Is A Pension Interest Automatically Included In The Division Of The Joint Estate

Is A Pension Interest Automatically Included In The Division Of The Joint Estate

A marriage in community of property is the automatic matrimonial regime in South Africa. Upon marriage a joint estate is routinely created consisting of the assets and liabilities of both Parties’ estates.  Upon the dissolution of such marriage, each Party is entitled to 50% of the joint estate.

In terms of Section 7(7) of the Divorce Act (70 of 1979), a person’s pension interest shall be deemed to be part of his/her assets. In terms of the matrimonial regime, if an asset is part of one Party’s assets, it is seen as an asset of the joint estate. As such, a divorcing spouse is effectively entitled to 50% of the other spouse’s pension fund.

Section 7(8)(a) of the Divorce Act states that a Court granting a Decree of Divorce may make an order that a portion of a party’s pension interest which is assigned to the other party, be paid to the non-member spouse by the Fund concerned.  

Section 37A of the Pension Funds Act (24 of 1956) protects Fund benefits from being reduced, however, Section 37D(1)(d)(i) creates an exception in the event of a Court Order being made in terms of section 7(8)(a) of the Divorce Act.

On consideration of the above-mentioned acts, any Divorce Order must be clear and precise as it pertains to identifying the Fund, referring to pension interest; stipulating the specific award and the member spouse’s active member status. Without compliance with the provisions of the above-mentioned acts, the pension fund is not obligated to make the deduction and to pay the non-member spouse. However, although the pension fund may refuse to make a deduction based on incorrect wording, or, in some cases, no wording at all, it does not always mean that the non-member spouse is not entitled to his/her portion.

A recent controversial Judgement by the Supreme Court of Appeal created uncertainty on the above subject matter. The Judgement, known as the Ndaba Judgement (2017 1 (BPLP) 39 (SCA)) created the idea that pension interests automatically form part of the estate to be divided. It was concluded that no declaration by a Court is necessary for ‘pension interest’ to be included in the Parties’ estate, and that, for as long as the estate remains undivided, so does the distribution of the ‘pension interest’. As a result, the belief included that, despite the Court Order not complying with the provisions of the Act, (as discussed herein above) the non-member spouse is nevertheless entitled to 50% of the pension interest.

In the Ndaba case, the real issue on appeal was whether a non-member spouse in a marriage in community of property, is entitled to the pension interest of a member spouse in circumstances where the Court granting the decree of divorce did not make an order declaring such pension interest to be part of the joint estate.

The Court a quo in this matter refused an application by the Appellant to declare the pension interest as part of the joint estate to be divided between the Parties.

The editor’s summary included that:

“it was not necessary for the parties in this case to mention in their settlement agreement what was obvious, namely that their respective pension interests were part of the joint assets which they had agreed, would be shared equally between them. The contention that if there is no reference in the divorce order of parties married in community of property to a member spouse’s pension interest, the non-member spouse is precluded in perpetuity from benefitting from such pension interest as part of his or her share of the joint estate was thus rejected by the Court. The appeal was upheld and it was declared that each party was entitled to an amount equal to 50% of the other’s net pension interest”.

Does this mean that practitioners no longer have to concern themselves about the specific provisions of the Divorce Order and contemplated herein above?

The Respondent in the Appeal argued in the Court a quo that the Appellant renounced her claim in relation to the pension interest and that the settlement agreement did not specifically mention the pension interest.

The Court a quo held that given the wording of Section 7(7)(a) and (8) a party cannot invoke the provisions after the dissolution of the marriage and that therefore, without an order by the Divorce Court declaring the pension interest of the member spouse as part of the joint estate, such pension interest did not form part of the joint estate.

The Court a quo further held that the Act contemplates that any order in terms of section 7(7)(a) and (8) can be granted only by the Court granting the decree of divorce. Thus, section 7(7)(a) and (8) do not avail a party who seeks to invoke them after the dissolution of the marriage. It concluded that absent a Court Order by the Divorce Court declaring the pension interest of the member spouse as part of the joint estate; such pension interest did not form part of the joint estate.

In upholding the appeal, the Appeal Court considered the interpretation of the various sections of the act and specifically section 7(7). The Court considered itself with the legislator’s intention and held that the words “shall” and “deemed” should be interpreted to mean that the pension funds are automatically included. Does this mean that the specific mention of the pension fund, as previously discuss herein above, is not necessary to bound the Fund to act accordingly?

Any Family Law practitioner would know that Pension Funds are extremely strict as it pertains to deductions from funds, and correctly so, as it is bound in terms of law. A conservative approach should thus be followed to avoid further litigation. The papers should specifically plead the pension interest. However, due to this Judgement, the door is not closed to an unfortunate party where the pension fund is not specifically pleased.

Another interesting interpretation of the effect of this controversial Judgement was discussed during a Pension Law Seminar presented by Andrew Mothibi in June 2018. The discussion held that, the effect of this Judgement, wherein it was declared that the Appellant is entitled to 50% of the pension interest merely means that the Appellant is now entitled to apply for an order seeking a variation of the settlement agreement to include the necessary provisions of the Divorce and Pension Funds Act to allow the Pension Fund to make the necessary deductions.

Michelle Soutter

Practising Attorney