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In practice, non-member spouses whose marriages are either in community of property or out of community of property with the application for the accrual system, continue to be frustrated by many retirement funds. Retirement funds generally refuse to pay them their portion of their member spouses’ pension interests on the basis that their decrees of divorce do not comply with s 7(8) of the Divorce Act 70 of 1979 (the Divorce Act). The retirement funds’ strict and often incorrect application of this provision force non-member spouses to unnecessarily undertake costly post-divorce court processes aimed at ‘correcting’ divorce orders. This article aims to illustrate that retirement funds regulated by the Pension Funds Act 24 of 1956 (the PFA) are not entitled to reject divorce orders that they deem not in compliance with s 7(8) of the Divorce Act if such orders comply with s 37D(4)(a)(i) of the PFA.

The legal framework

Section 7(8) of the Divorce Act provides the court granting a divorce, discretion to make an order that a portion of the member spouse’s pension interest ‘shall’ be paid by the member spouse’s retirement fund to the non-member spouse when the pension interest accrues to the non-member spouse. This is an extraordinary power that the legislature vested in the courts, which entitles courts to make orders against retirement funds that are usually not parties to divorce proceedings. Naleen Jeram correctly argues that ‘it is still necessary to obtain an order in terms of s 7(8) … if the fund is to be co-opted into payment of any assigned pension interest’ (‘Is it still necessary to obtain a court order against a fund? A rebuttal’ 2017 (June) DR 28). I have also argued elsewhere that ‘[t]he 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’ (‘Enforceable orders against retirement funds after divorce: A rejoinder’ 2017 (June) DR 34). In other words, without a court ordering a retirement fund to pay to the non-member spouse a portion of the member spouse’s pension interest, the retirement fund can refuse to make such payment notwithstanding, the fact that the fund has satisfied itself that the member spouse is its contributing member.

Not only do retirement funds refuse to make payment of pension interests to non-member spouses on the basis that divorce orders are ‘defective’ because they do not order them to make such payments, they also refuse to pay when their names are incorrectly cited in divorce orders. I have argued elsewhere that:

‘This strict approach negatively affects litigants who are instituting divorce proceedings either on their own or with the assistance of legal practitioners who lack the necessary expertise in this area of law. In most “do it yourself” divorces wherein the instituting party will be given a proforma divorce summons to fill out for themselves or with the assistance of the Registrar of the court, chances of failing to properly make out a case for a pension interest remains high and can be disastrous leading to such a party not being able to claim his or her share of the member spouse’s pension interest. It could not have been the intention of the Legislature for legally unassisted or poorly assisted divorce litigants to be prejudiced by the requirement that they must ensure that the names of retirement funds are stated in their divorce decrees’ (C Marumoagae ‘Prejudice emanating from non payment of pension interests due to what is contained in or omitted from divorce decrees’ (2018) 51.1 De Jure 102).

I note that there are judicial officers who – when realising that the manner in which the pension interest has been pleaded or dealt with in the settlement agreement may lead to retirement funds refusing to pay – may attempt to assist either the legally unassisted litigants or legal practitioners who might have dealt with this aspect in a manner that might prejudice their clients. This assistance might be borne out of the frustration relating to many post-divorce applications intended to vary divorce orders where retirement funds have refused to pay former non-member spouses’ their entitled portions of their former non-member spouse’s pension interests. Retirement funds continue to force former non-member spouses to make such applications despite the fact that these former non-member spouses are entitled to their former non-member spouses’ pension interests (GN v JN 2017 (1) SA 342 (SCA) at para 25).

Section 7(8) of the Divorce Act is an effective legislative tool that empowers retirement funds to frustrate non-retirement fund members, because as the law stands, this provision must be complied with. It is interesting to note that nowhere in this provision is it stated that when exercising its discretion, the court must either state the name of the retirement fund concerned or must precisely state the name of the retirement fund that it orders to pay to the non-member spouse their portion of the member’s pension interest. However, context is provided by s 37D(4)(a)(i)(aa) of the PFA, which mandates that for the purposes of s 7(8) of the Divorce Act the portion of the member spouse’s pension interest that accrues due to the divorce and thus, should be paid to the non-member spouse ‘must be deducted by –

(aa) the pension fund or pension funds named in or identifiable from the decree’.

It can be argued that this provision – at least in part – illustrates that retirement funds that have been rejecting divorce orders on the basis that they are not specifically named in the divorce orders were empowered by legislation to do so. However, that argument loses the fact that s 37D(4)(a)(i)(aa) of the PFA is twofold. First, and most preferably, this provision requires that the name of the retirement fund that will be ordered to pay in accordance with s 7(8) of the Divorce Act must be named in the divorce order. Secondly, if such a retirement fund is not named, at the very least, it should be identifiable from the order. It is easier to identify a retirement fund in a settlement agreement that will be made an order of court as opposed to where there is no settlement agreement. It is nonetheless, possible to identify the relevant retirement fund in the pleadings and request the court to state some of the identifying features of the fund in the divorce order such as the member’s employment or retirement fund number if it is known. In short, notwithstanding, the fact that they are not precisely stated in divorce orders, retirement funds have no legislative basis to reject divorce orders that identifies them as retirement funds that member spouses involved in divorce litigations are contributing to. In other words, it does not make sense to force non-member spouses to make applications to court to vary orders at great costs, where retirement funds have satisfied themselves that they are the relevant funds that will eventually make payment to non-member spouses. In Dosson v Cape Municipal Pension Fund [2009] 1 BPLR 12 (PFA) para 5.13, the Adjudicator correctly noted that:

‘It is true that the present position may lead to much hardship. The many complaints before this tribunal indicate that pension funds are frequently incorrectly cited, or not mentioned by name at all, although they can usually be identified from the context. In circumstances where the fund is clearly identifiable, although not named, it seems unduly onerous to require a party whose claim has fallen due to make formal application for rectification of the divorce order’.

