Leverage - October 2020

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Legal and technical update LEVERAGE

At a glance

In this edition, we focus on the impact of divorce on retirement funds. Annemie Nieman, a legal adviser based in Gauteng for Momentum Financial Planning has a thorough look at the implications of the Divorce Act on parties married out of community of property without accrual. It is important to take note that the Act does not afford these parties the same rights as those married in community of property or with accrual and it is vital to inform clients in the midst of a divorce of this, as an omission can result in unwanted costs and consequences.

We also take a brief glimpse at the impact divorce has on one’s Will and the implications of dying without a valid Will.

The second article is written by Sharon Hamman, Senior Legal Adviser, and provides insight into customary marriages and the impact it has on financial planning. The article highlights the impact of being a spouse when doing a financial plan and also sheds some much-needed light on the requirements for customary marriages to be recognised as a legal union.

To support this edition of Leverage you will also find an ASAP summarising the impact of Divorce on Retirement funds, which also contains practical information to consider when drafting the divorce order.

Wishing you an enjoyable read!

Edition 4

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Differences of opinion regarding the division of pension interest at divorce have been

expressed by various divisions of the South African High Court over the years, to the

extent that there has been a dire need for either the Supreme Court of Appeal or the

Constitutional Court to provide clarity on how section 7(7) and 7(8) of the Divorce

Act read in conjunction with section 37D(1)(d)(i) of the Pension Funds Act should be

interpreted.

Many believed that the confusion could be avoided by the parties simply entering into a

settlement agreement and having the agreement made an order of the court in terms of

section 7(1) of the Divorce Act, however, this belief has now also been called into question

in a recent Pension Funds Adjudicator (PFA) determination in the matter of Page v

Municipal Gratuity Fund and another.

This determination poses a huge problem to those married out of community of property

(ANC) without accrual and they, together with their attorneys and financial planners, will

have to consider the impact of this determination when reaching an agreement as to the

distribution of assets at divorce.

The facts

Mr. and Mrs. Page were married ANC without accrual. In June 2017 their marriage

was dissolved in terms of a divorce order issued by the High Court. During the divorce

proceedings, the parties entered into a settlement agreement which made provision for

the payment of the pension interest to the non-member spouse, however, when payment

of the pension interest was called for, the administrator of the retirement fund refused the

request on the basis that the pension interest of a member married ANC without accrual,

will not be deemed part of his assets upon divorce (section 7(7)(c)), which means that a

section 7(8) order, to award such pension interest, will not be possible.

Divorce and the undividable pension interestBy Annemie Nieman, Legal Adviser, MFP, Gauteng

The relevant legislation

To understand the parties’ arguments, it is important to first understand the relevant legislation; section 7 of the Divorce Act reads as follows (only relevant sections are quoted for purposes of this article):

“7. Division of assets and maintenance of parties

(1) A court granting a decree of divorce may in accordance with a written agreement between the parties make an order with regard to the division of the assets of the parties or the payment of maintenance by the one party to the other.

(2) …

(3) …

(4) …

(5) …

(6) …

(7) (a) In the determination of the patrimonial benefits to which the parties to any divorce action may be entitled, the pension interest of a party shall, subject to paragraphs (b) and (c), be deemed to be part of his assets.

(b) …

(c) Paragraph (a) shall not apply to a divorce action in respect of a marriage out of community of property entered into on or after 1 November 1984 in terms of an antenuptial contract by which community of property, community of profit and loss and the accrual system are excluded.

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Continued from previous page

(8) (a) Notwithstanding the provisions of any other law or of the rules of any pension fund— the court granting a decree of divorce in respect of a member of such a fund, may make an order that—

(i) any part of the pension interest of that member which, by virtue of subsection (7), is due or assigned to the other party to the divorce action concerned, shall be paid by that fund to that other party when any pension benefits accrue in respect of that member;

(ii) …..

The arguments for the fund to make payment in terms of the settlement agreement

The attorney for Mr. Page advanced the argument, supported by many attorneys

and legal writers, i.e. that section 7(1) of the Divorce Act provides a court with the

discretion to grant an order in accordance with the written agreement between the

parties with regards to the division of their assets and payment by one party to the

other.

