Divorce isn’t just about splitting a life; it’s about untangling years of shared memories, emotions and crucially money. So what happens to your pension in a divorce? “You can get married as many times as you want so long as you have a prenup,” said renowned NYC divorce attorney James J. Sexton once in an interview on the podcast Soft White Underbelly. Saxton added that the person you divorce rarely looks like the one you married. The blunt truth is that time, resentment and financial stress can turn even the closest couples into adversaries.
In South Africa, one of the biggest financial puzzles during divorce is the pension fund often a hidden battleground. Lawyer Thato Mahapa unpacks exactly how your pension is handled when a marriage ends, depending on your marital regime.
Meet the experts: Thato Mahapa is a lawyer who specialises in ICT law, Corporate and Contract Law and Family Law at TM Mahapa Inc Attorneys. Siphamandla Buthelezi is the Head of Platforms at advisory firm NMG Benefits.
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“In South Africa, when a couple divorces, pension funds are treated as part of the matrimonial estate, and what happens to them depends on the marital regime under which the couple was married,” explains Mahapa. Whether you’re married in community of property, out of community with accrual or with a prenup excluding accrual, knowing your rights and risks is essential to protecting your future. Here’s what you need to know.
What Happens To Your Pension In A Divorce?
Marriage in Community of Property
First up is ‘In Community of Property’. This is a default marital regime where the couple’s assets and debts, before and during the marriage, become jointly owned. In the absence of an antenuptial contract, or a prenup as it’s commonly referred to, you may find yourself here.
“This regime usually causes the most tension during a divorce as one partner may feel disgruntled or feel that their partner wasn’t pulling their weight financially – and therefore doesn’t deserve an equal split,” shares Mahapa, warning that this regimen is binding, even for those couples that are married traditionally. “I always remind my clients to sign a prenup before the lobola negotiations to avoid challenges further down the line.”
What To Know
- Everything including retirement savings is split 50/50.
- You’re entitled to up to 50% of your partner’s pension interest (the value of the pension fund at the date of divorce, not the full future value) accrued during the marriage.
- This rule applies even when your partner hasn’t retired yet.
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Marriage out of Community of Property with Accrual
“Here, each spouse maintains separate ownership of their assets during the marriage, but in the case of divorce or death, the increase in value of their respective estates (the accrual) is shared,” explains Mahapa. The advantage is that your assets will be protected from the other spouse’s creditors. Also very important to note is that you cannot make a claim from your partner’s pension fund.
What To Know
- Each spouse keeps separate estates, but any growth (accrual) during the marriage is shared.
- Pension fund growth is included in the calculation of accrual.
- If one spouse’s estate accrued more, the other is entitled to a share of that difference (including a portion of the pension).
- Each spouse gets keep their own assets.
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Marriage out of Community of Property without Accrual
This arrangement is established through a prenuptial agreement signed before the marriage and should explicitly exclude the accrual system. “This is perhaps the most peaceful of the marital regimens where each spouse retains their own assets and debts acquired before and during the marriage,” advises Mahapa. There’s no sharing of assets or liabilities in cases of divorce or death.
What To Know
- Each spouse keeps what they own, including their pension fund.
- No claim can be made on the other spouse’s pension unless specific arrangements are made in the divorce settlement.
- The growth in assets during the marriage is shared.
- The pension interest is included in the calculation of each party’s estate growth.
- The spouse with the smaller accrual may have a claim to a portion of the difference, which can include a share of the pension interest.
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What Happens To The Pension Fund In Cases of Customary (or Traditional) Marriage?
Perhaps the most headache-inducing marital regime because…what do you mean we’re married but no formal, legal document has been signed? What exactly makes a customary marriage valid? It’s as simple as a ‘lobola negotiation’ meeting between two families, a celebration of sorts taking place in accordance with customary traditions or the formal hand over of the bride and acceptance of the groom into the bride’s family.
“While customary marriages should be registered with the Department of Home Affairs, failure to register does not invalidate the marriage. Polygamous marriages are recognised, provided they comply with applicable customary practices and legal procedures, including applying to the court for approval of a written contract regulating the future matrimonial property system,” explains Siphamandla Buthelezi, Head of Platforms at advisory firm NMG Benefits.
In some cases, individuals may not be aware that they are legally married under customary law, meaning any future marriage will be invalid without a legal divorce having occurred first, warns Buthelezi. In some instances, people believed they were legally married, only to discover that their partner was already married.
“Regardless of whether the partner was aware of their marital status, this invalidates the second marriage, and the ‘second spouse’ loses their rights, including the right to claim pension benefits,” explains Buthelezi.
During a divorce, if the pension funder member can prove that their marriage is not legally valid and there is no decree of divorce, the pension fund is not obligated to pay the non-member. For example, if a couple believed they were married under customary law, but the court agrees that not all necessary traditional steps were completed, there will be no claim against the member spouse’s pension fund.
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How Is the Pension Paid Out?
A divorce settlement agreement should clearly address pension fund division to avoid any confusion. “In addition, it must state the percentage or amount of the pension interest to be transferred or paid to the spouse claiming. The pension interest is usually calculated at the date of divorce, not retirement,” explains Mahapa. “The clean-break principle has made payouts more accessible for non-member spouses. They don’t need to wait until the member retires, resigns, or dies before they can access their share.
This principle was introduced into South African law to provide fairness and financial independence to spouses’ post-divorce. They can be paid as soon as the divorce is granted, and the fund processes the claim,” explains Buthelezi. It is also important to understand the tax implications. If the member spouse takes their portion as a cash payout, it will be subject to tax at the applicable withdrawal tax rates, which may vary depending on the amount. However, if the payout is transferred directly into another retirement savings fund, such as a retirement annuity or pension fund, the transfer will not be taxed at the time, as long as it complies with the relevant regulations