I am of the view that the relevant retirement fund will always be identifiable. In my view, the fact that the member spouse is cited on the divorce order, there can be no better identifying feature than that. It is possible for the member spouse not to know the name of their retirement fund, because in most instances, members’ payslips merely indicate their contribution to either a pension fund or provident fund without stating the full names of the members’ retirement fund. The second most obvious identifying feature that would be stated in the pleading as opposed to the divorce order is the member spouse’s workplace or profession. If there is a standalone fund, umbrella fund or industry related fund that the employer participates in, then by virtue of employment, the member spouse will belong to that fund and the employer should provide relevant information thereto. Divorce as a contingent event makes non-member spouses beneficiaries of their member spouses’ pension interests. In terms of s 7D(1)(c) of the PFA, one of the duties of the board is to ‘ensure that adequate and appropriate information is communicated to … beneficiaries of the fund informing them of their rights, benefits and duties in terms of the rules of the fund’.

Assuming that it might be difficult to identify the relevant retirement fund, particularly when the relevant fund is neither named nor identifiable from the divorce order – as the law stands – retirement funds will be within their rights to refuse to make payments to non-member spouse. This assumption leads to the strict application of s 7(8) of the Divorce Act that without an order that the retirement fund must pay to the non-member spouse a portion of the member spouse’s pension interest the affected retirement fund cannot make such payment. This is despite the fact that the non-member spouse is entitled to receive that payment (GN v JN at para 25). The issue in almost all pension interest related disputes has never been the fact that the non-member spouse struggled to identify the relevant fund, but that such a fund was either not named in the divorce order or incorrectly cited.

I submit that the legislature must honestly assess how the fact that ‘retirement savings’, which are contributed from member’s salaries and invested on their behalf by their retirement funds are not ‘real’ assets is prejudicing non-member spouses (C Marumoagae ‘An argument for necessary amendments to the legislative provisions regulating the sharing of retirement savings upon divorce in South Africa’ (2018) 30 SA Merc LJ 280). Should ‘retirement savings’ be elevated to the status of ordinary assets, there will be no need for them to first be deemed to be assets in terms of s 7(7) of the Divorce Act and then be ordered to be paid to the non-member spouse in terms of s 7(8) of the Divorce Act. In other words, ‘as ordinary assets’ retirement savings will automatically constitute part of the joint estate when members are married in community of property and part of the member’s accrual if the accrual system is applicable to the parties’ marriage. I submit that the legislative burden created by s 7(8) of the Divorce Act is unnecessary and the practical hardships that results from its strict application by retirement funds makes it clear that amendments to the Divorce Act are necessary to repeal this provision. In order to lessen the burden, the legislature should also amend s 37D(4)(a)(i)(aa) of the PFA to simply read ‘the pension interest should be deducted by the member spouse’s retirement fund’. In other words, I submit that it should not be a legislative requirement that in order to pay there should first be reference to the affected retirement fund in the divorce order.

Conclusion

Divorce practitioners should, however, note that they need to comply with the law as it is currently applied and make adequate provision of the member spouses’ pension interests in order for retirement funds to pay portions thereof to non-member spouses. In other words, practitioners should assist the court to either name or identify the relevant fund in divorce decrees. I recommend that the following clause to be inserted either in the pleadings or settlement agreement, which I believe will enable the court to exercise its discretion in terms of s 7(8) of the Divorce Act:

‘The plaintiff/defendant is a member of ABC pension/provident fund (whichever is applicable). The defendant/plaintiff is entitled to be paid 50% of the defendant/plaintiff’s pension interest held by ABC pension/provident fund.’

If the name of the relevant retirement fund is unknown, rather than incorrectly citing such retirement fund, it is ideal to draft the pension interest clause using known information with a view to identify such a fund. I propose the following:

‘The plaintiff/defendant is employed at Marumoagae Enterprises and contributes to a retirement fund (a neutral term) which his/her employer participates, which is administered by A/B/C (applicable underwriter). The defendant/plaintiff is entitled to be paid 50% of the plaintiff/defendant’s pension interest held by the retirement fund which plaintiff/defendant is a contributing member.’

Where the practitioner is unsure of the type of fund to which the member spouse belongs, I submit that the phrase ‘retirement fund’ should be used. This is a general phrase that adequately captures different kinds of funds such as: Pension funds; provident funds; preservation funds; deferred funds and retirement annuity funds.

Clement Marumoagae LLB LLM (Wits) LLM (NWU) Dip Insolvency Practice (UP) is a legal practitioner at Thipa Attorneys and senior lecturer at the University of Witwatersrand in Johannesburg. Mr Marumoagae is also a council member of the Legal Practice Council.

This article was first published in De Rebus in 2019 (Oct) DR 10.