Divorce and pension fund benefits

If you’re divorced, or in the process of getting divorced, the issue of pension fund benefits is one you may want to think about. Remember that pension interest forms part of your spouse’s assets, so you may be entitled to a claim, depending on your marital regime.

I chatted to Geraldine Macpherson, legal marketing specialist for Liberty, who said that if you are married in community of property, or out of community of property but subject to the accrual system, you are entitled to a share of the benefits.

Macpherson says you are entitled to share in the pension fund interest on divorce. So if your spouse has a retirement annuity, you are entitled to share in the return of contributions plus simple interest (currently 15,5%), dated from the inception of the policy to date of divorce. This amount will be restricted to the actual fund value. (One needs to expressly exclude the value of the RA or pension fund as at date of marriage when one draws up an ANC to circumvent this, if one is married out of COP with accrual.) In the case of a pension fund you will be entitled to share in the withdrawal value of the fund at date of divorce. Importantly, though, there is no future growth or interest on this fund value — what you get will be limited to the actual entitlement itself.

The good news is, according to the “clean break” principle, which was applied to the pension benefits that accrue on divorce in 2007, you can access these funds at the date of divorce — previously, you had to wait until the member exited the fund, retired or passed away.

“In 2009, by way of legislation [the Financial Services Laws General Amendment Act, 22 of 2008], the principal was extended retrospectively to all applicable divorce orders, even those granted prior to this date. From a tax perspective, it is only since March 1 2009 that the non-member spouse has been liable for the tax,” says Macpherson.

How do you ensure you can claim this benefit? Macpherson has the following tips.

  • The percentage of the pension interest you get needs to be agreed upon and set out in the divorce settlement. Don’t automatically assume it will be 50% — it could be 100% or 3%, for that matter.
  • Ensure that the fund is mentioned by name in the Final Order of Divorce, together with the percentage agreed upon. Make certain that the fund receives a copy of the final divorce order, so that effect can be given to it.
  • Although it may be very tempting to access the cash and spend it, remember that you will pay tax and you will also lose money earmarked for retirement savings. Rather transfer it to another fund — a retirement annuity, a preservation fund, whatever will work best in terms of your savings goals. You can make a tax-free transfer to another fund, which is also good to know.

Read more news, blogs, tips and Q&As in our Smart Money section. Post questions on the site for independent and researched information

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