By: Brett Ladouce
One of the consequences of the adoption of the Two Pot system is how the amount that the non-member spouse will be entitled to a divorce is calculated and paid. As a result, the pension benefits of a paid-up fund member who resigned from service before the date of divorce, but who did not claim his or her fund benefits before the date of divorce, will be subject to division by the court as of September 1, 2024.
Divorces before 1 September 2024:
- Section 7(7) of the Divorce Act states that, in the determination of the assets to which the parties to a divorce action may be entitled, the pension interest of a member spouse will be deemed to be part of his or her assets. The court can therefore take the pension interest value into account when deciding on how the assets must be split between the parties.
- The court granting the decree of divorce may, in terms of section 7(8) of the Divorce Act, order a fund to pay a portion of the pension interest of the member spouse to the non-member spouse.
- Section 1 of the Divorce Act defines “pension interest” as the benefits to which a member of the fund would be entitled if he or she resigned from service on the date of the divorce. It is therefore the withdrawal benefit to which the member would have been entitled in terms of the rules of the fund on the date of divorce. If the member resigns before the date of divorce, the pension interest value will be R0 on the date of divorce as the withdrawal benefit vested before the date of divorce. The non-member spouse will therefore not have a claim against the fund on the date of divorce as there would be no pension interest on that date.
- Section 37D(1)(d)(i) of the Pension Funds Act states that a registered fund may deduct from a member’s account or a minimum individual reserve any portion of the pension interest assigned to a non-member spouse in terms of a court order. The process that must be followed by the fund to make payment to the non-member spouse is set out in section 37D(4) of the Pension Funds Act.
- In summary, the court granting the divorce order can only make an order against the fund to pay a portion of the pension interest of an active member to the non-member spouse. The court cannot order a fund to pay to the non-member spouse a portion of the money that it held on behalf of a paid-up member, who resigned or retired before the date of divorce, but who did not receive his or her benefits from the fund before the date of divorce.
Divorces after September 1, 2024:
- The following definition of “pension interest” was inserted into the Pension Funds Act as of September 1, 2024:
"pension interest", in relation to a court order granted under section 7(8)(a) of the Divorce Act, or a court order granted in respect of the division of assets of a marriage according to the tenets of a religion, means, in relation to a party who is a member of a fund, that member’s individual account or minimum individual reserve, as the case may be, determined in terms of the rules of that fund, on the date of the court order;”
- The definition of pension interest now includes all benefits of a paid-up member that are still in the fund at the date of divorce, irrespective of the fact that the member became entitled to those benefits when he or she resigned or retired before the date of divorce.
- 37D(3)(aA) of the Pension Funds Act states that a fund may not, without the consent of the non-member spouse, grant a home loan or home loan guarantee or permit a savings withdrawal benefit to be taken by the member if the fund received written notification from the member or non-member spouse that a divorce has been instituted or that an application has been made for a court order in respect of the division of assets of a marriage in accordance with the tenets of any religion.
- This prohibition will stay in place until the finalisation of the divorce or until a court order is issued.
- In summary, where the fund is informed of a pending divorce, it cannot grant a home loan or home loan guarantee or savings pot withdrawal to the member without the consent of the non-member spouse. This is to protect the rights of the non-member spouse at the date of divorce. The court granting the divorce order can make an order against the fund to pay a portion of the pension interest of an active member or paid-up member (who resigned or retired before the date of divorce) to the non-member spouse due to the broader application of the new, broader definition of “pension interest” in the Pension Funds Act.
The legislative changes that were brought about by the implementation of the Two-Pot System will increase the right of non-member spouses to claim from the fund but also make future divorces a bit more complicated. The onus will be on the non-member spouse to protect his or her rights by informing the fund of a pending divorce.
This must be done to ensure that the fund does not allow the member to take out all the money in the Savings Pot before the divorce or to take out a home loan against his or her retirement savings on a property that is kept secret from the non-member spouse. The non-member spouse must also ensure that the divorce order incorporates a reference to the definition of pension interest in terms of both the Divorce Act and the Pension Funds Act to protect his or her rights should the member decide to resign before the date of divorce. In extreme cases, the non-member spouse might be forced to obtain an interdict to stop the fund from paying out the withdrawal benefit of the member before the finalisation of the divorce.
* * Ladouce is a pension funds lawyer and the author of the book, Pensions for Palookas.
PERSONAL FINANCE