A marriage in community of property is the automatic matrimonial property regime for most marriages in South Africa. From the start of the marriage, all assets and liabilities are incorporated into a single joint estate, and all assets accumulated during the marriage also become part of the joint estate. Both spouses are joint owners and are thus entitled to an equal share of the joint estate, subject to certain exceptions. When a court grants an order of divorce, the community of property between spouses comes to an end and the joint estate is divided.
The Divorce Act governs divorce proceedings in South Africa. Section 7(1) of the Divorce Act specifically empowers the court to make an order in accordance with a written agreement between the parties (a so-called “settlement agreement”). Alternatively, in the absence of an agreement between the parties, the court is empowered to order the division of the joint estate equally. In doing so, the court will have to determine what assets the joint estate consists of. Assets typically include moveable property (cars, furniture), immoveable property (houses, land), and less obvious assets such as shares, loan accounts, and pension interest.
In this regard, it is important to understand what is meant by “pension interest”. Section 1 of the Divorce Act defines “pension interest” as the notional benefit to which a member would have been entitled in terms of the rules of the fund if his membership of the fund terminated on the date of the divorce on account of his resignation from his office.
The common law position
The common law position has always been that the member spouse’s pension interest does not form part of the joint estate. Therefore, prior to the introduction of section 7(7) of the Divorce Act, the non-member spouse did not have a recognised interest in the pension of the member spouse where such benefit had not yet accrued. This meant that, when determining the patrimonial benefits in the joint estate upon divorce, the pension interest of either spouse could not be considered because pension interest refers to an interest that a member of a fund has in benefits that may accrue in the future but does not yet constitute an asset vesting in his estate.
The Divorce Amendment Act 7 of 1989 inserted sections 7(7) and 7(8) into the Divorce Act, thereby introducing the concept of the sharing of a pension interest upon divorce. As stated above, section 7(7)(a) provides for the pension interest (as defined in section 1) of a party to a divorce action to be deemed to be an asset in his estate for the purposes of determining the patrimonial benefits at divorce.
Prior to the Supreme Court of Appeal (SCA) judgment in the Ndaba case, there were varying interpretations of section 7(7) of the Divorce Act, most notably the matter of Old Mutual Life Assurance Company (SA) Limited and Another v Swemmer (2004), where the SCA held that the necessary implication of section 7(7)(a), read with the definition of “pension interest”, was that any right or interest that a member spouse had in respect of pension benefits that had not yet accrued was not to be regarded as an asset in determining patrimonial consequences on divorce.
This meant that before the Ndaba case, a party to divorce proceedings would have to apply for a pension interest to be deemed an asset in the estate.
The Ndaba case
The parties were married in community of property. On 25 May 2012, their marriage was dissolved. The divorce order granted by the trial court incorporated a provision that “… the deed of the settlement between the parties … [annexed thereto] is made an order of the court”. The parties’ deed of settlement provided, inter alia, that their joint estate would be divided equally between them.
The court a quo held in favour of the respondent, stating that in the absence a court order by the divorce court declaring the pension interest of the member spouse part of the joint estate, such pension interest did not form part of the joint estate. Aggrieved with the outcome, the appellant approached the SCA.
The primary issue in this appeal concerned the proper interpretation of sections 7(7) and (8) of the Divorce Act – in other words, 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.
After considering sections 7(7)(a) and 7(8), the SCA held that the intention of the legislature in inserting section 7(7)(a) into the Divorce Act was to enhance the patrimonial benefits of the non-member spouse over that which, prior to its insertion, had been available under the common law.
The SCA also distinguished between the automatic application of section 7(7)(a) and an order in terms of section 7(8). It interprets the latter as purely necessary to create the mechanism in terms of which the retirement fund of the member is statutorily bound to effect payment of the portion of pension interest (as at date of divorce) directly to the non-member spouse as provided for in section 37D(1)(d)(i) of the Pension Funds Act (PFA).
The SCA accordingly found that for marriages in community of property that are dissolved by divorce, there is no need to refer to the pension interest of the non-member spouse when dividing up the joint estate – the pension interest of each party is automatically included in the deed of settlement that is made an order of the court.
The SCA did, however, point out that a specific order in terms of section 7(8) of the Divorce Act is still required if spouses want a retirement fund to make a deduction and payment to the non-member spouse in terms of section 37D(1)(d)(i) of the PFA.
Enforceability of the order against a retirement fund
Section 37A of the PFA protects a member’s benefit and states that a retirement fund may make a deduction from such benefit only if such a deduction is allowed in terms of the PFA, the Income Tax Act, and the Maintenance Act.
Section 37D(1)(d)(i) of the PFA provides for divorce as an exception and states that a registered fund may deduct any amount assigned to a non-member spouse in terms of a divorce order granted in terms of section 7(8)(a) of the Divorce Act (or any order made by a court in respect of the division of assets of a marriage under Islamic law).
Section 7(8) of the Divorce Act, read together with section 37D(4)(a) of the PFA, sets out certain conditions with which a divorce order must comply for the fund concerned to be able to give effect to a non-member spouse’s claim. These conditions are:
- The order must specifically provide for the non-member spouse’s entitlement to a “pension interest” as defined in the Divorce Act.
- The fund that must deduct the “pension interest” must be named or identifiable.
- The order must set out a percentage of the member’s “pension interest” or a specific amount.
- The fund must be expressly ordered to endorse its records and make payment of the “pension interest”.
If the divorce order does not strictly meet the above requirements, it will not be in compliance with the Divorce Act read together with the PFA and will therefore not be enforceable against the fund. The fund in question has no discretion in this regard because it is strictly bound by the provisions of the PFA.
It is therefore imperative to remember that the Ndaba case did not change this – a specific order in terms of section 7(8) of the Divorce Act is still required if spouses want a retirement fund to make a deduction and payment to the non-member spouse in terms of section 37D(1)(d)(i) of the PFA.
Lize de la Harpe is senior legal adviser at Sanlam.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article does not constitute financial planning, legal or tax advice that is appropriate to every individual’s needs and circumstances.
