Family LawPension and Provident Funds

Divorce Orders and Pension Funds

By 29/08/2009 July 21st, 2013 No Comments

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 If a member has left the fund, and the divorce is made final after he or she has withdrawn from the fund, there is no pension interest.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{bb7c59228909ee3c635bb54164678f79c6c2320af74994b444cd69be7e87e9c7} 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.

Ian Mc Laren

Ian Mc Laren

Ian McLaren BA LLB (WITS) General Educated St Johns College, Houghton. BA LLB University of the Witwatersrand 1984 Founded McLarens Attorneys September 1986. Right of Appearance High Court, October 1996.ExpertiseLitigation, Labour Law, Commercial Law, Family Law, Pension and Provident Funds, Customs and Excise, Wills, Deceased Estates, Trusts, Commercial Agreements, Reviewing and Drafting Government Legislation, Information Technology.Committees/ TrustsLaw Society of South Africa Information Technology Committee. Trustee Verney College Educational TrustOtherTransvaal Provincial colours for Practical Shooting. Third degree Black Belt JKS Karate. Photographer and motor cyclist Lectured for Continuing Legal Education on Information Technology issues.