Introduction
A married couple’s most valuable assets are usually their property and their retirement funds. However, very few couples seek expert advice to ensure that their interests are protected upon divorce – especially as calculating pension interest claims in a divorce is rather complex.
Let’s look at the complexity of claiming a share of your member spouse’s pension interest on divorce and what it entails.
Which retirement funds apply
The term pension is used to describe all approved retirement funds including pension, provident, preservation and retirement annuities, including those from any employment schemes.
The term pension interest also applies to provident and preservation funds as well as retirement annuity funds. Pension interest cannot be applied to life or living annuity funds.
What does pension interest mean
Pension interest falls under the ambit of the Divorce Act and the Pension Funds Act (PFA). It applies to all retirement funds governed by the PFA.
Pension interest refers to the amount that a spouse who is a member of a retirement fund has accumulated at the date of divorce.
Divorcing spouses can share in each other’s retirement benefits at the date of divorce instead of having to wait for formal retirement to receive their share of the asset.
A non-member spouse can only have a claim if the spouse is a member of a retirement fund at the date of divorce.
If a member spouse resigns from their job or retires from their pension or provident fund before the date of divorce, there is no pension interest that can be claimed. In this case, the retirement fund benefit that is received by the member spouse will form part of the joint estate, and dealt with as part of the divorce settlement.
When determining the pension interest claim, neither the duration of the member spouse’s membership nor the duration of the marriage is of consequence.
If both spouses are members of a retirement fund, each spouse can claim a share of the pension interest from the other spouse in a divorce.
Marital regimes and the right to claim
The Divorce Act makes it clear that pension interest applies to marriages:
In community of property.
Marriage out of community of property with the accrual system.
It expressly excludes couples married out of community of property after 1 November 1984 without accrual.
Calculating pension interest
Pension interest is calculated depending on the type of retirement fund:
Pension, provident and preservations funds: The benefit that the member spouse would have been entitled to if they were to resign or terminate membership from the fund on date of divorce.
Retirement annuity: The sum of the member spouse’s contributions up to the date of divorce plus simple annual interest at the prescribed rate.
When claiming a share of the member spouse’s pension interest, it is important to ensure that the wording of the divorce order meets all the legal requirements. If it does not, the fund administrator will be unable to action the claim – and this could prove expensive, time-consuming and frustrating as it will require going back to court to vary the divorce order.
Once the divorce order has been granted, a non-member spouse has the option to either:
Withdraw the funds in cash which will be subject to taxation.
Transfer the funds to another approved retirement fund. All transfers are tax-free.
Timeline for pay-out by the fund administrator
The PFA has strict timelines to adhere to when paying out or transferring the non-member spouse’s pension interest:
45 days within which to ask the non-member spouse whether they wish to withdraw the money from the fund or transfer it to another retirement fund. This is from the date that the court order has been submitted to the fund.
120 days in which the non-member has to inform the fund in writing of their selection once they have received notification. Payment details or transfer details must also be provided within this timeframe.
60 days within which the fund administrator has to pay or transfer the funds once the non-member spouse has made their selection.
30 days after the 120-day period has expired to pay the non-member spouse directly should they fail to make a selection. This will be subject to taxation.
In conclusion
Claiming a share of your spouse’s pension interest upon divorce is complex and highly regulated. It is advisable to seek advice from an independent financial advisor before proceeding with your divorce application and involve your attorney in the process so that the divorce order is accurately reflective of the parties’ intentions.
Have you navigated a divorce involving pension interest? Share your experience or ask questions in the comments below! Your insights could help others in similar situations.
To view a short-form infographic on Calculating The Pension Fund Interest Upon Divorce that acts as a quick reference guide, click on the image below.
The information provided is for information purposes and does not constitute legal advice. Contact a lawyer should you require assistance. Legal Dynamix is not a law firm and does not provide legal advice on the subject matter contained herein.
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