It was further argued that, although section 7(7) makes it clear that the pension

interest falls within a joint estate, this does not mean that a court may not grant an

endorsement in terms of section 7(1) or that parties agreeing to payment of pension

interest to a non-member spouse, where they were married ANC without accrual,

should not be allowed to do so.

In other words, he was saying that spouses married ANC without accrual, after

1 November 1984, retain their own separate estates and there is no “automatic”

entitlement to share in assets or pension interest at divorce (section 7(7)(c)),

however, that any sharing in pension interest will have to take place by mutual

consent in a settlement agreement (section 7(1)).

Although the South African Law Reform Commission (SALRC) didn’t specifically

mention “pension interest”, it seems to support the argument above when it says the

following in its August 2018 paper, “Review of Aspects of Matrimonial Property Act”:

“Currently divorcing spouses are permitted to regulate the division of their property in a

settlement agreement, which the court may incorporate into the divorce order in terms of

section 7(1) of the Divorce Act on condition that the agreement is in writing. The terms of

the agreement must not be impossible, illegal, contra bonos mores or contrary to public

policy…

The main advantage of a settlement agreement is that parties can tailor the agreement

in accordance with their particular circumstances and in most divorces the parties enter

into a settlement agreement. They can regulate matters such as the division of their

assets, payment of maintenance, the allocation and exercising of parental responsibilities

and rights, and liability for the cost of the proceedings. Parties may thus agree on a

division of their assets and liabilities which deviates from the common law or statutory rules which govern their matrimonial property system”.

The arguments against the enforcement of the settlement agreement

Insofar as section 7(1) of the Divorce Act and the parties’ right to negotiate the

division of their pension interest at divorce are concerned, the PFA determined that

“… it is evident that it (section 7(1)) applies in an instance where there is a division of

joint assets. When parties are married out of community of property, there is no joining of

the spouses’ estates into one joint estate. Each spouse has his/her own separate estate,

consisting of his/her premarital assets and debts, and all the assets and debts he/she

acquires during the marriage. They each administer their own separate estates and have full

and exclusive control over their own property. Therefore, section 7(1) refers to the division of

the assets of the parties who were married in community of property, and excludes parties

married out of community of property without accrual as there is no joint estate to be

divided.”

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It was further determined that section 7(7)(c) of the Divorce Act is unambiguous and

there is no other different interpretation that may be accorded to its meaning. Since

the marriage occurred after 1 November 1984 and they were married ANC without

accrual, Mr. Page’s pension interest could not be deemed to be part of a joint estate

liable for division as there is no joint estate to speak of. Therefore, his interpretation of

section 7 of the Divorce Act is misplaced.

Thus, the divorce order is not binding on the fund but is binding inter partes (in other

words, between themselves) and as a result the fund did not make payment to the

non-member spouse. The result is that the non-member spouse has a claim against

the member spouse for an amount equal in value to the portion of the pension

interest that was awarded, and as a result the member spouse will have to come

up with the funds in another way – or the parties will have to revise the settlement

agreement.

The problem

The PFA’s determination results in numerous practical problems;

• Parties who are married ANC without accrual, cannot divide their pension interest

at divorce, even if they wanted to!

• Neither the parties to the divorce, nor the court, have the power to divide the

pension interest, even if it is all the parties have to divide.

• Yes, their agreement can be made an order of court but there is no point in having

such an order if it is enforceable only between the two parties but unenforceable

against the fund that has to facilitate the payment of the pension interest.

The lack of fairness

It is almost 24 years since the promulgation of our Constitution in December 1996.

Since then, marriage -, divorce - and pension laws have evolved to a point where;

• couples, who honour their tribal customs and who enter into a customary marriage

in terms of the Recognition of Customary Marriages Act, can have their pension

interest divided at divorce;

• same-sex couples, who conclude a union in terms of the Civil Union Act and who

choose to ‘marry’ in community of property or ANC with accrual, can have their

pension interest divided at divorce;

• Muslim couples, whose religious marriages are not legally recognised, can have their pension interest divided at divorce provided it is made an order of court and their “marriages” are deemed ANC without accrual;

• Couples, who conclude a marriage in terms of the Marriages Act and who agree

to be married ANC with accrual, can have their pension interest divided at divorce despite there not being a joining of their estates either. They only agree to share in each other’s accrual.

