Insights categories - Retirement

How divorce may impact occupational retirement fund savings

Felicia Hlophe, legal adviser at Allan Gray, explains the possible consequences of a divorce for members of occupational retirement funds, such as the Allan Gray Umbrella Fund, and their non-member spouses, and sets out the applicable legislation and case law that govern divorce claims.

The Pension Funds Act, read together with the Divorce Act, and Islamic law (where applicable), provides that the court granting a decree of divorce may make an order that all or part of the pension interest of the spouse who is a member of a retirement fund must be paid by the fund to the non-member spouse. When it comes to occupational funds, the Divorce Act defines “pension interest” as “the benefits to which the member would have been entitled in terms of the rules of the fund if their membership of the fund would have been terminated on the date of the divorce on account of their resignation from their office.

Where the member has already resigned or terminated their employment prior to the date of divorce, there is no longer any "pension interest”, even if the member has not accessed their benefit from the fund or terminated their membership of the fund.

In simple terms, this means that only active members of an occupational fund have a pension interest in that fund and non-member spouses of paid-up members cannot access any portion of the member’s benefit in the fund.

Case study

The above was confirmed in a recent High Court case. The judgement stated that the respondent was a member of an occupational fund and “resigned from his employment and exited his retirement fund on 7 May 2021.” However, his “pension benefits were still held by the fund” on the date of his divorce from the non-member spouse, which was made an order of court on 14 October 2021. The divorce order awarded 50% of the member’s pension interest to the non-member spouse. However, when the non-member spouse approached the fund with the claim, the fund informed her that a pension interest no longer existed in the fund.

The challenge that confronted the non-member spouse was that she was claiming a portion of the benefit that had accrued to the member before their divorce was granted. The court held that “This means that non-member spouses’ access to their member spouse's benefits is dependent, first on divorce, and secondly, on whether member spouses are active in their funds, even though these benefits are still held by these funds…”.

Pension interest and matrimonial property regimes

A member’s matrimonial property regime determines whether the non-member spouse can claim pension interest from their fund. It is important for intended spouses to consult with a lawyer and financial adviser to determine which matrimonial property regime is best suited for their needs. In South Africa there are three different regimes:

  1. Marriage in community of property

If a member marries without concluding an antenuptial contract, the default is that their marriage will be one of in community of property. In this regime, the member and the non-member spouse each own 50% of the assets and liabilities in the estate (joint estate) and, upon divorce, each spouse has a 50% claim against the other. 

  1. Marriage out of community of property without accrual

If the spouses do not want to have a joint estate it is imperative that they conclude an antenuptial contract, either with or without accrual. If without accrual, each spouse keeps their respective assets and there is no claim against the other’s assets.

  1. Marriage out of community of property with accrual.

If accrual is included, at divorce, the spouse with the larger estate (assets less liabilities, subject to exclusions) must pay the difference between the value of her/his estate and the estate of their spouse to the spouse with the smaller estate. 

The Divorce Act further makes it clear that where the spouses are married out of community of property without accrual and entered into that marriage on or after 1 November 1984, the non-member spouse has no claim for pension interest from the member’s retirement savings.

The divorce order process

Before going to court the member may approach their occupational fund with a request for information, which can be both, or either, of the following:

  1. Checking the wording used in the drafted order or settlement agreement to determine whether it is appropriate, and that the occupational fund would be permitted to give effect to an order in those terms. It should be noted that a divorce order must: 
  1. Calculation of the possible pension interest value (for information purposes only).

Once the member and the non-member spouse have agreed on the content of the drafted order or settlement agreement, the court will hand down a divorce order which includes the allocation of pension interest to the non-member spouse. For the occupational fund to process the deduction and payment of pension interest, a copy of the final divorce order (and settlement agreement, if applicable) must be forwarded to the fund as soon as possible. 

When would a fund be unable to give effect to a divorce order?

  1. If the member has terminated employment but has elected to become a paid-up member in the fund; or
  2. If the divorce order/settlement agreement does not contain the appropriate wording to enable the fund to make a pension interest deduction; or
  3. If the spouses are married out of community of property without accrual and entered into the marriage on or after 1 November 1984.

When would a fund be able to give effect to a divorce order?

  1. The member spouse must be an active member of the fund as of the date of divorce; and
  2. The wording of the divorce order/settlement agreement is competent; and
  3. The parties are married:
    • In community of property; or
    • Out of community of property with accrual; or
    • Out of community of property without accrual and entered into the marriage before 1 November 1984.

Payment options and tax consequences available to the non-member spouse once the divorce order has been approved

Once the fund has reviewed the court order and determined that it is appropriate, the non-member spouse must decide how they wish to receive their allocation of the pension interest. The Pension Funds Act offers the non-member spouse two options:

Option 1: Receive the amount as a cash lump sum

If the non-member spouse chooses to receive a cash lump sum payment, a tax directive is requested from SARS in the non-member spouse’s name. The fund will deduct any tax due from the amount awarded to the non-member spouse and pay it to SARS before it makes payment to the non-member spouse (this applies to divorce orders issued on or after 13 September 2007 and payable on or after 1 March 2009).

Option 2: Transfer the available amount to another approved retirement fund

If the non-member spouse elects to transfer their benefit to an approved retirement fund, the transfer will be tax-free in both the hands of the member and non-member spouse (this applies to divorce orders issued before or after 13 September 2007, where the election was made after 1 March 2009).

Service for members of the Allan Gray Umbrella Fund

Before a court order is granted and finalised, members (and their advisers) are encouraged to send the draft order or settlement agreement along with the applicable marital regime information to We will confirm whether the wording is acceptable in order for the Allan Gray Umbrella Pension or Provident Fund to give effect to the intention of the parties.

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