Enforceable orders against retirement funds after divorce: A rejoinder

June 1st, 2017
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By Clement Marumoagae

In the article ‘Pension interest – is there a need to plead a claim?’ (2017 (Jan/Feb) DR 38), I argued that in Ndaba v Ndaba [2017] 1 All SA 33 (SCA), the Supreme Court of Appeal (SCA) settled the law in relation to ‘[w]hether or not there is a need to specifically plead a claim for a pension interest in divorce papers in order for the court to order a retirement fund to pay the pension interest to the non-member spouse.’ In the Ndaba matter, the majority correctly held at para 28 that ‘[t]he cases that espouse the proposition that for the pension interest of a member spouse to form part of the joint estate upon divorce, it is necessary that it be claimed by the non-member spouse in his or her summons or counter-claim, have been criticised. For the reasons articulated above, those criticisms, in my view, are justified.’ Petse JA, writing for the majority authoritatively held at para 25 that ‘… it was not necessary for the parties in this case to mention in their settlement agreement what was obvious, namely that their respective pension interests were part of the joint assets which they had agreed would be shared equally between them.’ In this case, the settlement agreement did not make provision for the pension interest.

In view of these paragraphs, I then ‘concluded’ in the article that ‘[i]n light of the SCA decision, it is hoped that retirement funds and regional magistrates in particular, will no longer burden divorce litigants with the duty to plead and pray for pension interest in order for divorce decrees to order retirement funds to pay pension interests to non-member spouses.’ This incited a reply from Naleen Jeram ‘Is it still necessary to obtain a court order against the fund? A rebuttal’ (2017 (June) DR 28), who first correctly argues that ‘[t]he payment of pension interest benefits to non-member spouses on the dissolution of a marriage has been the subject of intense debate and has recently received judicial attention… .’ Mr Jeram then proceeds to state incorrectly that I have averred in the above mentioned article that the Ndaba matter ‘clarified the position and [I concluded] that the court has ruled that it is not necessary for the pension fund to be identified and ordered to pay the benefit in order for such a fund to pay the non-member spouse.’ It is this conclusion which he attributes to me, which he ‘respectfully disagree[s] with, as in [his] view, this was not the court’s ruling, nor does it reflect the current position.’

Mr Jeram has misinterpreted my argument. I did not say that the Ndaba matter clarified intense debates relating to pension interests by lower courts, nor did I say that this case ruled that it is not necessary for the pension fund to be identified and ordered to pay the benefit in order for such a fund to pay the non-member spouse. In actual fact, I have extensively discussed elsewhere aspects of the law in relation to pension interest, which the Ndaba matter has clarified and those which remains points of contention (see Marumoagae ‘The Law Regarding Pension Interest in South Africa has been settled! Or has It? With Reference to Ndaba v Ndaba (600/2015) [2016] ZASCA 162’ 2017 (20) PELJ 1). In other words, the Ndaba matter did not clarify the entire law relating to pension interests in South Africa.

Pleading pension interest

Unfortunately, Mr Jeram did not reply to my argument but opted to use my article as a vehicle for introducing his argument, which points out the importance of s 7(8) of the Divorce Act. Mr Jeram’s argument is basically that in order for retirement funds to pay out pension interest shares to non-member spouses, they must receive an order directing them to make such payments. My primary argument, which Mr Jeram ought to have engaged, relates to praying and pleading pension interests when preparing divorce papers, given the fact that the majority in the Ndaba matter held that in the context of that case, there was no need for the parties to include a pension interest in their settlement agreement (para 25). My submission is that where there is no settlement agreement, it is then equally not necessary for the parties to plead and pray for a joint estate, particularly when they are married in community of property. This is because on the date of divorce, in terms of s 7(7) of the Divorce Act 70 of 1979 (the Divorce Act), the pension interest will be deemed to be part of the member spouse’s estate. It is worth noting that neither the Ndaba matter, nor any other case dealing with pension interest has clarified how the pension interest becomes part of the joint estate, because s 7(7) of the Divorce Act merely vests it in the member’s personal estate and the Act does not go further than that. It can be argued, however, that since the contributions that were paid to the member spouse’s pension fund were derived from the member’s salary, which itself can be regarded as a patrimonial benefit of the marriage, it then follows, therefore, that ‘somehow’ once deemed to be part of the member’s estate, such pension interest will automatically also be part of the joint estate as a patrimonial benefit. Thus, because ultimately, the pension interest will be deemed to be part of the joint estate in terms of s 7(7) of the Divorce Act, then it should follow that it is pointless for the non-member spouse to plead and pray for a benefit, which the law already regards as an asset in the joint estate at the time of divorce. Unfortunately, Mr Jeram, does not engage this argument, but I will nonetheless, engage his argument.