But, couples who are married ANC without accrual cannot divide their pension

interest at divorce even if they agree to it, even if it is all they have to divide and even

if their agreement is made an order of court.

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The solution

When advising clients on the distribution of their wealth and assets at divorce, one

option is to turn a blind eye in the hope that the retirement fund administrator will

not notice from the court order that the parties were married ANC without accrual

and will give effect to the order (which happens sometimes). However, this approach

doesn’t create certainty and doesn’t seem fair or ethical, for that matter, as it is very

likely, that the order will be rejected, leaving the clients with no legal recourse other

than settling the matter separate to the order or going back to court to revise the

order (which will result in costs being incurred).

Alternatively, an alternative division of wealth and assets can be considered, e.g.

instead of agreeing that half of the R 2 million house, the car worth R 300 000 and

50% of the pension interest worth R 3 million goes to the one party, they can shuffle

the assets around to say that the party gets the house, the car and R 500 000 cash

and the member of the pension fund keeps his/her pension interest. Unfortunately,

a retirement fund is often the largest, if not the only “asset” in a divorce and many

couples do not have other assets to divide. This solution is therefore only available to

those who have other assets of value to award.

The third solution is the long-awaited and even longer overdue reform of legislation

regarding the division of retirement funds and – benefits at divorce.

Given the unfair and problematic situation clients who are married ANC without

accrual find themselves in at divorce, the South African Law Commission’s June 1999

proposal in the Report “Sharing of Pension Benefits”, that the provisions regarding the

“sharing of pension benefits should not apply in respect of spouses who have in terms of their antenuptial contract chosen complete separation of their property, but that such spouses should be allowed to make the said provisions applicable to them by way of written contract,” deserves reconsideration.

Useful information:

Divorce and the impact on a Will

If a testator gets divorced and the testator dies without updating his/her Will after

the date of divorce, the Wills Act determines that any bequest to the ex-spouse in

that testator’s Will, shall not be enforceable and the Will is to be executed as if that

ex-spouse is predeceased. This will only apply for up to 3 months after the date of

divorce.

Where a testator dies after 3 months after the date of divorce and he/she neglected

to update their Will and the ex-spouse is nominated as a beneficiary in the Will, it will

be interpreted that it was the testator’s intention to benefit that ex-spouse and the

executor will act on the Will.

It is therefore important that a client’s Will is updated as soon as possible after the

date of divorce to ensure that the Will reflects their true intentions.

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Customary marriages and financial planningBy Sharon Teubes Hamman, Senior Legal Adviser, MFP and MDS

Introduction

The term ‘customary marriage’ is generally interpreted to mean a marriage entered

into in terms of the traditions and customs of African customary law. The parties

are not married in terms of legislation and as a general rule, the marriages are not

registered at Home Affairs and no marriage certificate is issued.

In 1998 the Recognition of Customary Marriages Act of 1998 (RCMA) was

introduced, which came into effect on 15 November 2000. It provides a legal

framework for customary marriages.

According to the definition in the Act, a marriage in terms of customary law requires

the use of customs and traditions usually observed among the indigenous African

people of South Africa, which forms part of the culture of those people. The definition

excludes Hindu and Islamic marriages.

In terms of the Act, a customary marriage is present if the following requirements are met:

• The marriage is negotiated and entered into or celebrated according to customary law,

o This can be interpreted to mean that the husband asked for permission from

the bride’s father or in his absence the bride’s mother.

o An essential part of a customary marriage is the payment of Lobola, even

though the Act does not stipulate it - it is accepted as a requirement.

o The bride must be handed over to the bridegroom by her family.

• The spouses are older than 18 years and if not, their guardians consented to it, and

• Both spouses consented to the marriage.

• They are not related by blood.

The Act places a duty on the parties to register the marriage with Home Affairs

within 3 months after the marriage is entered into (similar to the Marriage Act and

Civil Union Act). A registration certificate will be issued as proof of the marriage’s

existence.

If however, the marriage is not registered, it will not detract from the legality of that

marriage. In those instances, the party alleging the marriage will have the burden of

proof.

