No couple believes on their wedding day that their newly minted union will end in divorce. The stark reality is however that just under half of marriages in South Africa do not last 10 years. And many of us have little to no understanding of how our various assets will be split up if it happens or how this will impact our journey to a successful retirement.
This is according to Nashalin Portrag, Head of FundsAtWork at Momentum Corporate, who points to the latest statistics from Statistics South Africa (Stats SA), which notes that there are more than 25,000 divorces annually in South Africa.
“Divorce can be a painful and traumatic experience for everyone involved. The financial implications can also be devastating and often result in both partners having to significantly lower their standards of living post-divorce. This is highlighted by the results of the Momentum/Unisa Consumer Financial Vulnerability Index (CFVI) Q1 2019 survey, where 47.7% of respondents stated that they struggle to adapt to changing financial conditions which could include divorce,” says Portrag.
During the turmoil of negotiating the splitting of assets, maintenance and the custody of children enjoy priority, Portrag cautions that an area which is often neglected is the negotiation to claim a portion of your former spouse’s retirement savings. “In terms of the Divorce Act, your retirement benefit forms part of your assets and must be considered when dividing your marital assets. This is especially important for a spouse who has put their career on hold to take care of the children, and in doing so has not built up sufficient savings for their retirement,” says Portrag.
However, if couples are living together as “husband and wife” and not married under a legal Act of Parliament such as; the Marriages Act, Recognition of Customary Marriages Act and the Civil Union Act, there cannot be a pension interest transfer. Under these circumstances, there is no marriage capable of dissolution in terms of the Divorce Act, which enables the transfer of a pension interest benefit. The Pension Funds Act, which regulates all private funds, was amended to allow for a pension interest transfer on the dissolution of an Islamic marriage by an order of court.
“The legal terms of a marriage will determine the guidelines for financially exiting the union. In terms of the law, if you are married in community of property or out of community of property, with the accrual system, you may be entitled to a portion of your former spouse’s pension interest. In a pension or provident fund, “Pension interest” is the amount of money that a spouse would have received if they resigned on the date of the divorce.
“This does not mean that the retirement fund member needs to split their pension interest in half to pay their former spouse. They have the choice to pay the amount that the former spouse would have received from the retirement fund, from the other assets in the estate,” says Portrag.
Also note that the pension interest claim is not limited to 50%, as in terms of the law, the parties can claim anything from 0.1% to 100% of the pension interest benefit of the former spouse.
“The benefit allocated to the non-member spouse is now payable from the date of divorce. This was not always the case, as before 13 September 2007, the non- member spouse had to wait until a benefit is accrued to the member before being able to access the divorce benefit assigned to him/her. The non-member spouse would therefore only be able to access the divorce benefit upon the member’s exit from the fund due to resignation, retirement or death,” explains Portrag.
With the introduction of the “clean-break” approach in 2007, which applies to pension, provident, retirement annuity and preservation funds, Portrag says that the non-member spouse may immediately claim the portion of the member’s pension interest and can elect to receive a cash benefit or transfer the benefit to another retirement fund. “If a person does decide to split their pension interest and claim payment from their retirement fund, they must remember that there are certain legal requirements that have to be met before their retirement fund can pay part of their benefit to their former spouse,” Portrag continues.
He cautions that when it comes to pension interest, poorly drafted divorce orders can drag out divorce proceedings significantly and in worst case scenarios, result in non-member spouses not receiving their intended entitlements.
“It is important that clients are careful when drafting and reviewing their divorce orders. Clients are advised to check with their funds or its administrators, prior to the divorce, if the wording used will result in a valid claim for the former spouse. ”
Portrag notes that there are four key requirements, which must be included in a divorce order in terms of the Pension Funds Act, in order to facilitate speedy payout and resolution:
1. A client must still be a member of their particular retirement fund on the date of the divorce order.
2. The name of the fund must be in the divorce order or the fund must be identifiable from the order.
3. The divorce order must specify the amount that the former spouse should get.
4. The divorce order must specifically order the fund, and not for instance the member, to pay a part of the pension interest to the former spouse.
A divorce is never going to be easy, but Portrag believes there are steps a person can take to ensure that it runs as smoothly and quickly as possible, enabling all parties to put it behind them and move onto the next chapter of their lives.
It is important for members to seek advice from a financial adviser or to get an understanding of their retirement benefits options through retirement benefit counselling – a service which is accessible via their retirement find. “Having a long-term relationship with a professional financial adviser who will offer appropriate advice is paramount to reaching ones financial goals and ensuring that even through life changes one is able to make necessary financial adjustments. A holistic financial plan is vital in incorporating multiple financial strategies to allow clients to live their best lives while knowing that future uncertainties are taken care of,” Portrag concludes.