A divorce does not only mark the end of a marriage. It can also have lasting financial consequences, especially when it comes to your pension or provident fund. Many South Africans are unaware that retirement savings can be divided during a divorce. Meanwhile, others assume they are entitled to a payout when they are not.
Understanding how pension funds work in divorce proceedings can help both parties avoid costly mistakes and unnecessary stress later on.
Can Your Pension Be Split After Divorce?
When a couple divorces, the spouse who is not a member of the pension fund, known as the non-member spouse, may be entitled to claim a portion of the member spouse’s retirement savings. This process has become more straightforward due to the clean-break principle. This principle allows the non-member spouse to receive their share as soon as the divorce is finalised.
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“The clean-break principle has made payouts more accessible for non-member spouses,” says Siphamandla Buthelezi, Head of Platforms at advisory firm NMG Benefits. “They no longer need to wait until the member retires, resigns, or passes away. Once the divorce is granted and the fund processes the claim, payment can be made.” The principle was introduced into South African law to promote fairness and financial independence for spouses after divorce.
How Marriage Contracts Affect Pension Claims
How a pension fund is divided depends on the type of marriage contract and the ruling made by the presiding judge or magistrate. If you were married in community of property, all assets, including pension savings, may be shared upon divorce. In contrast, if you were married out of community of property with accrual, the growth in pension savings during the marriage may be divided. However, the amount accumulated before marriage remains protected.
If you were married out of community of property without accrual, the pension generally remains with the member spouse, unless a different arrangement is agreed to in the divorce settlement. A pension fund will only recognise a claim if there is a valid, court-stamped decree of divorce confirming that the marriage itself was legally valid.
Customary Marriages and Pension Rights
Customary marriages are legally recognised in South Africa if both parties are over the age of 18 and have consented to the marriage according to customary law. There must be evidence that the marriage was negotiated, entered into, or celebrated in line with tradition. Typically, this includes lobola negotiations and the formal handing over of the bride.
Although customary marriages should be registered with the Department of Home Affairs, failure to register does not invalidate the marriage. Polygamous customary marriages are also recognised, provided they comply with customary practices and legal requirements. In addition, this includes court approval of a written contract regulating the matrimonial property system.
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It is possible for people to be legally married under customary law without fully realising it. Cultural practices alone may meet the legal requirements for a valid marriage, even if there was no formal registration or written agreement. However, as Buthelezi explains, “Any future marriage is invalid without a legal divorce having occurred first.”
There have also been cases where individuals believed they were legally married, only to later discover that their partner was already married. In such cases, the second marriage is invalid, regardless of whether the second partner was aware. This means the second spouse loses all marital rights, including the right to claim pension benefits.
When a Pension Fund Will Not Pay Out
If a member spouse can prove that a marriage was not legally valid and there is no decree of divorce, the pension fund is not required to make any payment to the non-member spouse.
For example, if a couple believed they were married under customary law but a court finds that not all required traditional steps were completed, there will be no valid claim against the pension fund.
The Tax Implications You Should Know
Tax is another critical factor to consider. If a member spouse chooses to take their portion of the pension as a cash payout, it will be taxed according to the applicable withdrawal tax rates. These rates depend on the amount withdrawn.
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However, if the payout is transferred directly into another approved retirement vehicle, such as a retirement annuity or another pension fund, the transfer will not be taxed at the time. This applies only if it meets regulatory requirements.
Plan Ahead to Avoid Financial Stress
“Divorce is hard enough emotionally,” says Buthelezi. “Understanding the financial and legal implications, especially around pension and provident funds, can help both parties avoid additional financial stress and losses later on.” Knowing your rights, your marriage contract, and the legal status of your relationship can make a significant difference to your financial future.
