In a significant ruling impacting divorce settlements, the Supreme Court of appeal has overturned a High Court ruling that excludes a living annuity from a spouse’s estate.

A 2016 a ruling by the Johannesburg High Court that a living annuity should not be taken into account for the purposes of calculating the assets in divorce proceedings has been overturned on appeal by the Supreme Court of Appeal (SCA).

The SCA ruled in the case of Montonari v Montonari that the right to the revenue stream of a living annuity formed part of the assets of a marriage for the purposes of divorce.

The 2016 Montonari Judgment

The view of the High Court in the Montonari case ruled that a living annuity, underwritten by an insurer, are actually owned by the insurer and not the annuitant.

They are not able to be incorporated as assets in the annuitant’s estate available for distribution in a divorce.

Even though an actuary provided evidence that the income of the living annuity had an economic value, which could be capitalised, this was dismissed by the court.

The court ruled that the month-to-month or periodical income from the living annuity could only be considered in respect of a maintenance claim by the other spouse, together with other income sources.

The case of ST v CT  in 2018

The case of ST v CT (2018) was the very first time the issue of whether or not a living annuity forms part of the assets of a divorce had come before the SCA.

The judge reached a similar conclusion. It acknowledged that the capital backing a member held living annuity is possessed by the insurer and does not fall into the assets of the annuitant.

The month-to-month income generated from the living annuity, forms part of total income and has a bearing on whether the annuitant has the means to pay maintenance to the other spouse.

The court did not have to give consideration to the issue of whether the right to a future annuity is a right capable of valuation simply because evidence was not lead by the parties on this.

The 2020 Montonari Judgment – SCA

Leave to appeal the 2016 judgment was awarded to the spouse of the annuitant, which succeeded.

The SCA  made an order that:

The value of the annuitant’s right to future annuity payments under a living annuity is an asset in his estate for the purposes of calculating the accrual in his estate.

The SCA pointed out that in the 2016 High Court hearing, the parties were unsuccessful to define the issue correctly. The SCA observed that the High Court judgment and declaratory order perpetuated the misunderstanding that the applicant’s target was exclusively the underlying capital value of the annuities.

The High Court should have determined that the annuity, and not the capital, is the asset that would be reflected in the annuitant’s balance sheet.

The court acknowledged that the living annuity enjoys the protection provided by 37A and 37B of the Pension Funds Acts so an annuitant cannot give part or all of the living annuities to an ex-spouse in terms of a divorce order or agree to split the annuity income with the ex-spouse.

The SCA noted that the High Court in 2016 took the evidence of the actuary into account that future annuity income which the annuitant draws is an asset which can be valued, but then it mistakenly thought the annuity income to be relevant only for purposes of a maintenance claim. It should have found it to be an asset in the respondent’s estate, which is subject to accrual, and have allowed the actuary to provide a valuation of that income stream.

It is significant to note that this does not influence the obligations of the administrator to make payment of living annuity income to the annuitant only which is always protected in terms of section 37A of the Pension Funds Act. This case does not alter that at all. Living annuity income can still only be paid to the annuitant.

Regardless of the difficulties in valuation, this case is a step in the right direction. There is an obvious injustice that during membership of a fund, the non-member spouse has a right to share in the pension interest. Nevertheless, on retirement when a living annuity is purchased from an insurer that right ends.

Parties cannot hide their liquid sum by purchasing a living annuity and then claiming based on the law that it does not form part of the accrual anymore.

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Author – Jessica Gooding

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