What You Need to Know About Pension Funds and Divorce

Going through a divorce can be tough, and one of the biggest financial worries for many couples is how their pension funds, provident funds, and retirement annuities will be divided. It’s important to understand how these issues are handled during a divorce so that you can protect your financial future.

What is a Pension Interest?

When we talk about a “pension interest”; in a divorce, we mean the amount a person would get from their pension fund if they resigned from their job on the date of the divorce. This is provided for in Section 7 of the Divorce Act, No. 70 of 1979 (“the Divorce Act”) and covers pension funds, provident funds, and retirement annuities.

How Pension Interests Are Treated in Divorce

The Divorce Act says that pension interests are considered part of a person’s assets, unless the couple signed an antenuptial contract after 1 November 1984 that specifically leaves out the accrual system. This detail is important because it affects whether and how pension interests can be shared between the spouses.

1. Marriages in Community of Property

In a marriage where everything is shared (community of property), all assets and debts belong to both spouses equally. This includes pension interests, which must be divided if the marriage ends. Usually, this means that a spouse who is not a fund member is entitled to a share of the other spouse’s pension or provident fund.

The Supreme Court of Appeal, in a case called Ndaba v Ndaba, confirmed that this right happens automatically. A court doesn’t have to specifically say so — it is part of the law.

2. Marriages Out of Community of Property with Accrual

In marriages where each spouse keeps their own assets but agrees to share growth (known as “accrual”), pension interests are still counted as part of each person’s estate. Here, a non-member spouse can claim a share of the other’s pension interest, but only to settle an accrual claim.

3. Marriages Out of Community of Property without Accrual

If a couple is married out of community of property without accrual, each spouse keeps their own assets and debts. While pension interests are part of a spouse’s estate, the non-member spouse doesn’t have any automatic right to a share of it.

That said, sometimes couples agree to share pension interests even when they don’t have to. These agreements must be very carefully written, because pension funds aren’t required to pay out portions of pension interests in such cases unless everything is properly arranged.

The Clean-Break Principle

South Africa’s divorce law applies the operation of the clean-break principle, which generally requires that all proprietary claims between spouses (e.g., maintenance; the division of assets; the redistribution of property) must be raised and dealt with during the divorce proceedings. Generally speaking, a spouse has no opportunity to revisit such financial claims later, except in very limited cases (e.g., varying a maintenance order).
Before 2007, a non-member spouse had to wait until the member spouse exited the fund (through retirement, resignation, or death) before receiving their portion. In 2007, the Pension Funds Amendment Act incorporated the clean-break principle into Section 37D of the Pension Funds Act. This change allows a non-member spouse to get their share of the pension interest right after the divorce, instead of having to wait for the member spouse to retire or leave their job.

Importance of a Properly Drafted Divorce Order

It is extremely important that the divorce order clearly spells out how the pension interest will be divided. The divorce decree ordinarily must:

• Name the pension fund;
• Contain the pension fund policy number and/or membership number of the spouse;
• State exactly how much or what percentage the non-member spouse will get.
• If the wording is not clear or correct, the fund might refuse to pay, causing long delays and additional legal costs.
• It is a good idea to provide the pension fund with a draft of the intended wording to be included in a divorce decree for consideration and approval before a divorce order is granted.

Tax Implications

Generally speaking, a non-member spouse can choose to transfer their portion of the pension interest to another fund or to withdraw it and receive a payout. If you receive a payout from a pension fund after divorce, you may have to pay tax on that money. The rules are set by the South African Revenue Service (SARS) and can be complicated. It’s a good idea to speak to a tax professional to consider these tax implications before choosing to make a withdrawal.

Key Takeaways

• Pension interests are usually included in the division of assets unless an antenuptial contract says otherwise.
• In community of property marriages, pension interests are automatically shared.
• In marriages with accrual, pension interests form part of the accrual calculation.
• In marriages without accrual, there is no automatic right to pension interests.
• The clean-break principle means non-member spouses can get paid out immediately after divorce.
• Properly drafting the divorce order is crucial to avoid delays.

Why Legal Advice Matters

Pension interests can have a big impact on your financial position after a divorce. Knowing your rights and responsibilities is key to getting a fair settlement. An experienced divorce lawyer can guide you through the process, make sure your divorce order is properly worded, and help protect your financial future.
If you are thinking about getting divorced and are worried about your pension or retirement savings, contact us today for expert advice.