MONEY
DIVORCE AND RETIREMENT SAVINGS BY JAYA LEIBOWITZ, SENIOR LEGAL ADVISER AT ALLAN GRAY
A
lthough the official
and pension interest in any
In this regime, you and your
member retires or withdraws
other retirement fund (e.g.
spouse each own 50% of the
from that retirement fund,
a pension fund, provident
assets and liabilities in the
he/she will be liable for
fund, pension/provident
estate (joint estate), and upon
tax on the retirement or
preservation fund).
divorce each spouse has a
withdrawal benefit.
statistics for South
“It is therefore important
50% claim against the other,”
to be aware that a 100%
she says. “If you do not want
during COVID-19 are yet
pension interest deduction
to have a joint estate, you
to be released, globally the
from a retirement annuity
must conclude an antenuptial
pandemic sent divorce rates
fund may not be the full value
contract, either with or
WHAT ABOUT LIVING OR LIFE ANNUITIES PURCHASED WITH RETIREMENT BENEFITS?
soaring by up to 30% or more
in the fund. Furthermore,
without accrual.”
Pension interest deductions
during 2020. According to
if a member has multiple
DIY Legal, South Africa ranks
Africa’s divorce rate
If without accrual, each
only apply to retirement funds
accounts in a retirement fund,
spouse keeps their own assets
and do not apply to compulsory
in 83rd place out of 154
pension interest is calculated
and there is no claim against
annuities, such as living
countries for divorce.
at fund level and not at account
the other’s assets. If accrual
annuities. Once a member has
level. The divorce order must
is included, at divorce the
exited the fund, the pension
overlooked in the process
therefore refer to the fund and
spouse with the larger estate
interest in the retirement
leading up to divorce, but
not an individual account.
(assets less liabilities) must
fund no longer exists. Despite
equally messy to navigate, is
However, the member may
pay the difference between
the annuity policy not being
what the implications of such
elect which account in the
her/his estate and the estate of
a consideration for pension
a decision are on a couple’s
retirement fund the pension
the other spouse to the spouse
interest, a recent court
financial affairs,” says Jaya
interest deduction must be
with the smaller estate.
judgement held that the future
Leibowitz, senior legal adviser
made from,” says Leibowitz.
“An issue that is often
at Allan Gray.
“Importantly, if you are
value of annuity income forms
married out of community
part of the policyholder’s estate
of property without accrual
and must be included when
after 1 November 1984, your
calculating the accrual for a
spouse has no claim for
marriage out of community of
implications, especially when
DOES PENSION INTEREST APPLY TO ALL MATRIMONIAL PROPERTY REGIMES?
pension interest from your
property with accrual.
it comes to retirement savings.
Leibowitz explains that the
retirement savings.”
Leibowitz says that divorce is a traumatic and life-altering experience with wide-ranging
“A ‘pension interest’
three different matrimonial
“Most importantly, people who are in the process
deduction allows a non-
property regimes in South Africa are: 1) marriage in
WHO IS RESPONSIBLE FOR THE TAX?
of a divorce must ensure
member spouse to be eligible for a pension benefit from the
community of property, 2)
In terms of the provisions of
court order and settlement
member spouse’s pension
marriage out of community of
the Income Tax Act, if the non-
agreement is in line with legal
from the date of divorce. It
property without accrual, and
member spouse elects to take a
requirements. If the order is
doesn’t take into consideration
3) marriage out of community
cash lump sum, the benefit will
granted and the wording is
the duration of the marriage
of property with accrual.
or whether you were married
“The default if
be taxed in his/her hands. However, if the benefit
not competent, the fund will not be able to give effect to
when you first became a
you marry without
member of the retirement
concluding an
fund,” she says.
antenuptial
retirement fund,
its original order, which is a
contract is a
the benefit will
lengthy and costly exercise,”
distinguishes between
marriage in
be transferred
adds Leibowitz.
pension interest in a
community
tax-free. When
retirement annuity fund,
of property.
the non-
A pension interest
20
SILVER DIGEST // WINTER 2021
is transferred
that the wording of the
to another
the order. This will require the court to formally amend
This feature first appeared in the April 2021 issue of Moneymarking.
