Cohabitation

Three elements seem to be essential for a cohabitative relationship. ie

  • A Sexual relationship
  • A factual cohabitation
  • A measure of stability to the relationship

The  courts have however recognised the concept of a universal partnership which may  be of application to some or all of the parties assets.

Where two people live together as spouse in a monogamous relationship especially if the relationship is sustained for a number of years , they often assume that this entitles them to certain rights that they can claim against their partner.

The relationship of cohabitation does not afford either partner any special rights in terms of their relationship with the other partner. It is advisable where a relationship of cohabitation exists to enter into a contract with your partner which will then create rights and obligations in terms of such contract and which is then enforceable by law .

In the past the courts have come to the assistance of parties in a cohabitation relationship , by deciding that there exists an expressed or implied universal prtnership between the parties. Unfortunately their is no law in South Africa guiding the relationship of cohabitation and therefore it is safer to enter into a properly drawn contract with the other partner , defining the rights and obligations of the relationship.

If you elect to share bed and board perhaps a Cohabitation Agreement should be considered.

ADOPTION

When a child is adopted , he/she becomes the legitimate child of the personss who have adopted him/her , as though he/she had been born of them during the existence of a lawful marriage . The child takes their surname or retains his/her previous surname and the adoptive parents become the child’s legal guardians.

The adoptive parent have the same rights and obligations as normal biological parents. The adoption also terminates the rights and obligations , existing between the child that is being adopted , and his/her natural parents and their relatives .

An adopted child is able to inherit in terms of the adoptive parents will and should the adopted parents get divorced the same rules will apply regarding custody of the adopted child, as it would with a biological child.

Children may be adopted at any age and the child does not necessarily have to be orphaned. The adoption of children is done through the Department of Child Welfare and there are certain legal requirements that have to be met. The Commissioner of the children’s court will then finalise the adoption once all the requirements have been met to the satisfaction of the Court.

Divorce Orders and Pension Funds

The Divorce Amendment Act No. 70 of 1979, provides that a court may award a portion of a member spouse’s pension interest to the non-member spouse when dividing the joint estate of the parties.

A member’s pension interest is deemed to be an asset in his/her estate when determining these benefits and this “pension interest” equates to:

the benefits to which that party would have been entitled to
in terms of the rules of that fund
if his/her membership of the fund would have been terminated
on the date of the divorce
on account of his/her resignation from his/her office.

The provisions of the Act shall not apply to a divorce action in respect of a marriage out of community of property entered into on or after 1 November 1984 in terms of an antenuptial contract by which community of property, community of profit and loss and the accrual system are excluded.

The definition of “pension interest” only includes a benefit or value in a pension fund that the member’s spouse would have been entitled to if his membership of the fund would have been terminated on the date of divorce on account of resignation. If a member has left the fund, and the divorce is made final after he or she has withdrawn from the fund, there is no pension interest.

Although the award is made at the time of the divorce, the non-member spouse may only receive the award when the amount accrues to the member – the date upon which the pension interest, becomes due and payable to the member spouse, his/her dependants or nominees in terms of the rules of the fund, i.e. – on retirement, on death prior to retirement, on termination of service or membership of the fund, or on dissolution of the fund.

The Act provides for the valuation of the pension interest.

Pension and Provident Funds

The Pension interest is an amount equal to the member’s benefit which would have become payable in terms of the rules of the fund had the member resigned on the date of divorce.

In Ex parte Randles: re King v King, the question that arose was where the member spouse had the option of either a cash withdrawal benefit or a greater preservation benefit on withdrawal – which one could the non-member souse have? The Court decided that the value of pension interest is determined by the rules of the fund in question and, in particular, refers to the amount that actually accrues to the member on his resignation from service, not the amount that the member might have become entitled to, had he elected to preserve his benefit.

Retirement Annuity Fund

Pension Interest is equal to the sum of all contributions in respect of the member to the fund up to the date of the divorce plus simple interest thereon calculated up to that date at the prescribed rate of interest applicable on the date of the divorce.

Section 7(7)(b) of the Divorce Act reduces the amount deemed to be part of the member’s assets by the amounts of the pension interest, which, have been paid over or have been awarded to former spouses.

No settlement agreement entered into between the parties is enforceable unless it had been made an order of the Court.

The Court must order that a percentage of pension interest must be paid by the fund to the non-member spouse; the order must express a percentage of the pension interest.

In Maharaj v Maharaj, the parties divorced and no mention was made in regard to the division of the joint estate. A claim was made for 50% of the proceeds of the pension benefit, but the court held that a simple division of the joint estate was not sufficient to award a former spouse a portion of the member’s pension interest. The court must make a specific award.

The Fund must be specifically named in the court order, preferably with its registration number and the court order must order the fund to endorse its records with the provisions with the order. Once the order has been received by the fund administrator, then, the records can be flagged.

The fund will not be liable to pay interest to the non-member spouse as the Divorce Act does not allow payment of interest. The member will in his/her personal capacity be liable for payment of such interest.

In terms of current income tax practice, when the member spouse withdraws he or she is liable to pay tax on that withdrawal benefit. Paragraph 2B of the Second Schedule to the Income Tax Act stipulates that while the member is liable for tax on the full amount of the benefit the member spouse may recover the amount of tax paid from the non-member spouse.

The first debit from a member’s pension benefit when it accrues will be the tax payable on that benefit. Thereafter divorce orders and/or other deductions in terms of Section 37D are payable in chronological order.