Two spouses in a customary marriage may enter into a civil marriage in terms of the

Marriage Act or the Civil Unions Act, however, where there are multiple spouses it

will not be possible as the legislation does not provide for polygamous marriages.

Proprietary consequences

Where the parties were married before the enactment of the RCMA, they are treated

as being married in community of property.

If the parties are married after the enactment of this Act, and the spouses to the

marriage are not party to any other customary marriage, the marriage will be in

community of property – this is the default regime, similar to marriages in terms of

the Marriage Act. The parties can however enter into an ante nuptial contract where

community of property is specifically excluded and they can determine that they are

married either without community of property or with accrual.

The Matrimonial Property Act will apply and the rules applicable to the different

marriage regimes will apply here.

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As with a marriage in terms of the Marriage Act, the spouses of a customary marriage

recognized by the RCMA, may apply to the High Court to amend their marital regime.

A husband in a customary marriage, who wishes to enter into another marriage with

another woman, will have to apply to the court to approve the written contract that

will govern that marriage. Where the first marriage is in community of property or

with accrual, the court will first have to order a division of assets before this second

marriage can take place. The court will make sure the division of assets is equitable

taking all circumstances into account. The conclusion is therefore that where a

husband has more than one spouse, the marriage/s is ANC without any community

of property.

The dissolution of the customary marriage

The Act provides for the dissolution of a customary marriage. It is not limited to

only those registered in terms of the Act – it concerns all marriages that fulfil the

requirements set out by the Act. The court can dissolve the marriage by issuing a

divorce order on the grounds of irretrievable differences.

As a general rule, the Divorce Act will not apply to these marriages, however, the

RCMA specifically includes section 6 to 10 of the Divorce Act. Most important is

section 6, which deals with the safeguarding of the interests of minor children and

section 7 deals with the division of assets and the maintenance of parties. As a

result, the same rules will apply towards customary marriages when dividing assets,

specifically pension interests.

Financial planning relevance

The recognition of a marriage and the recognition of persons as spouses, can impact

financial planning calculations and subsequent advice. It is therefore important to

consider the relationship/s of a client before embarking on a financial plan. Different

pieces of legislation may have different definitions when referring to spouses and as a

result, there is no universal rule that applies.

The Income Tax Act (ITA)

In the Income Tax Act (ITA) the definition of a spouse is relevant when spouses make

donations to each other, as the Act provides for an exemption from donations tax

between spouses.

It is also relevant when spouses donate assets to each other or bequeath assets to

each other for capital gains tax (CGT) purposes – the ITA provides for roll-over relief

meaning that no CGT is payable on the transfer of assets between spouses.

In addition, when parties are married in community of property, income generated

by assets that form part of the communal estate will be split equally between the

spouses – example, a bank account earning interest or a property earning rental

income. Each spouse will declare 50% of the income for income tax purposes and

will enjoy the deduction of 50% of the allowable expenses when determining their

personal income tax liability.

The definition of spouse in the ITA is as follows:

From (a) in this definition, it is clear that customary marriages are recognised and as

such the provisions of the ITA will apply to them as spouses.

“spouse”, in relation to any person, means a person who is the partner of such person—

(a) in a marriage or customary union recognised in terms of the laws of the Republic;

(b) in a union recognised as a marriage in accordance with the tenets of any religion; or

(c) in a same-sex or heterosexual union which is intended to be permanent, and “married”, “husband” or “wife” shall be construed accordingly:

Provided that a marriage or union contemplated in paragraph (b) or (c) shall, in the absence of proof to the contrary, be deemed to be a marriage or union out of community of property;


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Estate Duty Act (EDA)

The relevance of the definition of a spouse in the EDA is particularly of interest when

considering section 4(q) deductions – it provides a deduction of all assets bequeathed

to a spouse when determining the dutiable estate for estate duty purposes. The impact

of this deduction is that the assets bequeathed to a spouse will not be subject to estate

duty.

