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How Does Divorce Affect Your Pension and Retirement Annuities?

Introduction

When couples go through a divorce, one of the most overlooked — yet significant — financial assets are the pension fund or retirement annuity. Many people don’t realise that these funds form part of the matrimonial estate and can be divided between spouses, depending on the type of marriage and divorce settlement.

In this article, we’ll explain how divorce affects pension funds and retirement annuities in South Africa and what you need to know to protect your financial future.

Why Pensions and Retirement Annuities Matter in a Divorce

For many people, retirement savings are one of their largest assets, often accumulated over years of employment. In divorce proceedings, pensions, provident funds, preservation funds, and retirement annuities are typically treated like any other form of property and can be divided as part of the settlement.

How Pension Funds and Retirement Annuities Are Handled

The treatment of these funds depends on:

• Your marital regime (in community of property, out of community with or without accrual)
• What’s agreed in the divorce settlement

Let’s break it down:

1. In Community of Property

If you were married in community of property, all assets and liabilities are shared equally, including pension and retirement savings. On divorce:

• Each spouse is entitled to 50% of the total value of both retirement funds up to the date of divorce.
• This is done through a pension interest claim.

What is Pension Interest?
It refers to the value of a member’s pension benefits at the date of divorce, as if they had resigned on that date.

2. Out of Community of Property With Accrual

In this case:

• Only the growth in the estate (including retirement savings) during the marriage is considered for division.
• If one spouse’s estate has grown more than the other’s, the difference (or accrual) is shared equally.
• Retirement savings form part of this calculation.

3. Out of Community of Property Without Accrual

If you married without accrual:

• Each spouse keeps their own assets, debts, and retirement savings.
• No claim can be made against the other spouse’s pension or retirement annuities.

How Is the Pension Interest Paid Out?

Once a divorce decree is granted and it includes a pension interest award:

• The retirement fund administrator is notified.
• Funds can be paid directly to the non-member spouse (the person receiving a share) through a pension fund directive in the divorce order.
• The non-member spouse can choose to withdraw the amount (subject to tax) or transfer it into a retirement savings vehicle.

Important Considerations

• Tax Implications: If you cash out the pension interest awarded to you, it may be taxed. Transferring it to a retirement annuity may delay taxes until retirement.
• Specify It in the Divorce Order: The pension interest must be clearly stated in the divorce settlement and order, with details of the fund.
• Consult a Specialist: A financial advisor or divorce attorney experienced in pension fund division can help protect your financial interests.

Final Thought

Dividing pensions and retirement annuities can be complex, but it’s essential to address these funds properly in your divorce settlement to avoid future legal and financial complications.

At 123Divorce.co.za, we offer affordable, reliable divorce services and can guide you through the financial aspects of your divorce, including pension interest claims and retirement planning.