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Will retirement fund pay a lump sum of husband’s annuity if we agree to it in our divorce?

It is paramount that you understand your rights at divorce and be aware of certain legislation that is applicable to your particular situation.

We are married out of community of property and are in the process of divorcing. We both have retirement annuities, but both were made paid up about two years ago when my husband was retrenched. My question is: as part of our divorce agreement, my husband is suggesting that a lump sum of his annuity be paid to me because he is working on a commission-only basis and then the kids’ monthly expenses will be for my account and no maintenance will be paid. Is this allowed and will the annuity pay the amount over if we agree to these terms?

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To answer your question, it is paramount that you understand your rights at divorce and be aware of certain legislation that is applicable to your particular situation.

When it comes to your divorce order, it’s prudent to understand Section 7(7) & (8) of the Divorce Act, 1979 (Act no. 70 of 1979) read together with section 37D(4)(a) of the Pension Funds Act, which provides that a divorce order may grant part of a member’s pension interest in a retirement fund to a non-member spouse.

To start, it is important to look at what “pension interest” means in relation to a retirement annuity fund.

The Divorce Act defines “pension interest” in relation to a party to a divorce action who:

(a) is a member of a pension fund (excluding a retirement annuity fund), means the benefits to which that party as such a member would have been entitled in terms of the rules of that fund if [their] membership of the fund would have been terminated on the date of the divorce on account of his resignation from his office;

(b) is a member of a retirement annuity fund which was bona fide established for the purpose of providing life annuities for the members of the fund, and which is a pension fund, means the total amount of that party’s contributions to the fund up to the date of the divorce, together with a total amount of annual simple interest on those contributions up to that date, calculated at the same rate as the rate prescribed as at that date by the Minister of Justice in terms of section 1 (2) of the Prescribed Rate of Interest Act, 1975 (Act No. 55 of 1975), for the purposes of that Act.

In your case, part (b) of the definition is applicable, meaning the total of the contributions to the fund by a member of a retirement annuity fund up to the date of the divorce, together with the total amount of annual simple interest on those contributions up to that date, calculated at the same rate as the rate prescribed as at the date by the Minister of Justice in terms of Section 1(2) of the Prescribed Rate of Interest Act of 55 of 1975.

Once is it clear what is meant by “pensionable interest”, it is important to look at Section 7(7) of the Divorce Act which provides for the deemed inclusion of a member’s pensionable interest in the assets when determining the patrimonial benefits to which the parties to a divorce action may be entitled.

It is important to note that this section does not apply to a divorce action in respect of a marriage out of community of property entered into on or after 1 November 1984. The effect of this exclusion is that a claim cannot be made against the “pension interest” of a member if the parties were married out of community of property without the accrual system on or after 1 November 1984. Parties married out of community of property without the accrual system before this date can still lay a claim to the “pension interest”.

Lastly, Section 7(8) of the Divorce Act, read together with section 37D(4)(a) of the Pension Funds Act, sets out certain criteria with which a divorce order must comply in order for the retirement annuity fund to give effect to a non-member spouse’s claim.

The criteria can be summarised as follows:

  1. The order must specifically provide for the non-member spouse’s entitlement to a “pension interest” as defined in the Divorce Act;
  2. The relevant fund which has to deduct the “pension interest” must be named or identifiable;
  3. The order must set out a percentage (%) of the member’s “pension interest” or a specific amount; and
  4. The fund must be expressly ordered to endorse its records and make payment of the “pension interest”.

If the divorce order does not meet the above requirements, it will not be enforceable against the retirement annuity fund.

When it comes to maintenance, bear in mind, if either of you can adequately support your children, this does not mean that either parent can avoid contributing to the maintenance of your children.

A divorce order/settlement claim will be seen as invalid if a clause states that only one parent needs to maintain the children. Therefore, your husband cannot by law put the onus on you to financially support your children. If there are minor children involved, it is advisable to have a family advocate help with the wording and approve the statement of agreement before going to court.

An order regarding maintenance is also not fixed forever. If circumstances change, an application for an increase or reduction in maintenance can be made.

A basic principle of child maintenance is that the obligation is based on the standard of living, income and means of the person obliged to pay. This means that one of the parties who has greater means may be required to contribute a larger portion of the maintenance, but it does not absolve the other party of also contributing within their means.

It is always advisable to get legal advice before making any decisions around the division of assets in a divorce and the agreement towards the payment of maintenance.

Spending time on getting this right at the start will avoid you having to go back to court to amend the Divorce Order at a later stage, thereby incurring unnecessary costs.

It will also ensure that your rights are protected during this difficult time.

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

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