Another section where the definition of a spouse will be relevant is section 4A. This

section provides each person with an abatement of R3 500 000. This means, that

where a person has a net dutiable estate, the first R3 500 000 will not be subject to

estate duty – only the asset value in excess of this amount will be subject to estate

duty. Where a person has a predeceased spouse, the abatement is calculated as

follows:

• (R3 500 000 x 2) LESS the portion of the abatement used by the first dying spouse.

The result is, where the spouse was the only beneficiary of the first dying spouse’s

estate, that surviving spouse’s abatement will be R7 000 000 – the abatement not

used by the first dying spouse rolls over to the surviving spouse.

Definition of a spouse:

The definition is a replica of that in the Income Tax Act. As a result, customary marriages

are recognised by the EDA and as a result the spouse/s to this marriage will enjoy the

deduction contained in section 4(q) – which effectively postpones the estate duty

until the death of the last surviving spouse/s – unless of course that last dying spouse

remarried again, in which case the section 4(q) deduction will once again apply.

Intestate Succession Act (ISA)

This Act determines how assets are divided when a person dies without a Will.

A spouse is specifically mentioned and where a person is survived by a spouse, that

spouse will inherit the estate, however, where the person is survived by a spouse and

children, the spouse will get a child’s share plus one, subject to a minimum of

R250 000.

The ISA did not specifically contain a definition for spouse and was interpreted to only

include marriages under the Marriages Act. However, the Reform of Customary Law of

Succession and Regulation of Related Matters Act of 2009 provided clarity. As a result,

customary marriages will be recognised for the purposes of the ISA and will inherit

spouse", in relation to any deceased person, includes a person who at the time of death of such deceased person was the partner of such person-

(a) in a marriage or customary union recognised in terms of the laws of the Republic;

(b) in a union recognised as a marriage in accordance with the tenets of any religion;

(c) in a same-sex or heterosexual union which the Commissioner is satisfied is intended to be permanent:

Provided that a marriage or union contemplated in paragraph (b) or (c) shall, in the absence of proof to the contrary, be deemed to be a marriage or union without community of property.

2020


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as per the provisions of the Act, where a spouse dies without a valid will. If there are

multiple spouses, the inheritance of the spouse will be equally divided amongst the

spouses.

It is therefore important to draft a will and to ensure that it is updated, especially

where multiple marriages are entered into.

Maintenance of Surviving Spouses Act (MSSA)

In terms of this Act, there is a duty on a spouse to provide for maintenance for a

surviving spouse. Initially spouses in a customary marriage were not recognised by

the MSSA and did not automatically enjoy the benefits provided for. However, it was

subsequently changed (after the introduction of the Reform of Customary Succession

and Regulation of Related Matters Act) and the definition of a survivor was amended

to include spouses in a customary union.

Pension Funds Act (PFA)

The definition of a spouse is particularly important when considering the death

of a member as section 37C of the PFA, as it prescribes how the trustees must

distribute the funds. Section 37C determines that the death benefit in the fund must

be distributed firstly to dependants and then only to nominated beneficiaries. A

dependant is defined to include a spouse.

The definition of a spouse is as follows:

Therefore, a spouse married in terms of the RCMA will be included in the definition of

a dependant.

“spouse” means a person who is the permanent life partner or spouse or civil union partner of a member in accordance with the Marriage Act, 1961 (Act 68 of 1961), the Recognition of Customary Marriages Act, 1998 (Act 68 of 1997), or the Civil Union Act, 2006 (Act 17 of 2006), or the tenets of a religion;

The challenge

Even though the pieces of legislation all refer to customary marriages and give

recognition to it, it is of course true that a customary marriage can exist even if not

registered (as mentioned in the RCMA). And that is where a potential problem may

arise – there have been court cases that confirmed that where a person alleging the

existence of a customary marriage cannot provide irrefutable proof, the marriage

cannot be recognised. Cases heard by the Pension Funds Adjudicator support this and

emphasises the importance of parties to be able to prove their union.

Marriages that were entered into prior to 15 November 2000 would be recognised as

customary marriages, if proof is available. The proof should support the requirements

listed at the beginning of this article. The presence of only one of the requirements

may not be sufficient, therefore the more factors that are present, the better the

chances of recognition.

After 15 November 2000, the spouses can register their marriage, which they really

should do to avoid uncertainty and unnecessary disputes. The certificate will be

conclusive proof of the existence of the customary union.

