Issue: June/August 09
Spouses, who aren’t members of retirement funds, will receive more equitable
treatment on divorce. NALEEN JERAM sets out a guide on the overhauled
system for fund trustees, members and divorce practitioners.
Payments by retirement funds of divorce
benefits, awarded by court order, have
been subjected to several rulings by the
Pension Funds Adjudicator and the courts.
Amendments to the Pension Funds Act, and other tax-related
changes, now achieve clarity.
A divorce court is entitled to award pension interest
(deemed to form part of the assets for distribution
on divorce) to one of the parties. Without a divorce
order, parties are not entitled to share in the pension
benefit of their spouses whilst the member-spouse
remains in service and a member of the fund. Under
these circumstances, the non-member spouse simply
acquires a claim against the fund for the member
spouse’s pension interest.
Occupational pension and provident funds
Pension interest, in relation to an occupational fund, is
the notional benefit the member would have received
under the rules of the fund if his/her membership
had terminated on the date of divorce because he/she
had resigned from service. Put differently, the pension
interest in a pension or provident fund is essentially
the withdrawal benefit the member spouse would
have notionally received at date of divorce had he/she
resigned from service.
Retirement annuity funds
The pension interest of a member is the total
contribution made to the fund up until the date of
divorce, plus simple interest. Last November the
definition of pension interest was modified; in effect,
the total amount of annual simple interest payable
may not exceed the return achieved by the fund on the
Previously, the Divorce Act made no provision for the
meaning of ‘pension interest’ in a preservation fund.
Now the pension interest is the benefit to which the
member would have been entitled, in terms of fund
rules, had his/her membership been terminated on
date of divorce.
When ‘pension interest’ accrues
Any pension interest assigned to the non-member
spouse in terms of a divorce order granted prior to 13
September 2007 is specifically deemed to accrue to this
spouse on 13 September 2007. Regardless of when the
order was issued, following amendment to the Act, the
non-member spouse is now entitled to receive his/her share of the pension interest in accordance with the
Within 45 days of receiving the divorce decree, the
fund must request the non-member spouse to elect
a cash payment or transfer of the benefit to another
fund. The non-member spouse then has 120 days to
make the election and to furnish the fund with details
of how payment is to be effected.
Once the fund has received this information, it will
have a further 60 days to make payment or transfer the
divorce benefit to another fund nominated by the non-member
If the non-member spouse fails to make an election
or to identify a fund for transfer of the benefit, the
fund must pay the due amount directly to the non-member
spouse within 30 days of the 120-day period’s
If the fund cannot reasonably ascertain how to pay
the non-member spouse, then the fund must (until it
receives a proper instruction on how to effect payment
to the non-member spouse), retain the divorce benefit
amount and any return on the amount earned from
the expiry of the 120-day period until it receives proper
instruction for payment.
The Act confirms that the non-member spouse is
not a member or beneficiary of the fund. He or she will
only be entitled to the fund return (interest) on the
divorce benefit amount, calculated from expiry of the
120-days until date of payment. No other or further
rate of interest or growth will be applied.
Rank of competing claims
Where there are multiple court orders against a
member spouse, and subject to the overall maximum
of the member’s pension interest, the hierarchy of
claims against the member’s pension interest is:
- The home loan or guarantee granted prior to the
under-mentioned court orders;
- An order in terms of the Maintenance Act;
- Any decrees of divorce or for the dissolution of a
Identification and citation of fund
To have a valid divorce order claim against the fund, it
is unnecessary to join the fund as a party to the divorce proceedings. Neither is it necessary any longer to cite
the registered name of the fund, provided that the fund
is identifiable from the divorce order.
Nevertheless, for the sake of clarity, practitioners
involved in divorce proceedings are advised to obtain
the correct name of the fund from the administrator,
the participating employer or the Registrar.
Recent amendments to the Act have created a more
equitable treatment of the divorce benefit for the
non-member spouse than was previously the position.
Practitioners involved in divorce actions should
familiarise themselves with the changes and ensure that
their clients are aware of the ramifications.
• Naleen Jeram is a senior legal advisor at
Momentum. He’s also an adjunct professor at UCT and a
senior lecturer at the UWC school of business.