Resigning on the eve of divorce to ‘protect’ pension benefits

Marriages in community of property create joint estates where all patrimonial assets of spouses that are individually or collectively acquired before and during such marriages will be held. Both spouses ‘should’ have equal access to such assets which they co-own in undivided shares. They also share in each other’s debts.

For spouses who are married out of community of property with the application of the accrual system, there is no joint estate that is created. Spouses retain their respective estates and do not collectively own assets that they acquired before or during the marriage. Spouses do not share in each other’s debts but the net increase in the value of their respective estates, only when the value of estate of one of them during divorce is greater than the value of the estate other. The spouse whose estate has shown a smaller growth will only have a right to share in the estate of the other spouse if such estate has shown greater growth at the time the court dissolves the marriage.

In most instances, retirement benefits increase the value of the joint estate in marriages in community of property or the member spouse’s estate where parties are married in accordance with the accrual system. During divorce, one spouse may wish to claim a portion of the member spouse’s retirement benefits. However, the member spouse may want to prevent the sharing of such benefits.

Irrespective of the marital regime applicable to the parties marriage, one of the most effective way to prevent the non-spouse spouse from claiming a portion of the member spouse’s pension benefits is to request the court to grant a forfeiture order in terms of section 9(1) of the Divorce Act 70 of 1979. To succeed with the forfeiture remedy, the member spouse must provide circumstances that gave rise to the breakdown of the marriage that are attributable to the non-member spouse, prove that the non-member spouse committed substantial misconduct or that the marriage was of a short duration (Marumoagae ‘The regime of forfeiture of patrimonial benefits in South Africa and a critical analysis of the concept of unduly benefited’ (2014) 47 De Jure 93).

The Supreme Court of Appeal in Wijker v Wijker 1993 (4) SA 597 held that there is no need to prove all these elements at the same time to succeed with this remedy. Any one or more of these factors can lead to the spouse who is not a member of a pension fund being ordered to forfeit the portion of the member spouse’s pension benefits that he or she would ordinarily be entitled to claim.

In most divorces, member spouses do not use the forfeiture remedy, or at times, elements of this remedy cannot be successfully established. Some of the member spouses, after being served with divorce summons, resign from their employment with a view to prevent their non-member spouses from being allocated portions of the available pension benefits. This seriously prejudices member spouses’ claims from the joint estates if parties are married in community of property or member spouses’ personal estates which would have been increased by these pension benefits. Most worryingly, after their resignation, some of these member spouses do not receive the amounts of these benefits in their bank accounts. They purchase living annuities which are insurance products that do not form part of either their joint estates or personal estates, and thus, cannot be taken into account during divorce (CM v EM 2020 (5) SA 49 (SCA) para 22). According to the South African Law Reform Commission in its issue paper 41 titled ‘Review of aspects of matrimonial property law’  Project 100E (6 September 2021) 9.21

‘Another issue which has a serious impact on financially weaker spouses, who are generally women, is that the law currently allows retirement fund members to hide retirement benefits and take them out of reach of non-member spouses by converting pension benefits to living annuities’.

The law as it stands allows retirement fund members to lawfully prevent their spouses from claiming parts of their retirement benefits.

The first problem with the law is what these benefits are referred to when spouses are divorcing. In terms of section 1 of the Divorce Act, these benefits are referred to as ‘pension interests’ which are benefits that member spouses would have been entitled to receive had their pension fund membership been terminated on the date of divorce. This means that in order for non-member spouses to have a claim to these benefits, the member spouses must be active members of their pension funds and divorce should be a trigger event that would lead to the release of these benefits. In other words, should member spouses exit their retirement funds through resignation, retirement, dismissal or retrenchment there will not be any pension interest to claim.

These benefits would be regarded as accrued pension benefits which non-member spouses will not be able to claim even if such benefits, at the time the court dissolves their marriage, are still held by member spouses’ pension funds. This is because retirement benefits are not ordinarily part of member spouses’ estates but in terms of section 7(7) of the Divorce Act are deemed to be part of their estates only for the purposes of allowing non-member spouses to share thereon upon divorce.

Only pension interest as defined in section 1 of the Divorce Act can be shared and not accrued pension benefits as a result of divorce. This is an effective legislative gap that has empowered member spouses to prevent their non-member spouses from claiming portions of their pension benefits by resigning from their employment upon being notified of divorce proceedings against them. By so doing, the exit event from their pension funds becomes something else other than divorce which would have entitled non-member spouses to claim their entitled portions of these benefits (see Ndaba v Ndaba 2017 (1) SA 342 (SCA) para 25).

Given the historical disparities in marital income, this issue is gendered by its very nature. Member spouses’ resignations on the eve of divorce with a view to divert pension benefits impact financially weaker spouses, most of whom are women in practice. First, this conduct perpetuates non-member spouses’ economic discrimination in direct violation of section 9(3) of the Constitution.

Secondly, this conduct arbitrarily deprives them of property in the form of the money that they ordinarily should receive by virtue of their marital regime in direct violation of section 25(1) of the Constitution (see Marumoagae ‘Deprivation of Retirement Benefits on Divorce through Living Annuities in South Africa’ (2021) 66 Journal of African Law 167).

In conclusion, there is an urgent need for the legislature to review the current legal framework with a view to ensuring that non-member spouses’ rights are adequately protected.

This can be done by inserting a provision in the Divorce Act that makes retirement benefits automatically part of member spouses’ estates and empower pension funds to withhold these benefits when members are embroiled in Divorce proceedings. This will empower pension funds’ boards to wait for the finalisation of these proceedings with a view to allocate to the non-member spouse amounts that the court would have allocated to them in terms of section 7(8) of the Divorce Act.

Failure to legislative attend to this conundrum will lead to the perpetual prejudice of financially weaker spouses during divorce who would need to approach courts to challenge the law. However, most of them do not have the financial resources to do so.

Clement Marumoagae is associate professor at the University of Witwatersrand’s school of law.