Many people do not realize that their retirement fund benefits form part of the estate which is subject to divorce proceedings. The ex-spouse can actually claim an enforceable divorce award directly from that fund. This aspect of the law can be quite confusing, so we are going to attempt to unbundle it and set it out in a simple format.

As a starting point you need to establish if the parties are eligible to claim against the respective funds, based on their marital regime.

Only when the parties are married in community of property or out of community of property with accrual is it possible to have a claim directly against the fund. If they are married out of community of property, excluding accrual then in terms of the divorce Act, 1979 they are not entitled to claim any benefits from the fund directly.

The next step is to establish if the divorce order is enforceable directly against the fund. In order to be enforceable it must meet all the requirements of section 7(8) of the divorce Act. Briefly, that means that:

1. The court must award to the non-member spouse a certain percentage of the member’s pension interest;
2. The retirement fund must be named or capable of being ascertained;
3. The retirement fund must be ordered to make an endorsement in its records to ensure that the awarded part of the pension interest is paid to the non-member ex-spouse.

It is important that the parties understand exactly what is meant by “Pension interest”.

Preservation funds are not included in the definition of pension interest and so divorce orders cannot be enforced against preservation funds unless they are registered in terms of the new definition of “pension interest” as per below.

With effect from 1 November 2008, certain changes were introduced to the old definitions.

1. Pension or provident funds- Pension interest is defined as basically the fund value at date of divorce (no growth after date of divorce included)
2. Retirement annuity funds- return of contributions plus annual simple interest at a rate determined by the minister from time to time, subject to the simple interest being limited to the actual fund growth (still no growth after date of divorce included)
3. Preservation funds- An attempt has been made to include preservation funds into the definition of pension interest. Section 37D(6) states that the value of the pension interest is the member’s value of the preservation fund as at the date of divorce.

Once it has been established that the divorce order is enforceable against the fund, we need to understand how and when payment is made and what the tax consequences are. This will be covered in next weeks article.

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