The power to attach living annuities and guidelines on when a trust can be declared a sham are among the changes to the Maintenance Act recommended by the South African Law Reform Commission (SALRC).
On 26 March, the SALRC issued its final report on its review of the Maintenance Act.
In 2011, the Minister of Justice and Correctional Services asked the Commission to investigate the shortcomings in the maintenance recovery system with a view to making legislative and non-legislative reform proposals for consideration by the minister and the Department of Justice and Constitutional Development.
The SALRC is an independent advisory body established by the South African Law Reform Commission Act.
The 415-page report says the “crux of the problem” is that the maintenance recovery system is stifled by budgetary constraints, inefficiencies in the court system, a shortage of adequately trained and capacitated maintenance officers and investigators, as well as gaps in the legislative framework that adversely affect the fulfilment of the state’s obligations in terms of the Constitution and the United Nations Convention on the Rights of the Child.
Among the gaps in the Maintenance Act identified by the SALRC is the lack of clarity on when and how to attach living annuities and the uncertainty on when trust assets can be considered in determining a maintenance award.
Attachment of living annuities
The report says maintenance defaulters can use living annuities to place funds beyond the reach of the maintenance court, because a lump sum for arrear or future maintenance cannot be attached. The reason is that the lump sum used to purchase the annuity becomes the “property” of the fund. Therefore, an order can be made for maintenance to be deducted only from the benefit paid to the member.
Other challenges relating to the attachment of living annuities are:
- The attachment of arrear maintenance is possible only where the benefit is sufficient to accommodate the arrear amount due and the amount due for monthly maintenance. Where a person who is liable for maintenance has opted for the benefit to be paid annually, it is not possible to order the fund to pay maintenance monthly on his or her behalf.
- A maintenance debtor can, on the anniversary date of a living annuity, reduce the percentage pay-out to as little as 2.5%, which will probably thwart the payment of a maintenance order.
In its review of recent case law, the commission says it is clear from the Supreme Court of Appeal’s decision in Montari v Montari (2020) that a living annuity means “a right of a member or former member to income”. As such, the benefit paid from a living annuity is susceptible to attachment.
The SALRC recommends the following:
- The definition of a living annuity in the Income Tax Act be amended to include the payment of arrear and future maintenance awarded to beneficiaries prior to the death of the annuitant.
- Section 26 of the Maintenance Act should be amended by inserting a sub-section to empower the court to make an order for the attachment of a lump-sum benefit to cover arrear and/or future maintenance.
- Where a living annuity benefit is attached to pay arrear and future maintenance, the maintenance court should be empowered to determine the percentage payout and the frequency of the payments and prohibit the respondent from changing the rate at which the payout is taxed.
- If a maintenance debtor dies while in arrears and maintenance is being deducted from living annuity income in terms of a court order, the fund administrator must first deduct and pay from the lump sum any outstanding arrears. Thereafter, if minor children are the beneficiaries in respect the maintenance order, the administrator must transfer the remainder of the death benefit to the Master of the High Court to be administered in terms of the Administration of Deceased Estates Act for the benefit of the minor children. The court should be empowered to make such an order even though the maintenance debtor nominated a beneficiary for the lump sum.
Declaring a trust to be a sham
The Commission says the use of trusts by maintenance debtors to evade their maintenance obligations needs to be addressed.
It says that where a trust was established to evade maintenance, the courts are empowered to pierce the trust veneer. “Using the trust as one’s alter ego is indeed one of the circumstances which can be seen as an abuse of the trust form which can lead to veil-piercing, but it is not the only circumstances under which the common-law remedy of veil-piercing may apply.”
Second, the courts have the authority to declare a so-called “trust” to be a sham or a simulation in circumstances where the trust was used dishonestly or unconscionably to evade a liability.
As the courts clearly have difficulty in distinguishing accurately between the circumstances under which a trust can be declared a sham or a simulation and the circumstances under which the veneer or veil of a trust can be pierced, the Commission recommends that two new sub-sections be included in section 16 of the Maintenance Act.
