DIVORCE: WHAT IT MEANS FOR YOUR RETIREMENT
South Africa’s divorce rate is escalating at a rapid pace, spiking from 39 573 to 50 517, up 28%, according to stats from the department of justice’s 2012/13 annual report.
While dividing up property and assets during a divorce may be a tedious and often stressful task, we have to ask what impact divorce has on your retirement fund? Does it remain intact? Or is that, too, meant to be divvied up with your former spouse?
Says Anele Mbuya, Investment Actuary at Old Mutual: “This depends on how you are married, that is in terms of a civil marriage, civil union or customary marriage, and whether you are married in community of property, out of community of property with accrual or without accrual. How you are married determines whether or not your pension forms part of the joint estate.”
In case of community of property, the pension or retirement fund forms part of the joint estate between you and your spouse, he explains. “If the pension has not accrued, the non-member spouse would be entitled to claim up to 50% of the ‘pension interest’ of the pension. If the pension has accrued, the nonmember spouse would be entitled to claim up to 50% of the actual fund value due to the member spouse,” says Mbuya.
In the case of out of community of property with accrual, he advises: “The difference in growth of the two estates is shared at divorce, and a percentage or portion of the pension interest could form part of the joint portion of the estate for purposes of calculating accrual. Under such circumstances, the non-member
could be entitled to claim a portion of the ‘pension interest’ for purposes of the accrual.
“In the case of out of community of property without accrual, the easiest of the parties are separated – the nonmember spouse would not be entitled to the portion of the pension interest nor any value of the pension, unless the parties consent among themselves to assigning a portion, or if the court exercises its own discretion and orders a redistribution agreement.”
However, Clive Hill, legal adviser at Sanlam Trust, advises that you have a strategy with regard to your retirement savings during your marriage. “But if you are married 1) in community or property, or 2) out of community but with the accrual system, there is not much you can do to protect your pension interest. You could, however, try to negotiate to transfer other assets, or pay a higher monthly maintenance, leaving your pension interest intact.”
However, sometimes divorce orders are defective as far as they relate to the division of the member’s pension interest. If the original divorce order did not allow for a sharing of the pension interests, then it will not automatically be shared between the parties as at the date of the divorce, says Nyapotse Inc attorneys. “If the parties intended that the pension interests must be shared at divorce and the court order is silent on the matter, the parties will have to go back to the High Court and have the divorce order amended. This will mean that further costs are incurred. It is therefore important that the sharing of the pension interests is included in the divorce settlement negotiations from the start.”
It is a necessity to therefore hire a lawyer if you are in the process of getting divorced to ensure that your settlement does not exclude anything that might be owed to you by your spouse, aside from the experience and knowledge that they will bring concerning the laws governing retirement benefits. Don’t forget that the spouse who is receiving the pension interest has to pay tax on the amount.
According to Russell Anderson, consulting senior policy adviser at the Association for Savings and I nvestment South Africa (ASISA), the following elements are essential:
The divorce order must be issued by a High Court, Regional Court or Divorce Court.
The retirement fund member must still be a member of the fund at the date on which the divorce order is granted.
The marriage or relationship that ended must be one that can be dissolved in terms of the Divorce Act.
The fund or funds against which the claim is made must be correctly named in the final divorce order.
The order must properly assign a rand value or percentage of the pension interest, as at date of divorce, to the nonmember spouse (the party who is not a member of the fund). Reference must be made to ‘pension interest’. Phrases such as ‘pension benefit’, ‘pension fund’, ‘value’, ‘ benefits’, ‘fund interest’ or ‘interest in the fund’ must be avoided at all costs because ‘pension interest’ has a specific meaning in law and is the correct term.
The fund, and not the member spouse, must be ordered to make payment to the non-member spouse (it is not sufficient for an order only to state t hat an endorsement must be made in the records of the fund).
When asked if there were any tips for someone to safeguard their retirement savings during a divorce procedure, Hill says: “If you are already married, save as much as you can in a pension or RA to protect your savings against claims from creditors and from insolvency. If divorce is inevitable, redouble your savings efforts.
“Remember that while you are young you can take on more work in order to save more and make up lost savings. It might sound trite, but too many South Africans come to retirement only to find that their income levels plummet.”
IF YOU ARE ALREADY MARRIED,
SAVE AS MUCH AS YOU CAN IN A PENSION OR RA TO PROTECT YOUR SAVINGS AGAINST CLAIMS FROM CREDITORS AND FROM INSOLVENCY.
SOUTH AFRICA’S DIVORCE RATE IS ESCALATING AT A RAPID PACE, SPIKING FROM 39 573 TO 50 517, UP
28%, ACCORDING TO STATS FROM THE DEPARTMENT OF JUSTICE’S 2012/13 ANNUAL REPORT.