In closing

Where parties are not able or willing to get married in terms of the Marriage Act,

either due to cultural beliefs or religious beliefs or due to polygamous unions and

same-sex partners that are not able to get married in terms of this Act, the RCMA

and the Civil Unions Act provides sufficient alternatives to formalise the union by

registration, which will ensure that all uncertainty is eliminated.

It is therefore our duty to educate our clients to follow this route to have certainty that

the financial and estate plans will be successful and not derailed due to a burden of

proof that cannot be fulfilled.


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Dying without a valid will – what is meant by intestate succession?By Sharon Teubes Hamman

Where a person dies without a valid will, the estate will be divided in accordance with

the Intestate Succession Act. The Act prescribes what happens to the distributable

assets in the estate (after liabilities are settled, estate administration costs are paid,

etc.) and it depends on who survives the deceased person. The following is a quick

summary of the provisions:

Deceased survived by spouse without descendants:

The spouse will inherit the entire estate. If there are multiple spouses, will share the

estate in equal proportions.

Deceased survived by spouse and descendants:

The spouse will receive greater of R250 000 or a child’s share plus one. The children will

share the rest equally.

Children include illegitimate children and adopted children. Adopted children can only

inherit intestate from adoptive parents and not from natural parents.

Example:

Mr. Abdul died with an estate value of R5 million and he is survived by Mrs. Abdul

and 4 children. Mrs. Abdul will inherit the greater of:

• R250 000, or

• R5 000 000/ 4 children + 1 = R1 000 000

Therefore she will receive R1 000 000 and the remaining R4 000 000 will be divided

equally between the 4 children. As a result, the spouse and children will each receive

exactly the same amount. Deceased survived by descendants only (no spouse)

The children will inherit the estate equally. Division per stirpes will apply – meaning

that if a child is predeceased and that child had descendants, the child’s share will go

to their descendants.

Deceased is not survived by a spouse or descendants, but parents

Each parent will inherit 50% of the estate. If one parent is predeceased, the deceased

parent’s share will go to that parent’s descendants. This can have the unwanted

consequence of step-siblings inheriting from the deceased.

Example

Mrs. Phule is survived by her mother. Her father is predeceased. He had an

illegitimate child whilst married to Mrs. Phule’s mother and he also had two other

children after divorcing her mother. As a result of Mrs. Phule dying without a will,

50% of her estate will be split between the 3 step-siblings on her father’s side.

Deceased is only survived by siblings

Where both parents are predeceased, the descendants of each parent will share in

that parent’s 50% of the deceased’s estate. Once again there is a risk that the step-

siblings can inherit.

Deceased is survived by no close blood relatives

If no blood relatives can be found, the estate will go to the Guardian’s Fund which is

administered by the Master of the High Court. If no relatives come forward to claim the

estate from the fund during a 30-year period, the assets will be awarded to the state.

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About LeverageMomentum Leverage is prepared by the Momentum Legal Advisers. For financial advisers, please contact your legal adviser should you have any questions. For clients, please contact your financial adviser should you have any questions.

Disclaimer:

The views and/or opinions expressed in this article have been prepared as a primary source of information and are not a recommendation for the conclusion of a transaction. This article has been prepared for general information and not having regard to any particular person’s financial planning, tax planning, investment needs and objectives. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information contained in this article and Momentum Metropolitan Life Limited will not be liable in contract or in delictor otherwise for any loss or damage arising as a result of the reader relying on any such information (except insofar as any statutory liability cannot be excluded).

Please note:

Any unauthorised copying or reprinting or publishing in any other publications, webpages or emails are strictly prohibited. Should you wish to use this article for any such purpose, please email

[email protected] to obtain permission.


Closing remark

It is obvious that the Intestate Succession Act may result in unwanted consequences and therefore it is vital that every person should have a valid Will that is updated and

reviewed annually and amended when life changes take place, which includes the acquisition or disposal of large assets, marriage, divorce or the death of a spouse, birth of

children, etc.

Attached to this Leverage:

• ASAP on Divorce and Retirement Funds that delves a bit deeper into what a pension interest is.

Documents

Leverage - October 2020