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PENSION INTEREST ON DIVORCE

A person’s pension interest will generally need to be taken into account at the time of divorce. The governing law in this regard is Section 7 of the Divorce Act of 1979.

DEFINITION OF A PENSION INTEREST

The Divorce Act defines a pension interest as:

  • In respect of a pension fund (including a provident fund, or a pension/provident preservation fund):the total amount to which a member of would have been entitled if his / her membership of the fund had terminated on the date of the divorce on account of his/her resignation from his office;
  • In respect of a retirement annuity: the total amount of the member’s contributions to the fund up to the date of the divorce, together with a total amount of annual simple interest on those contributions .

WHEN IS A PENSION FUND INTEREST TAKEN INTO ACCOUNT

Spouses going through a divorce will invariably want to know whether they have a claim for a portion of the pension interests of the other. The determination of this is dependent on the matrimonial property system that they entered into at the time of their marriage.

WORDING OF DIVORCE ORDER

Notwithstanding that a couple going through a Divorce may have amicably agreed on the sharing of a pension interest and recorded this in their Divorce Settlement Agreement, the Pension Fund Administrator will not be able to give effect to the provisions of the agreement, unless this is contained in the Divorce Court Order.

The further requirements that must be met, in addition to the above, is that:

  • The Fund must be clearly identifiable in the Court Order (i.e. list the full registered name of the Fund)
  • The member’s fund policy number must be inserted in the Order
  • The wording used in the Order must state “the pension interest in the …….. (Fund Name) under Policy Number …….. “
  • The amount or percentage of a member spouse’s pension interest to be shared with the non-member spouse must be clearly defined.
  • The Pension Fund Administrator must be clearly instructed to attend to the deduction in the requisite amount or percentage in favour of the non-member spouse.

To safeguard against a Pension Fund Administrator refusing to give effect to a Court Order on grounds that the wording in the Order is incomplete or does not properly identify the pension interest, it is always advisable to first send to the Administrator a draft copy of the settlement agreement in the alternative, the draft Order being sought, so that the Administrator can confirm the wording thereof. It is an extremely costly and time consuming process to amend a Court Order once it has been granted and this must be avoided at all costs.

SECTION 37(D) OF THE PENSION FUND ACT

In terms of Section 37D of the Pension Fund Act, a non-member spouse can upon divorce elect to either take the money as a lump sum cash payment or have the share of the pension interest to which they are entitled, transferred into a retirement fund of their own choosing.

TAX IMPLICATIONS

The non-member spouse will be required to pay tax on any lump sum cash amount he/she takes as part of his/her share of the pension interest, as a result of this, the money the non-member spouse receives will always be less than the total amount stipulated in the Court Order . The non-member spouse who elects to have the pension interest transferred directly into another pension fund (be it a pension fund, provident fund, provident or pension preservation fund, or a retirement annuity) will not have to pay tax at the time of the transfer but they will be liable for the tax on retirement or withdrawal of the benefit.

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