It is of vital importance that the retirement fund clause in a divorce Settlement Agreement is drafted by an attorney who specializes in Divorce Law. It happens frequently that clauses are so badly drafted that a Fund rejects a claim. A substantive application to court is then necessary to rectify the issue.
The term ‘pension fund’ is both a generic name for all types of retirement funds that fall within the scope of the Pension Funds Act, and a descriptor of a specific type of pension fund, one in which at least two-thirds of the retirement benefit must be taken as an annuity. Other types of pension funds are provident funds, where the member may take the entire retirement benefit in cash, retirement annuity funds for retirement plans outside of the occupational/workplace environment, and preservation funds, to which benefits from a pension fund can be transferred.
One should never rush into dividing up pension and/or retirement funds in a divorce settlement. It frequently happens in divorce cases that pension fund administrators reject settlement agreements on the basis that the clauses dealing with the pension interest payout to a non-member spouse are drafted incorrectly. It is therefore of the utmost importance that the clauses dealing with pension pay-outs be drafted properly. If not drafted properly, application will have to be made to the court at great cost to amend or vary the settlement agreement.
The relevant provisions that control the allocation of unaccrued pension benefits to a non-member spouse upon divorce are contained in the Divorce Act and in the Pension Funds Act 24 of 1956.
A claim under the Divorce Act can only be brought where the husband/wife or a partner in a civil union is still a member of the fund. Once he/she exits from the fund, usually on retirement or as a result of an early withdrawal, the benefit accrues to him/her, and there is no longer any ‘pension interest’ or accrued benefit. If the benefit accrues before the date of divorce, it must be dealt with as any other asset in the separate or joint estate.
Where couples are married or in a civil union in community of property, each partner will have a claim against the other’s pension fund. The claim will be for half of the pension interest on the date of divorce.
The marital systems in South Africa and how they affect retirement fund claims:
Marriages in community of property
The pension interests of the spouses will form part of the parties’ joint estate and the non-member spouse will be entitled to claim 50% of the pension interest of the member as at the date of the divorce.
Marriages out of community of property with accrual
Where couples are married out of community of property with the accrual, the spouse’s pension fund value will be taken into consideration in order to determine the value of his/her estate for purposes of the accrual calculation only.
Marriages out of community property without accrual before 1 Nov 1984
The spouses retain their own separate estates and there is no sharing of assets at divorce, unless a court orders a redistribution of assets in terms of Section 7(3) of the Divorce Act. A pension interest forms part of the spouse’s estate and will then form part of the assets if redistribution is ordered by the court. The parties may also agree to share the pension interest in a settlement agreement.
Marriages out of community of property without accrual after 1 Nov 1984
Here the spouses retain their own separate estates and there is no sharing of assets at divorce. Any share in the pension interest will have to take place by mutual consent. The parties may also agree to share the pension interest in a settlement agreement.
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Author – Kate Bailey – Hill