One of these sub-sections will set out the circumstances in which the court may declare a so-called “trust” a sham or a simulation. These include:
- where the requirements for the establishment of a valid trust were not met or where the appearance of their having been met was in reality a dissimulation;
- where the founder had no real intention to create a trust; or
- where the creation of a trust has no commercial substance or makes no sense in the opinion of the court.
Where a so-called “trust” is declared a sham or a simulation, there is no trust and any assets and income of the so-called “trust” form part of the personal estate and income of the maintenance debtor who purports to be the founder or a trustee of the so-called “trust”.
The other proposed new sub-section sets out the circumstances in which the court may accept the existence of a valid trust but is justified in disregarding the separate legal entity of the trust. These include:
- where the core idea of the trust concept – namely, the separation of ownership or control from enjoyment – has been debased or is being abused;
- where one or more trustees are treating the trust property as if it were their personal property and using the trust essentially as their alter ego;
- where there is a failure by the trustees to adhere to the basic principles of trust administration; or
- where the court deems it just and equitable in the circumstances of a matter.
Where a court decides to disregard the separate legal personality of a trust, some or all of the trust property, of the value thereof, or the trust income may be taken into account as the property or income of a maintenance debtor who is the founder or a trustee of such a trust.
Other recommendations
The other gaps identified in the Maintenance Act and the recommendations to fill them include:
Future maintenance
The Maintenance Act provides only for arrear maintenance, not future maintenance. The SALRC recommends that the draft Maintenance Amendment Bill includes a new chapter that will give the maintenance court the power to make an order for future maintenance.
Guidelines on determining awards
There is no formula for the determination of maintenance awards. Magistrates have discretion in determining appropriate maintenance awards. This has led to discontent by some members of society who feel let-down by maintenance orders that are not in line with the best interest of the child as envisaged in section 28(2) of the Constitution.
The Commission recommends that the minister be empowered to develop and publish guidelines in the regulations under the Act for the determination of maintenance awards, to ensure uniformity.
Automatic adjustment of arrear amounts
The Act does not provide for the automatic adjustment of a default arrear maintenance amount created by the delay in the enforcement of a maintenance order.
The Commission recommends that maintenance creditors should be able to make an affidavit before the service of a warrant of execution, an emolument attachment order, or the attachment of a debt in which it is stated that they had not received maintenance payments from the date on which an order was made. The court may then make an order for an automatic adjustment of the warrant of execution or the amount to be attached in case of the attachment of emolument or a debt.
Wider scope of remedies
There is a need to widen the choice of remedies available to maintenance creditors or to make more than one remedy applicable in one court application:
The Commission recommends that provision be made for a choice of remedies in one application. This means that a typical application could contain execution against property, attachment of emoluments, or attachment of debt as the court may deem just and equitable in the circumstances.
Payment in kind
There is no provision in the Act for indigent maintenance debtors to make a maintenance contribution in kind.
The Commission recommends that the proposed amended definition of “maintenance order” in the draft Bill provides for payment of maintenance in kind, either by way of supplying specified goods or providing a personal service, for defaulters who are unable to contribute cash towards their maintenance obligations.
Interim orders
The Act does not provide for interim attachment orders.
The Commission recommends that if it can be established that there is a debt, emolument, or property belonging to the maintenance debtor, but in possession of a third party, the court may make an interim attachment order calling on all parties involved to show cause why the money or property should not be attached in lieu of arrear and/or future maintenance.
Punitive orders
The Act does not provide for punitive cost orders.
The Commission recommends that maintenance courts are provided with the power to award cost orders, including punitive costs, against parties who frivolously, vexatiously, or unreasonably abuse court processes with the intention of frustrating the maintenance claims instituted against them.
Compulsory mediation
The Act does not provide for mediation in maintenance matters even though mediation is provided to clients in maintenance courts on a voluntary basis.
The Commission recommends that mediation is formally incorporated into the Maintenance Act and that the referral of parties to mediation after the initial investigation of the application or complaint is made mandatory.
cus standi of children over the age of 18
Although this has been addressed in case law, it is unclear who has locus standi where a child attains majority but is still dependent on his or her parents.
The Commission recommends that children above the age of 18 who are still dependent on their parents for financial support should be able to bring an application for maintenance against their parent/s in the maintenance court if they can prove they do not have the means to support themselves.