The significance of s 7(8) of the Divorce Act

The Ndaba decision did not affect the application of s 7(8) of the Divorce Act in relation to payment of pension interests by retirement funds. The current legal position is indeed that in order for retirement funds to make payment of portions of their members’ pension interest to non-member spouses, they should be served with court orders, which direct them to make such payment. While this cannot be contested as the current law, it does not follow that it cannot be questioned or even criticised, more particularly if it places unnecessary burden on non-member spouses. I agree with Mr Jeram that the majority in the Ndaba matter held that s 7(7)(a) is self-contained and not made subject to s 7(8) of the Divorce Act (at para 25). However, it is important to understand the context within which this statement was made. Petse JA was responding to a view that ‘absent a court order in terms of s 7(8), the non-member spouse effectively forfeits his or her entitlement to a share in the pension interest of the member spouse’, with which view he disagreed with (para 25). In the Ndaba matter, Petse JA sought to explain the difference between s 7(7) and s 7(8) of the Act, in my view he nonetheless, did not deal with the impact of s 7(8) on non-member spouses. All that Petse JA did was to clarify that s 7(8) is a statutory vehicle, which allows retirement funds to release portions of their members’ retirement benefits to such members’ spouses at the time of divorce (para 27). That is the law, and cannot be disputed, however, my argument goes further than that.

I am more concerned with the real impact of s 7(8) of the Divorce Act. Even though s 7(7) is self-standing and not dependant on s 7(8), the reality is that without an order which complies with s 7(8) of the Divorce Act, retirement funds would refuse to make payment. Once a non-member spouse is entitled to a benefit, he or she should be paid that benefit, but he or she will not be paid such benefit until he or she can prove that s 7(8) of the Divorce Act has been complied with. This is a fundamental debate, which Petse JA did not engage with. My understanding of Petse JA’s remarks is that whether or not s 7(8) has been complied with, that is immaterial in relation to the entitlement, which the non-member spouse has towards his member spouse’s retirement benefits. I take the debate further, and I propose a focused engagement with the real impact of s 7(8) of the Divorce Act. As the law stands, failure to comply with s 7(8) delays the ability of s 7(7) of the Divorce Act. In other words, if there is no order in terms of s 7(8), then a non-member spouse would be forced to seek variation of the divorce order at great cost before he or she can be paid what he or she is entitled to. This is despite the fact that the retirement fund concerned has acknowledged that one of the parties to the divorce is indeed their member. In other words, retirement funds do not dispute the entitlement, they only question statutory non-compliance. Thus I am of the view that the statutory requirement in s 7(8) is an unnecessary legal burden on non-member spouses, who may not have the financial resources to make applications to vary their divorce orders.

In making an argument for the importance of s 7(8), Mr Jeram advances several reasons as to why the fund must be identified and ordered to pay the pension interest in the divorce decree. His first reason relates to the fund not being a party to the proceedings, but he correctly conceded that it is unnecessary to join the fund as a party. On this point, the fact that one of the parties is a member of a pension fund and that pension fund holds an asset, which such a member built through the proceeds of the patrimonial benefits of the marriage in the form of the contribution from his salary, in my view should be enough for the non-member spouse to be able to seek payment of the portion thereof if the parties are married in community of property (or where the accrual system is applicable), notwithstanding the fact that s 7(8) has been complied with. The second reason Mr Jeram advances relates to the difficulty of apportioning a percentage, which the non-member spouse would be entitled to if there is no order to this effect. In my view, this is a non-issue, because any divorce practitioner can inform you that in a blanket division, parties to the divorce will be regarded as entitled to half of every asset contained in the joint estate. In other words, if there is no order relating to the percentage the non-member spouse is entitled to, then such a non-member spouse would then be entitled to receive 50% of his or her member’s pension interest. The third reason that Mr Jeram advances relates to members spouses who are members of multiple retirement funds, hence in the absence of an order it will not be clear as to whether the order is directed against all or some of the funds. In my view, this should not be a problem at all. Section 7(7)(a) of the Divorce Act is clear that the member’s pension interest is deemed to be part of ‘his’ estate as at the date of divorce. As such, a member who is part of multiple retirement funds, where there is no settlement agreement providing otherwise, his or her pension interest in all the retirement funds will be part of his or her estate, and subsequently part of the joint estate making them vulnerable for division.

Finally, it is worth noting that it is possible to identify the retirement fund to which the member belongs without mentioning it anywhere in the divorce papers. For instance, in terms of s 37D(4)(a)(i)(aa) of the Pension Funds Act 24 of 1956, a pension interest must be deducted by the pension fund named in or identifiable from the decree. If the pension fund is not named, it can be identifiable from the citation of parties in the pleadings, wherein the workplace or even occupation generally of the member spouse is provided for. From such information a non-member spouse may have an idea of which fund the member spouse may belong to or can approach the member’s workplace to seek such information. As such, post the divorce, details of the member’s retirement fund can be obtained from his or her workplace and his or her fund can be served with a divorce decree to make payment as part of the division of the parties’ joint estate.

Conclusion

Mr Jeram’s concerns would be welcomed by various retirement funds, however, they do not take into account the practical difficulties which non-member spouses have to go through to comply with s 7(8) once retirement funds have refused to pay. In my view, s 7(8) is an unnecessary statutory provision, which should be repealed. In particular, necessary amendments should be made, which remove deeming provision from
s 7(7) of the Divorce Act in order to treat pension interest as ordinary assets in the joint estate, which can be disposed of even with blanket divorce orders.

Clement Marumoagae LLB LLM (Wits) LLM (NWU) Diploma in Insolvency (UP) is an attorney at Marumoagae Attorneys in Itsoseng and a senior lecturer at Wits.

This article was first published in De Rebus in 2017 (June) DR 34.

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