Correct wording in your divorce order will result in a valid claim against your ex-spouse’s retirement funds:
You can claim against your spouse’s retirement funds as long as you name them correctly, There a few retirement vehicles that you can claim against:
- Pension Fund
- Provident Fund
- Preservation Pension Fund
- Preservation Provident Fund
- Retirement Annuity Fund
- Government Employee Pension Fund – Not part of the Pension Fund Act.
You or your spouse need to be a member of any of these funds at date of divorce in order to claim. Should your spouse leave employment before the divorce date then there will be no pension interest that can be paid to you (the non-member). You will then have to claim against other assets in your estate.
The definition of a “pension interest” in the Divorce Act has a connotation that, in order to calculate the pension interest, the member has to be in active employment and active fund membership at the date of divorce so that it may be deemed that he or she has resigned on the date of divorce and his or her former spouse is now entitled to a portion of his or her fund benefit as at that date.
As a non-member spouse you will be given the following options:
- Take your benefit in cash, this will be taxed.
- Transfer to your own pension or provident fund with your employer, this will be a tax free transfer.
- Transfer to your own retirement annuity, this will be a tax free transfer.
- Or transfer to your own preservation fund – tax free transfer.
Your option that you choose will always be subject to fund rules and or tax regime. For example when you transfer from Government Employee Pension Fund to your own Preservation Pension Fund you will only be allowed 1/3 cash should you whish to access your capital before retirement. Make sure you get financial advise in this regard.
Some funds will allow loans or “liens” against the fund for the member to buy a property. This “lien” will have preference over your divorce claim. Should there be a loan against the fund this will be settled first before your divorce claim claim. In other words if there is R1 000 000 in the fund and a loan of R400 000 then your claim will be 50% of the remaining R600 000.
This implies that you will have to claim against other assets which could result in another court order.
A valid divorce order, should have the name of the fund or funds if you claim against more than one. It should also stipulate the percentage or amount you are claiming and should have a pension or policy number. Always make the endorsement against the fund as soon as you receive the court order even if the court order states that your ex-spouse will make the endorsement.
Be careful with the wording when you claim against a retirement annuity. They are treated differently.
You will be entitled to 50% of all contributions plus simple interest. So this implies that you will not be able to claim the growth on the investment but only the simple interest which could be potentially lower.
Example: A R400pm contribution for 15 years will be calculated as follows.
R400 x 12 = R72 000 X 6% = R172 552 / 2 = R86 276.09 before tax.
- This means that neither the interest nor the growth is compounded.
Your wording should read:
“In terms of Section 1 (1)(a) of the Divorce Act 1979, as amended, the parties record that the defendant is a member of a XYZ Retirement Annuity with policy number X12346789 in respect of which the parties agree as follows:
The Plaintiff will be entitled to 100% of the pension interest in the defendants Retirement Annuity as at date of divorce.
Make sure you check with your financial advisor that the wording is correct before you draft the settlement agreement..