Cohabitation: Can pension benefits be shared?
Partners that live together in relationships outside the current legislative framework (Cohabitees) relating to marriage or civil unions are presently afforded minimal legal protection. Cohabitees are advised to draft a cohabitation agreement to regulate the terms of their cohabitation. Such and agreement will determine the division of their property on termination of the relationship, as well as the division of the assets jointly acquired by the parties during the cohabitation.
If a relationship between partners in a cohabitation agreement terminates, and in the absence of agreement between the parties as to the financial and proprietary consequences, each party would walk away with the assets he/she brought into the relationship and with what he/she acquired in his own name, regardless of whether or not the assistance of the other party enabled him to acquire an asset or increase the value of it. The courts have often come to the aid of a disgruntled partner who was left with nothing and in some instances recognised that a universal partnership can come into being between cohabitees. This provides a mechanism whereby assets can be shared. But it is extremely difficult to prove.
A universal partnership will exist if the following essentials are present:
- Each of the partners brings something into the partnership.
- The business is carried on for the joint benefit of the parties.
- The object of the partnership should be to make a profit.
- The contract should be a legitimate one.
It is a question of fact whether a universal partnership can be said to exist in a given set of circumstances. In a recent judgment the Supreme Court of Appeal confirmed the principles relating to universal partnerships in the context of two people cohabiting. In that case the cohabitees lived together for years. The court held that a universal partnership did exist between them as each party brought something into the partnership, the partnership was carried on for their joint benefit and the object was to make a profit. The activities engaged in by the parties were for their joint benefit and they increased their assets thereby.
Other cases held that the evidence did not support the existence of a joint venture formed in the context of a cohabitation relationship.
The contrast between these cases illustrates the importance of the factual matrix in proving the existence of a universal partnership.
The formation of a universal partnership creates a community of property and profit and loss in respect of partnership. On dissolution of this partnership, the partners can share in the partnership assets that are jointly owned, but not necessarily in equal shares. Partnership assets are those assets that were brought into the partnership at inception and also those that were acquired during the existence of the partnership. In the absence of a partnership agreement, evidence must be led as to what the parties’ intention was regarding the assets each was contributing to the partnership.
Should no agreement be reached between the parties on termination of their partnership as to the division of assets of the partnership, a liquidator must be appointed to liquidate the partnership assets.
A cohabitee’s membership of a retirement fund creates unique difficulties within the framework of the dissolution of universal partnerships. Can this fund become a partnership asset available for division on dissolution of the universal partnership, as it does on the dissolution of a marriage?
A universal partnership is not a marriage and accordingly cannot be dissolved by divorce. Therefore the Divorce Act does not apply to its dissolution.
There is no law that deems a member’s pension assets to be transferred into a partnership and be available as a partnership asset to be divided on the dissolution of a universal partnership. A cohabitation agreement would be of no force and affect either as it would not be enforceable against the pension fund.
Cohabitees, even those who are able to prove the existence of a universal partnership and a joint estate between them, cannot share in the pension assets of their partners on termination of the relationship as is the case with people who have registered their unions in terms of the Marriage Act or the Civil Union Act. It still needs to be decided by our courts whether or not this amounts to discrimination on the basis of marital status, it is submitted that it does, especially as cohabitees are able to be awarded these assets on the death of their partners.