“Marriage is the chief cause of divorce.” (Groucho Marx)
Retirement savings typically account for a substantial portion of a person’s wealth. When a marriage ends, these savings can become a serious bone of contention. The good news is that, starting 1 September 2024, the definition of pension interest will be standardised across all retirement funds. This makes it easier to know what a spouse may be entitled to.
Be warned, though: the wording of the divorce order is crucial. If it’s incorrect, the retirement fund may reject the claim.
How your marital regime affects pension claims
Your marital regime determines whether pension interest can be claimed:
- In community of property: All assets, including retirement savings, are shared equally. Pension interest is included.
- Out of community of property with accrual: Spouses keep separate estates but share any growth during the marriage, including pension interest.
- Out of community of property without accrual: Each spouse keeps their assets, meaning no pension interest can be claimed.
If no ante-nuptial or post-nuptial agreement is executed, the marriage is by default in community of property. If you prefer to be married out of community of property, an ante-nuptial contract (ANC) is much preferable, because a post-nuptial contract (PNC) requires a High Court order. This means it’s expensive and time-consuming, plus the outcome isn’t guaranteed.
What exactly is ‘pension interest’ now?
Previously, the definition of pension interest varied by fund type. Starting on 1 September 2024, the Pension Funds Act has provided a unified definition: pension interest is now simply the member’s fund value, as determined by the fund’s rules, on the date of divorce.
This applies to all fund types, including retirement annuities. Although the old definition remains in the Divorce Act, the new rule under the PFA will take precedence for all divorce orders issued on or after 1 September 2024.
Three must-haves in a valid divorce order
To ensure a divorce order is enforceable against a retirement fund, it must:
- Identify the fund clearly: The order must specify the fund and include the policy number if possible. If the member has multiple policies, the pension interest may be split among all policies in that fund.
- Use the words ‘pension interest’: Vague terms like “fund value” or “benefit” won’t work. The order must state the percentage or rand amount of pension interest given to the non-member spouse.
- Instruct the fund to pay: The divorce order must direct the fund (not the member spouse) to make the payment.
Pro tip: Check before you sign
Before finalising your divorce order, send a draft to the retirement fund for review. If the order isn’t enforceable, it will need changes, which can cause delays. The original divorce date will still apply when calculating pension interest.
What are the payment options for the non-member spouse?
Once a valid order is in place, the non-member spouse has two options:
- Take a lump sum, which is taxed in their name using SARS’ withdrawal tax tables. If you choose this option, you will receive a lower amount than specified in the order.
- Transfer the benefit tax-free to their retirement fund.
You cannot choose both options.
What if the member tries to withdraw funds mid-divorce?
If the fund receives proof that divorce proceedings have commenced, the member spouse cannot withdraw from their savings without the written consent of the non-member spouse. This rule remains in effect until the divorce is finalised and applies to both secular and religious marriages. If you’re in the process of getting divorced, it might be a good idea to inform your spouse’s pension funds.
Key takeaways
- The definition of pension interest is now the same across all retirement funds.
- Your marital property regime determines if you can claim pension interest.
- The wording of the divorce order is crucial; incorrect wording can lead to rejection.
- Consider submitting draft orders to the fund before going to court.
- Withdrawals during divorce are now limited to protect both parties.
These changes may seem technical, but they bring more consistency and clarity to the system. Understanding the updated rules could be the difference between retiring comfortably and not.
How your financial planner can help
No one plans for divorce. But financial planning is about preparing for life’s uncertainties. Staying informed about changes in the law, especially those that impact pension splits, can help you avoid lengthy court cases, unexpected taxes, or missed entitlements.
It may be an uncomfortable topic but discussing divorce scenarios as part of your broader financial plan can be one of the most valuable services you ever receive. Even if lawyers are involved, your financial planner’s insights and advice could be essential for protecting your long-term financial health.
Our door is always open.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.
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