Legislative changes over the past two years have made it possible for divorcees to immediately claim the portion of their ex-spouse’s retirement fund interest as awarded to them in terms of the divorce settlement agreement, says Pieter Willem Moolman.

Previously, a non-member spouse had to wait forever and a day until the former spouse became entitled to the retirement fund benefits, before laying claim to their portion.

Many who have learned of the legislative changes now believe that a non-member spouse is entitled to half of the ex-spouse’s fund value as at date of divorce, however, this is not the case.

If the divorce settlement agreement is not drafted properly, a party may find that the claim against the pension fund might not be enforceable. It is therefore of utmost importance that the settlement agreement is drafted properly and the non-member spouse determines the amount he/she desires in advance.

For a fund to make payment in terms of a divorce order to a non-member spouse, the court order must comply with the requirements of the Divorce Act of 1979.

The act states that the divorce order must award only a portion of the member’s pension interest as at date of divorce to the non-member spouse and the fund must be named or clearly identified in the order. The retirement fund must also be ordered to make an endorsement in its records to ensure that the awarded part of the pension interest is paid to the non-member spouse.

It is important that the parties understand exactly what is meant by “pension interest”. In a pension fund, the divorce act defines it as the fund value at date of divorce.

In retirement annuity funds the pension interest is defined as a percentage of the capital amount plus simple interest at the prescribed rate of interest, calculated up to the date of divorce. The rate is currently 15.5%.

Your financial planner can determine the “pension interest” you will receive when they value your retirement annuity fund for purposes of divorce. This will provide security to the non-member spouse of the fund amount he/she will receive and the member spouse will be made aware of the amount by which his/her retirement annuity fund will be reduced.

The best manner in which a non-member spouse can claim an immediate lump sum payment from a retirement annuity fund will be if the divorce order mentions the actual amount the parties had in mind, for example: “R500 000 of Joe Soap’s pension interest in the X retirement annuity fund”.

Remember that the benefit received will be taxed in the hands of the non-member spouse if he/she takes the benefit in cash. A non-member spouse can avoid paying tax immediately by transferring the full divorce allocation to another approved fund (including a preservation fund).

When the member leaves the fund on withdrawal, retirement or death, the normal tax provisions will apply at that time.

Your financial planner will be able to invest your money in your personal capacity, so that you can enjoy the growth thereon for many years to come.

Pieter Willem Moolman is the owner of PWM Financial Management in Port Elizabeth. Visit www.pwmfb.co.za or phone 041 582 3034.