Divorce after retirement

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BUSINESS NEWS - A vast amount of ink has been spilt in the last decade discussing the consequences of divorce upon a spouse’s Pension Interest when married in community of property, this being the natural offshoot of changes over time to both the Divorce Act (Act 70 of 1979) and the Pension Fund Act (Act 24 of 1956).

Although this article is not going to rehash what is common knowledge, it’s prudent to note for present purposes that these changes were aimed at giving effect to the “clean-break” principle when it came to parties’ Pension Interests upon divorce, a non-member spouse then entitled to 50% of a members Pension interest upon divorce when married in community of property.

These changes were welcomed given that upon the granting of a Divorce, the Court would order that the member spouse’s Pension Fund be directed to pay to the non-member spouse 50% of the member spouse’s pension interest.

The practical implication of divorce upon retirees taking cognisance of the above general position does however require attention, specifically for two reasons:

A practical one, being that there was a greater tendency for the generation in question to conclude a marriage in community property, be that by choice or design;
A legislative one, given that definition of “Pension Interest” in the Divorce Act is the following:

“the benefits to which a party as a member of a pension fund would have been entitled in terms of the rules of that fund if his membership of the fund would have terminated on the date of the divorce on account of his resignation from office”.

The practical implication for retirees is that a Pension Fund cannot be ordered by Court to pay to a non-member spouse upon divorce 50% of the members spouse’s Pension given that the benefit had already accrued to such member spouse upon retirement.

Before exasperation sets in, this does not mean that a non-member spouse is not entitled to 50% of the member’s pension benefit but simply that payment of such cannot be directed by the Court, the result being that careful consideration and planning must be undertaken by any retiree upon contemplation of divorce, options then available to ensure a just and equitable division of assets between the parties which can include Pension Interests.

It is worth noting in addition that similar principles are applicable when spouses are married out of community of property with the accrual, specifically given that a Pension Interest is part of a spouse’s assets to the extent that it forms part of the accrual calculations of the individual estates, provided that the interest was not specifically excluded in the ante-nuptial contract. In these instances, a thorough and nuanced approach is essential, not only regarding Pension Interest but also in determining the value of any additional Annuities which might be held dependent upon their classification and importantly, after consideration of whether the marriage was concluded before or after 1984.

In the context of Pension Interests which have already accrued to a spouse, it is worth noting briefly that should a spouse married out of community of property with the accrual feel that his / her interest in sharing in the accrual of the other party’s estate at dissolution of marriage is / might be seriously prejudiced, options are available in attempting to mitigate same.

As individuals are living longer and engaging in active and varied social lives after work, divorce at or after retirement age is becoming more prevalent. Given the idiosyncrasies in relation to Pension Interests and the principles governing annuities upon divorce, it is advisable to consult an attorney not only to ensure a fair and practical division of assets, but also to ensure your peace of mind after divorce and then well into old age.

Article by Gavin Jordaan, Associate (B.Comm; LLB)

For more information kindly contact Gavin via e-mail, gavin@rgprok.com or 044 601 9900. www.rgprok.co.za