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If married in COP, is my partner’s pension at risk due to my business debt?

How can I avoid such danger before they resign?

If married within community of property, is my partner’s pension in danger because of my business debt? How can I legally avoid such danger before they resign?

If it is your partner’s intention to resign we would advise that they not draw the benefits in cash but rather preserve their pension benefit into a preservation fund. This way the pension benefit retains the benefit of protection against creditors offered under the Pension Funds Act.

This is governed by Section 37 of the Pension Funds Act.

In principle, the rule around protection from creditors is as follows:

Section 37a of the Act stipulates that a member’s benefits payable in terms of the rules of a fund cannot be reduced, transferred, ceded, pledged or hypothecated, subjected to any form of execution under a judgment or order of a court of law, or taken into account in the determination of a judgment debtor’s financial position in terms of Section 65 of the Magistrates’ Court Act, for an amount exceeding R3 000.

This means R3 000 is the maximum the Act allows to be deducted from a retirement fund in order to pay creditors. That is the rule regarding a debt judgment against your partner.

In the case of a debt judgment against you, because you are married in community of property, your creditors could try and get the judgment attached to your partner’s retirement fund. Given the maximum of R3 000, it is highly unlikely they would go through the fairly laborious process of claiming against a retirement fund.

In terms of Section 37b, pension assets do not form part of an insolvent estate. In other words, the full amount of your partner’s retirement fund is protected from creditors in the event that you go insolvent.

The provisions of the Act do, however, allow for certain other quite specific deductions which relate to amounts due per the Income Tax Act, amounts due and payable under the Divorce Act and the Maintenance Act, and damage claims by employers. All of these are not relevant to your question but worth mentioning.

In summary, your partner’s pension will remain protected from your creditors (as well as their own creditors) as long as it remains within a retirement structure governed by the Pensions Funds Act.

It is also worth mentioning that you consider housing your business in a separate legal entity to protect yourself from creditor claims. With most business ventures you are often required to sign personal surety, which you should try and avoid as far as possible.

Do you have any questions you would like answered by registered financial planners?

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Here some recent case law to consider that pertains to pension and debt.

ℹ️Pension and debt under Insolvency
Court rules pension paid out before sequestration may be claimed.

The permissibility of attachment by trustees of insolvent estate of insolvent’s pre-sequestration pension fund pay-out:
The facts in M and Another v Murray NO and Others 2020 (6) SA 55 (SCA) were that the first appellant had received a pension pay out some two years before his sequestration, which he then gave to the appellants. This disposition was set aside by the GP on application by the trustees of his insolvent estate, on the basis that these were ‘collusive dealings before sequestration’ as contemplated in s 31 of the Insolvency Act 26 of 1934.

On appeal to the SCA, the principal issue whether a pension pay-out made before sequestration fell within the ambit of s 37B of the Pensions Fund Act 24 of 1956, which protects ‘the estate of anyone entitled to a pension benefit payable’ against attachment by a trustee of an insolvent estate (by deeming such benefit not to be part of the insolvent’s estate, subject to certain exceptions).

The SCA, per Mokgoka JA (Ponnan JA, Dambuza JA, Van der Merwe JA and Mbatha JA concurring), held that s 37B established an exception to the provisions of s 20(1)(a) of the Insolvency Act – one which only entailed that, while in the hands of a pension fund, the insolvent’s pension interest could not be attached by their trustee on the basis that it formed part of the insolvent’s assets. It protected only the pension benefit of a person whose estate was already sequestrated when they received a pension pay-out. Once the benefit was paid, the beneficiary ceased to be a ‘member’ of the pension fund, and the money ceased to be a ‘benefit’ as defined. And when payment of a benefit was made before sequestration, there was no insolvent estate or trustees to speak of. The SCA, therefore, concluded that s 37B did not extend protection beyond payment of the pension benefit. A benefit paid out to an insolvent before their estate was sequestrated, therefore, did not enjoy the protection provided in s 37B.

Or, you could do the right thing and settle your debts. Stop trying to run away from your responsibilities. Unless you want to be a politician, in which case this is an important training exercise.

End of comments.





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