Many retirement funds are unable to implement clauses in divorce orders that split retirement savings among divorcing spouses because the divorce orders do not comply with the requirements of the Divorce Act and the Pension Funds Act.
In order for spouses to share their retirement savings, the divorce order needs to be correctly worded. Divorcing spouses should ensure that their divorce lawyer is familiar with the requirements of the Pension Funds Act and not just the Divorce Act.
If the divorce order is not correctly worded, the fund may be unable to make the deduction and will be unable to pay any portion of the pension interest to the spouse who is not a member of the fund.
The parties (not the fund) will have to return to court at their expense to get the wording amended or the non-member spouse will have to try claim the amount from the member spouse, which will cost more in legal fees and cause delays.
In order to ensure your spouse or former spouse’s retirement fund can act on the divorce order and make a deduction to pay to or transfer to a fund in the name of a former spouse, the order needs to:
Identify the member’s fund or funds correctly. It is preferable to use the full registered name of the fund.
State the percentage or the rand amount of the member’s pension interest as defined by the Pension Funds Act that has been awarded to a former spouse. The fund will not guess what amount it should be deducting and paying over. The words “pension interest” must be used.
The divorce order should only refer to the percentage or rand amount of the pension interest. It should not refer to, for example, the fund value, pension fund benefits, provident fund benefits, provident interest or policy proceeds.
Instruct the fund - and not the administrator or the member - to pay the awarded amount to the non-member spouse or to transfer the amount to a retirement fund in the non-member spouse’s name. The non-member spouse can make their choice once the divorce order is finalised.
Not refer to the pension interest as defined by the Divorce Act as this definition is outdated and reference to it will exclude at least two-thirds of contributions made since the introduction of the two-pot retirement system - these contributions are the amounts that must be preserved until retirement in the retirement pot.
If it is intended that retirement savings accumulated before the marriage are excluded from the divorce award, the pension interest amount stated in the divorce order should take this into account. The fund will not make a calculation.
Specifically order the fund to pay the percentage or a rand amount of the pension interest to the non-member spouse or transfer it for them to another fund. These are the only two options permitted. The court order should allow for both these options and the non-member spouse can then make their choice and inform the fund of it after the divorce order is granted.
Funds receiving a divorce order must ask the non-member spouse how they wish to be paid within 45 days of receiving the order.
The non-member spouse has 120 days to notify the fund whether to pay in cash or transfer the benefit to another retirement fund.
The fund has 60 days to pay the amount and fund returns are payable from the date the non-member spouse informs the fund how they want the amount paid until the pension interest is paid.
Here are some common mistakes in divorce order wording where the spouses want the member’s fund to pay the portion of pension interest to the former spouse (non-member). The order:
Does not correctly name the fund or is vague about which fund it is
Only specifies one fund when there are two
Specifies the fund’s administrator should pay, instead of specifying the fund should pay.
Incorrectly purports to assign something other than “pension interest” – as defined in the Pension Funds Act,- like “provident interest” or “the member’s benefit”.
Purports to change who should pay the tax or the amount of tax payable.
The order purports to make the pension interest payable to someone other than the former spouse.
Purports to change the date at which pension interest is calculated (the Pension Funds Act already includes “at date of divorce” in the definition of pension interest.
Purports to add something other than “fund return” to the pension interest until date of payment (it’s not necessary to deal with this in the court order as it is built into the definition of a pension interest in the Pension Funds Act).
Purports to add fund return from a date other than the date of deduction (again, it’s not necessary to deal with this in the court order as it is built into the definition of pension interest in the Pension Funds Act).
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it if it would see the order as enforceable in respect of the fund should they receive such wording (ie if the fund would see the wording as requiring it to pay the former spouse). That should save everyone time, money and a good deal of stress.