Pension interest in divorce: is it time to reform s 7 of the Divorce Act?

July 1st, 2023
CNN v NN [2023] 2 All SA 365 (GJ)

Usually when parties divorce, a decree of divorce will indicate that the divorcing parties have agreed or been ordered to divide their estates equally, and as a result the pension fund will be bound to honour the court order by paying the other spouse as agreed by the parties or ordered by the court.

In CNN v NN, the parties had entered into a settlement agreement, which was then made an order of court on 14 October 2022 (para 1.1). The same settlement agreement was varied and the term ‘pension interest’ was removed and replaced with ‘accrued pension benefit’ (para 1.1). The latter amendment was made an order of court (para 1.2). The legal issue that this court had to determine was whether it can vary and enforce a settlement agreement by replacing a statutorily defined phrase ‘pension interest’ with ‘accrued pension benefit’, a term not statutorily defined in the Divorce Act 70 of 1979 (para 2).

The facts of the case are briefly explained: The respondent resigned from his employment and left his pension fund on 7 May 2021, two months after being served with divorce summons (para 3). Later, the party’s marriage was dissolved on 14 October 2022 and the decree of divorce incorporated a settlement agreement (para 3). At the time the decree of divorce was granted the respondent was not a member of a pension fund, thus did not have a pension interest which could be allocated to the applicant (para 3).

‘At the time the divorce order was granted, the respondent’s pension benefits were still held by the fund’ (para 4). After the divorce order was granted, the applicant then approached the respondent’s pension fund to claim payment of what she believed belonged to her (para 4). It was then that the respondent’s pension fund informed her that the respondent was no longer a member of the pension fund (para 5). The applicant was informed that the divorce order could not be enforced as it fell short of the legislative requirements necessary for its enforcement (para 5). Of interest to the court, was that the respondent’s fund advised the applicant to furnish a divorce order, which would direct the fund to pay a pension benefit instead of a pension interest (para 5). The applicant was advised that the respondent’s pension interest had accrued, and his pension interest was nil (para 5).

As a result of the contents of the letter from the respondent’s pension fund, the applicant was encouraged to bring an application to amend the phrase ‘pension interest’ and replace it with ‘accrued pension benefit’ as contained in the divorce order (see para 6). Further, the court enquired from the applicant’s counsel whether such a statutorily recognised phrase ‘pension interest’ could be replaced with the phrase ‘accrued pension benefit’ and if such an amendment could be enforced in terms of the Divorce Act (para 7).

Counsel for the applicant submitted that ‘the phrase “pension interest” made it difficult for the applicant to claim her entitled portion of the respondent’s pension benefit’ (para 10). Hence, the need to replace the phrase ‘pension interest’ with ‘accrued pension benefit’ as the pension benefit had accrued to the respondent due to his resignation from his employment (para 10). The applicant was not aware that the respondent had exited his fund as he had not bothered to inform the applicant of his resignation (para 13).

The applicant was ‘incorrectly advised … to approach this court to vary the divorce order to allow her to claim … the respondent’s accrued pension benefit’ and such an amendment would be unenforceable (para 13). The applicant sought to amend the court order that was made by the court, unaware of the respondent’s pension status (para 17). The respondent was not a member of a pension fund, at the time the divorce order was granted therefore the order ‘could not be enforced in terms of sections 7(1) and 7(8) of the Divorce Act’ (para 17).

The court held that this case highlighted ‘an important gap in the law regulating pension interests in South Africa’. As the law stands, there is not sufficient legal framework that allows a non-member spouse to claim pension benefits of the member spouse, directly from the fund if the spouse exits the fund before divorce (para 20). As a result, this gap opens the door for member spouses to resign from the pension fund after being served with summons thus keeping their pension benefits from their non-member spouses (para 20). Section 7(7) of the Divorce Act has created a legislative framework that makes it possible for a non-member spouse to claim a portion of the member’s pension interest as at the date of divorce (para 26).

Section 7(8) facilitates the practicality of s 7(7) in that it, among others, allows the divorce court a discretion to make a portion of the member’s pension interest to accrue to the non-member spouse (para 28). However, in this case the applicant was claiming a portion of the respondent’s pension interest that accrued before their divorce was granted (para 31). As such ‘the applicant [has relied] on section 7(8) of the Divorce Act to claim a pension benefit that [had] already accrued to the respondent through resignation’ (para 31).

This case highlights a significant social issue regarding fund members who exit their funds when they are involved in divorce proceedings. When members cash in their benefits, it ‘makes it difficult for non-member spouses to claim their entitled share of such benefits on divorce’ (para 33).

In this case, the law was against the applicant as she could not claim benefits that accrued to the respondent before a divorce order was granted as such was outside the confines of s 7(8) of the Divorce Act (para 35). The variation of the divorce order sought by the applicant could not stand in the face of s 7(8) of the Divorce Act (para 35).

In conclusion, ‘as the law stands, the court can only order [a pension] fund to pay a pension interest as defined in section 1 of the Divorce Act in terms of section 7(8) of the Divorce Act, and not an “accrued pension benefit”’ (para 35). Unfortunately, the current legal framework makes provision for member spouses to intentionally disadvantage their non-member spouses’ claims to their retirement benefits by resigning after being served with a divorce summons (para 35). Non-member spouses’ access to the member spouses pension benefits is dependent on divorce and if they are active in their membership. At the time a divorce order was granted the respondent was not a member of a pension fund and the applicant could not be allocated a pension interest (para 36). This case calls for a legislative reform of s 7 of the Divorce Act to ensure that there is adequate legislative framework to protect non-member spouses from member spouses who resign from employment once served with a divorce summons.

Mapakiso Pita LLB LLM (Business Entities) (UFS) is a candidate legal practitioner at Legal Aid South Africa in Welkom.

This article was first published in De Rebus in 2023 (July) DR 28.