The benefits to which a member would have been entitled to in terms of the rules of the fund if his/her membership had terminated, due to resignation, at the date of the divorce.
The sum of the member’s contributions to the fund up to the date of divorce plus simple annual interest at the prescribed rate.
The benefit a fund member would receive if his or her membership were notionally to terminate on the date of divorce.
According to the Divorce Act, the non member spouse is allowed to entitled to “the portion of the pension interest which is assigned to the non-member spouse in terms of a decree of divorce or the dissolution of a customary marriage and is deemed to accrue to the member on the date on which the decree of divorce or decree for the dissolution of a customary marriage is granted”.
If a couple is married in community of property, this means the pension interest of the member spouse is considered as part of the joint estate. The non-member spouse is entitled to claim 50% of the pension interest of the member as at the date of the divorce.
If they are married by ante-nuptial contract with the accrual system in place, the value of the spouse’s pension fund is used to calculate the value of his/her estate. If the couple is married out of community of property with to the accrual system, and if they excluded the pension benefits in the ante nuptial contract, then the pension interest would not be part of the estate, when the marriage ended.
In 2007 the Pension Funds Act was amended to include the ‘clean-break principle’ in relation to a divorce. What does the “clean break principle” mean? Simply put, it means the right of a non member spouse who is married in community of property to receive immediate payment or transfer of the portion of the other spouse’s pension interest on divorce.
In terms of the Pension Fund Act, the non-member spouse can choose to have the pension interest award paid out in a lump sum in cash or can have it reinvested into another retirement fund. Should the non-member spouse opt to have the monies paid out to him or her as a lump sum, there are tax implications. If the monies are transferred to another retirement fund, it will be done tax-free. Hence this decision (to receive the money as a lump sum) should be carefully thought out.
In most cases the fund has 45 days, after receiving the divorce order, to request the non-member spouse to elect how the pension interest must be paid. The non-member spouse then has 120 days in which to make a decision.
If the member spouse resigns from his or her employment before the divorce order is finalized, and no notification has been given to the fund by the non member spouse that fifty percent of the proceeds is due to the non member spouse, the fund will not be required or held liable to ensure that the non member spouse’s rights in this regard are protected.
If the fund is not properly cited in the divorce pleadings the court will not be able to make any such order, on divorce. For that reason, it’s important to ensure that your attorney is skilled in divorce proceedings so that the fund is correctly cited to ensure that the court can indeed make the appropriate order regarding the pension interest of the member spouse.
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