Divorce Pension Claim - Understand this!
When doing your accrual calculation, spouses married ANC with accrual or married in community of property will have to divide their estate in equal shares.
However the divorce act does not stipulate is which assets have to be divided as long as each spouse gets their 50% share. You can therefore try to preserve as much wealth as possible.
If there is a house and a pension fund in the estate and the house has a value of R1 000 000 and the pension fund a value of R2 000 000, both assets need not be liquidated. The parties may agree that one keeps the house and the other claims 25% (R500 000) from the pension fund to make up the 50% claim.
“Pension Interest” is the word that causes the most confusion when drafting your divorce settlement.
“Pension Interest” can be defined based on the Divorce Act Part 70 of1997 as the combined contributions from the employer as well as the employee, PLUS the growth. You can claim from:
· Pension Funds
· Provident Fund
· Preservation Funds
· Retirement Annuities (NB. The wording is however different)
It is ordered that the Defendant’s Members Pension Interest held at the ABC Pension Fund be endorsed by the administrators of such Pension Fund or its successor in title to the effect that the court has ordered a division of the joint estate subsisting between the parties and that the Plaintiff (non-member) of such fund be entitled to 50% after taxation in such funds, calculated as at the date of divorce, payable to the plaintiff/non-member within 60 days after receiving written notification from plaintiff in which such plaintiff specifies whether he /she elects to receive a cash benefit or to have the benefit transferred to another approved Pension Fund. This order is issued pursuant to the provisions of sect 7(8)(a)(i)(ii) and 7(8)(b) of the Divorce Act 1979, No 70 of 1979 as amended as well as section 37D(4) of the pension Funds Act no 24 of 1956 as amended, directing the said pension fund to make to the non-member (plaintiff). (a)
The following words will not be allowed and the claim will be rejected:
- Pension value
- Combined Estate
- Member’s interest
- Proceeds of the policy
You will be entitled to 50% of contributions plus SIMPLE interest as per the Prescribed Rate of the Interest Act Part 55 of 1975. This will therefore exclude all growth of the investment term. Rather claim a bigger portion from another fund and then leave the RA in your spouse’s name. When doing the accrual calculation this might then look as if you are getting your 50%, but when it comes to claiming your portion the insurer will only pay 50% of the contributions plus simple interest. This will work out to approximately 25%. The wording should also be correct, you can ask your lawyer of financial advisor for the correct wording.
If your spouse contributed R400 per month towards a RETIREMENT ANNUITY for a period of 15 years then the payment calculation will be done as follows:
R400 x 12 = R72 000 X 6% = R172 552 / 2 = R86 276.09 before tax.
The actual value in the policy is approximately R247 63.62
Living Annuities and Life Annuities:
If a member has already retired the law does not allow the transfer of a living annuity or life annuities if the member has started receiving retirement income. These benefits are only transferrable on death. So if you are contemplating divorce after retirement you will not have a claim on any living annuities or life annuities even if it is written in your court order.
The first concern is the beneficiary nomination, don’t fall for the promise that you are the beneficiary and on your ex-spouses death you will get the full amount. Beneficiaries can be amended at any point after the divorce unless it is a “Joint Life Annuity Policy”, secondly with a Living Annuity your capital is invested in the equity market that comes with volatility and your ex-spouse can draw the maximum income draw of 17.5%, this will deplete the capital very quickly. You are taking a huge risk if this type of product is part of your assets that you claim!
You will be able to claim 50% of the monthly income that is paid to your spouse BUT no 3rd party payments are allowed by any insurer, hence your ex-spouse will have to make the payment every month to you. If he stops the monthly payments you will be in financial trouble and might have another court battle ahead. Rather claim other assets.
Note to self:
You are entitled to your share of the value of your spouse's Pension / Provident Funds, Retirement Annuity and or Preservation Funds if you are married Ante Nuptial Contract (ANC) with accrual or in community of property. Once you have done your accrual calculation and have agreed to a percentage you will be able to claim your share. You will have to submit your court order with the settlement agreement to the administrators of the above funds. They will then have 60 days to either pay you your share in cash or transfer to your own fund.
Ensure that your settlement agreement states that you receive the percentage that you have settle on for example 50% or 60% of the pension interest. Be aware that you are liable to pay the tax, should you take the benefit in cash when you divorce is dated after October 2007.
The name of the fund and the policy number or member number must be stipulated in your settlement agreement.
Make sure that your calculation of your share is based on the full value of your spouse's contribution, as well as the employer’s contribution. It is transferable/accessible on the date of the divorce order.
Your spouse’s employer may have a Provident Fund AND a Pension Fund or both. If so, claim your share from both funds.