In our last blog we looked at proprietary rights on divorce.
Today we look specifically at pension benefits at divorce.
One needs to be very careful about how retirement benefits are divided between spouses at the time of a divorce. Many people including their own attorneys get it wrong and leave non-member spouses, in particular, financially vulnerable as a result. And some of those getting it wrong are the so-called experts including divorce lawyers and retirement fund trustees and advisors.
The problem very often is that the divorce settlement agreements do not comply fully with the provisions of the Divorce Act. A seemingly common mistake is that these settlements wrongly award a non-member spouse t a share in the benefits of the member spouse from the date of the members actual membership until the date of the divorce; whereas it should only be from the date of the couple’s marriage until the date of the divorce. This creates a huge problem especially if the settlement agreement has already been made an order of court as that order will then have to be amended at considerable cost.
A practical example will help us understand this.
In a recent matter a Mr P alleged that his retirement fund, a mining industry fund, had paid his ex-wife, Ms M, a pension interest calculated from the date of his membership to the date of the divorce instead from the date of their marriage to the date of the divorce. Mr P married Ms M in November 2004; but had been a member of the Pension Fund since August 1995. In 2008 he switched Pension Funds and an amount of just over R 700000 was transferred from the one initial fund to the new fund and his membership was backdated to February 2008.Mr P was clearly unhappy about the amount of the payment made by the fund to Ms M. In response his Fund argued that Mrs M, in their view, was entitled to a portion of the full pension interest he had; because the transfer date had occurred after the marriage date. Their calculation was based on the period from when Mr P’s interest was transferred to the new fund ie February 2008 up to the date of the divorce.
However this was not what the divorce settlement agreement and court order said. That order and settlement stated quite clearly that her interest was limited to and from the date of the marriage to the date of the divorce. In addition there was a problem with the settlement agreement itself because it did not comply with the definition of a “pension interest;” and therefore was not enforceable by the fund itself as it amounted to an unlawful reduction of a pension benefit.
A pension interest is by definition “an amount equal to the member’s cash resignation benefit, which would become payable had the member resigned as at the date of the divorce; and has no bearing on the date of the marriage as such.” It was therefore incorrect for the Fund to interpret the settlement agreement and court order to mean that Ms M was to be awarded 50% of Mr P’s pension interest calculated from the date of his membership to the date of divorce; when it expressly states something quite to the contrary. In short; the settlement agreement and court order sought to define a pension interest in a manner contrary to the requirements and the law; as stated in the Divorce Act.
What the Fund should have done in these circumstances was to approach both parties to allow them an opportunity to approach the court with a view to amending the court order so as to make it lawful in all respects. Alternatively it could have simply refused to enforce the order by reason of its inconsistency and vagueness. Instead the Fund chose to simply apply its own interpretation. In doing so it also went against what the parties had agreed between themselves namely that the transferable interest should be calculated from the date of the marriage to the date of the divorce. In our view all Funds should insist on only implementing settlement agreements which comply fully with the definition of a pension interest as it is legislated. The payment to Ms M was set aside and the fund ordered to repay the sum to Mr P. Not a happy ending for Ms M!
Lesson: Be careful with the wording of divorce settlement agreements.
The Legal Advice Office Team.