The Divorce Amendment Act of 1989

The Divorce Amendment Act allows some relief to spouses who might otherwise receive nothing from a marriage. Prior to August 1989, parties to a divorce could not take pension benefits into account when dividing the joint estate. And, in many matters, the only, or major benefit in a joint estate was the pension.

What often happened, was that husbands, (and normally it was the husband who was the breadwinner, and sole provider) would convert assets into cash, and put them into retirement annuity funds, and pension funds. This would effectively frustrate the claims of spouses to any portion of the joint estate because these pension benefits are generally unimpeachable. As a result of abuses like this, and also because it was quite clearly prejudicial to these non-member spouses, some measure of relief was due to them and the Divorce Amendment Act was introduced.

This article will deal with some of the aspects of the Divorce Amendment Act and will touch on a few of the anomalies in the law. For further information on some of the income tax aspects, see the earlier article published on Billboard.

Section 37 of the Pension Funds Act

Section 37 A of the Pension Funds Act, deals with the alienation of pension benefits by a pension member. It provides that pension benefits are not reducible, transferable or executable. The section provides that pension benefits may not be alienated, or pledged, or ceded. There are, of course exceptions and the Maintenance Act, for example, allows for the attachment of pension benefits in respect of maintenance. Sections 37B and C provide for what happens to pension benefits in the event of insolvency and on death. Section 37 D provides that a fund may make deductions from benefits where the member has a housing loan, or where the member has been dishonest, or where the fund pays a member’s medical aid subscription, insurance premium or for any other purpose deemed by the Registrar to be valid.

Division of Pension Benefits on Divorce

Apart from the exceptions specifically dealt with in the Pension Funds Act, the Divorce Amendment Act provides that a court making an order of divorce, may order the fund to make payment of benefits to the non-member spouse when those benefits become payable. The benefit, which is payable is that benefit the member spouse would be entitled to if that member spouse were to withdraw from the fund at the date of the divorce. One of the difficulties with this is that the benefit due may only be paid when the member spouse (or estate) becomes entitled to the benefit. If the member spouse withdraws or retires, the non-member spouse would become entitled to the benefit at that time.
If the member spouse died, the death would trigger the payment of the benefit and the non-member spouse would be entitled to receive his or her benefit then.

If the non-member spouse predeceased the member spouse the claim to the pension benefit would become a claim in favour of the estate. It would have to be held over until the benefit in terms of the divorce became accessible. This could mean that the estate of the non-member spouse could remain open for some time pending the receipt of the benefit.

Note, too, that the court does not have the authority to order the fund to make payment of any interest but the parties could deal with this outside of the divorce agreement.

This problem, i.e. that the non-member spouse can only have the benefit at some indeterminate future date is in fact where the law is lacking. At the time of the divorce, there is generally a need for finances for extraordinary expenses. The spouses often require money to establish a new home, meet new expenses and so on. These and other aspects of the Act are still under consideration.

Note, too, that this attachment of pension benefits under the Divorce Amendment Act, applies to pension funds that are not necessarily registered with the Registrar of Pension Funds. These other funds, for example are those established by collective agreements in terms of the Labour Relations Act.

It is also important to note that the benefit must be “flagged” in the records of the fund as quickly as possible after the order is received. There could be problems where the order is not registered, and is not capable of being carried out such as for example where the share of the non-member spouse was greater than the actual value as a result of a drop in the share price.

Greater Benefits

If the benefit were greater than the one-third allowance to be commuted on the member’s retirement, what would happen then?

Example:

i) At the time of a divorce, the court makes an order for the spouse to get 50% of the Pension benefit.

ii) The 50% equates to R160 000 (at the time of the divorce).

iii) The member retires two months later, and his total pension amount is R 325 000; the one-third allowable commutation, in terms of the second schedule to the Income Tax Act, is R 108 000.

Basically, there are a few possible courses of action:

1 The member spouse cannot give more than he or she is able to give. Thus, if the Income Tax Act provides a maximum retirement amount of one third, the other spouse would be entitled to take a third only, and then, so much of the balance due as equates to her share would have to be paid by the member spouse on the terms agreed upon by the parties. An unsatisfactory arrangement.

2Alternatively, it could be argued that the Divorce Amendment Act is a later one than the Income Tax Act, therefore in terms of the Laws of Interpretation of Statutes, the later act, giving the other spouse rights to an amount greater than one third would prevail and the amount could be taken by the non-member spouse. This unfortunately is not a course that would be favoured. It would have the effect of turning pension funds into provident funds. There could be a manipulation of the law whereby spouses would get divorced, under a collusive divorce action, solely with the intention of getting the full pension in a cash commutation.

If regard is had to the Pension Funds Act, section 37 D, the Act refers to the settlement of a fund member’s housing loan liability. It states that any loan by a fund to a member in terms of section 19(5) can be deducted from the benefit payable to a member “…to an amount not exceeding the amount which in terms of the Income Tax Act, 1962, may be taken by a member or beneficiary as a lump sum benefit as defined in the Second Schedule to that Act; or…”

Although the section quoted refers to a loan in terms of section 19(5) it could be argued that the plain rules of interpretation must apply to those amounts due and payable to a divorced spouse. If the amount of the order exceeds the one-third-commutation amount, then, the divorced spouse may take only the amount up to that one third (less the tax) and the balance must be paid by the member spouse, as he is able to.

If this were not so, parties could conceivably enter into collusive divorce actions, and thus free up greater amounts than they would otherwise be entitled to. Surely a situation not envisaged by the drafters of the legislation.

The matter is not yet settled.

The Divorce Amendment Act, while noble in its intentions, falls a bit short of perfection with a number of anomalies. The Act has in fact been referred to the Law Commission and will be dealt with in due course.