Women and Investing

Divorce – how does it impact your retirement funds?

A key question when divorcing is the division of retirement benefits between spouses. Navigating this aspect of your divorce can be complex. Here's what you need to know.

25 Jul 2024

6 minutes

Salome Young

Divorce can be a traumatic and painful experience. There are many factors to consider, and unfortunately, the implications of divorce on retirement funds are often overlooked. In this article, we highlight some important points about the impact of divorce on retirement funds.

Q What legislation governs divorce orders as they relate to retirement funds?

The Divorce Act (No. 70 of 1979) sets out the requirements for a valid divorce order. We will look at those requirements in more detail below.

The Pension Funds Act (No. 24 of 1956) provides for certain deductions that may be made to retirement funds, including in the case of a divorce.

Q Will your spouse have an automatic claim against your retirement fund?

Whether your retirement fund will be taken into account at divorce will depend on how you were married. For example, if you were married out of community of property on or after 1 November 1984 and your antenuptial contract excludes community of property, community of profit and loss, and the accrual system, your retirement funds cannot be shared.

Recent case law actually states that a non-member spouse may be automatically entitled to retirement fund benefits (where married in community of property). The divorce order, however, still has to comply with requirements in legislation to be able to make a deduction.

Where you are married out of community of property with accrual, or in community of property, you and your spouse can, as part of your divorce settlement, agree how and if retirement funds will be shared. For example, you may agree that your spouse can keep the house, but you will be allocated the full pension interest in your spouse’s retirement fund(s).

Q What wording must the settlement agreement or order of court contain to be valid in relation to retirement funds?

It is of vital importance to make sure you make use of lawyers who are experts in divorce law. However, it is just as important to make sure that those lawyers understand the legislation that applies to retirement funds as it relates to divorce. We often see divorce orders and settlement agreements that do not comply with the requirements of legislation in respect of retirement funds.

Q What is required for a divorce order to be binding on a retirement fund?

01 Division of pension interest

The divorce order must specifically refer to ‘pension interest’. It must also be clear in the order what percentage of the pension interest is awarded to the non-member spouse or alternatively, what amount is assigned to the non-member spouse.

If the divorce order states that the non-member spouse is entitled to 40% of the member’s pension interest, then this requirement will be met. If the divorce order states that the non-member spouse is entitled to 40% of the member’s provident interest or 40% of the member’s pension fund, then this requirement will not be met. The words ‘pension interest’ are vital to make the order binding.

02 Naming of the fund

The retirement fund must be named, or at least be identifiable from the divorce order.

If the divorce order refers to ‘the fund to which the member belongs as at the date of divorce’, then this requirement will not be met. If the fund is not named at all but a membership number is referenced which makes the fund identifiable, then this requirement will be met.

03 Fund must be ordered to make payment

The retirement fund must be specifically ordered to pay the amount or percentage of the pension interest to the non-member spouse. If the divorce order states that:

  • the fund must pay the non-member spouse; or
  • payment must be made in terms of section 37D of the Pension Funds Act or section 7(8) of the Divorce Act; or
  • the fund has to make an endorsement in its records in accordance with section 7(8) of the Divorce Act;

then this requirement will be met.

If the divorce order states that the member must make payment to the non-member spouse, then this requirement will not be met.

By way of example, a valid divorce order that will be binding on the retirement fund, could state something like the following:

  1. The parties record that the defendant is a member of the AAA Pension Fund (‘the fund’).
  2. The parties agree that the plaintiff shall be entitled to …… % of the defendant’s pension interest in the fund, as defined in section 1 of the Divorce Act 70 of 1979. (Note: if the fund is a preservation fund, then it should read ‘as defined in section 37D(6) of the Pension Funds Act 24 of 1956’.)
  3. The parties further agree that the fund be ordered to effect payment or transfer of the assigned portion of the pension interest to the plaintiff, in terms of the provisions of section 37D(4) of the Pension Funds Act 24 of 1956.

Q What is pension interest?

The meaning of pension interest is different, depending on the type of retirement fund. Where the fund is a pension fund, pension interest will be the benefit the member would have been entitled to had they resigned on the date of divorce. Where the fund is a retirement annuity fund, pension interest will be the value of contributions made to the fund as at the date of divorce, plus annual simple interest (at the official prescribed rate).

Pension interest in relation to a preservation fund is the benefit the member would have been entitled to had their fund membership terminated, or had they retired from the fund on the date of divorce. Note that the spouse must be an active member of the relevant fund, otherwise there will be no pension interest.

Q What are the options for the non-member spouse?

Where a portion of pension interest in a retirement fund is allocated to a non-member spouse (i.e. the spouse who is not the member of the fund), the non-member spouse may elect to:

  • Take the portion allocated to them as a lump sum; or
  • Transfer the portion allocated to them to a retirement fund in their own name.

Should the non-member spouse elect to receive the pension interest as a lump sum, they will be taxed on it in accordance with a special ‘withdrawal tax table’. A transfer to a retirement fund in their own name is done on a tax neutral basis.

It is also important to note that there are no tax consequences for the member of the relevant retirement fund.

Q How will the two-pot retirement system impact divorce orders?

From 1 September 2024, the two-pot retirement system will come into effect. From that date, new contributions to retirement funds will be split into two separate pots – a savings component and a retirement component. Benefits that accrue prior to 1 September 2024 will be preserved separately in a vested component.

Pension interest allocated to a non-member spouse in a divorce order granted from 1 September 2024 will be taken proportionately from all three components of the member’s retirement fund. This will not impact the options available to the non-member spouse, i.e., a lump sum or transfer to a retirement fund in their name.

Q What about living annuities and divorce?

We frequently receive queries in relation to divorce orders where a portion of the living annuity capital, or a portion of the living annuity income has been awarded to one of the parties. Many court cases have been decided on this issue but the most recent one is the Supreme Court of Appeal case of Montanari v Montanari. In this case, the Supreme Court of Appeal confirmed that the capital of a living annuity does not belong to the annuitant – it belongs to the life company that issues the policy. The annuitant only has a right to the annuity income. Therefore, the living annuity capital cannot be shared or split on divorce. The court did mention that the future right to annuity income may be taken into account for the purposes of calculating the accrual claim.

The importance of advice

The above discussion highlights some of the complexities when it comes to divorce orders and retirement funds. There are many financial factors to consider when contemplating divorce. We therefore stress the importance of consulting a qualified financial advisor for comprehensive guidance on your options and their implications.

Download PDF


Related content:
Salome Young
Legal Counsel

Important information

All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. We endeavour to provide accurate and timely information, but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only.

Copies of the audited annual financial statements for Ninety One Fund Managers SA (RF) Proprietary Ltd and Ninety One Alternative Investments GP (Pty) Ltd and of the scheme managed by it are available, free of charge from Ninety One, on request by an investor.

This is the copyright of Ninety One and its contents may not be re-used without Ninety One’s prior permission. Ninety One Investment Platform (Pty) Ltd and Ninety One SA (Pty) Ltd are authorised financial services providers.