Pension Funds and Divorce: Be careful how you word a settlement agreement in a divorce
THE CLEAN-BREAK PRINCIPLE IN A DIVORCE DOES NOT APPLY TO DEFERRED PENSIONS
The legal definition of the words “pension interest” is vital in deciding when a non-member spouse becomes entitled to a share of a fund member’s retirement savings.
A recent judgment by Supreme Court of Appeal highlighted the fact that the date on which a member resigns from a pension fund and the date of the divorce directly affect when the non-member spouse may expect to receive his/her pension interest.
In this matter the ex-wife of a former member of a Pension Fund, was not entitled immediately to receive a share of her former husband’s retirement savings in the fund. This was despite a divorce settlement that awarded her a share of the savings and a determination by the Pension Funds Adjudicator that the fund must pay up.
Long before the divorce, the husband resigned from his employment and had elected to defer his pension benefit in the fund. He had thus become a deferred pensioner in terms of a rule of the fund.
The divorce settlement, which had been made an order of court, recorded that the husband had a pension interest in the pension fund and provided that his wife was entitled to 25% of that pension interest, payable to her as soon as the husband became entitled to the pension interest.
The settlement agreement further provided that the spouse’s attorneys would secure the registration of an endorsement against the records of the fund – as provided for in the Pension Funds Act. But the fund refused to register the endorsement against its records on the basis that, at the time of the divorce, the husband was a deferred member and no longer had a pension interest in the fund as contemplated in the Pension Funds Act.
The court held that the legislation contemplates an award to the non-member spouse of part of the pension interest, calculated at the date of the divorce but with effect from a future date when the benefit accrues to the member spouse. It held that, where the benefit has already accrued, the provisions of the Act do not apply and that the husband could not again be deemed to become entitled to a resignation benefit.
The court ruled that the wife could claim her share when the husband turned 55 and the benefit became due to him.
What parties in a divorce cannot do by agreement is to invoke the statutory mechanisms under the Pension Funds Act in a situation to which that Act simply does not apply. This means, for example, that a non-member spouse cannot impose obligations on a pension fund (rather than on the member spouse) in terms of the Pension Funds Act in a situation in which the Act does not apply.