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South Africa: ‘Pension interest’ could be impacted by the Constitutional Court’s recent landmark decision on the Divorce Act

24 October 2023
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Overview

  • The South African Constitutional Court has fundamentally changed the rights of parties married out of community of property with the exclusion of the accrual system.
  • In its landmark ruling on 10 October 2023, the apex court declared section 7(3) of the Divorce Act unconstitutional and invalid.
  • The outcome is that, for the first time, a person married on or after 1 November 1984 out of community property without accrual can apply to the court for a redistribution order.
  • Previously, only parties married before 1 November 1984 could apply for such an order, which concerns the transfer of assets from one of the parties to another.
  • The question now being asked is whether these assets would include a party’s ‘pension interest’.

The Constitutional Court decision that is attracting much attention concerns the matter of EB (born S) v ER (born B) and Others and KG v Minister of Home Affairs and Others.  The decision is of particular interest to couples who married on or after 1 November 1984 and entered into an antenuptial contract by which community of property, community of profit and loss, and accrual sharing were excluded (ANC).

Prior position

Up until the Constitutional Court’s recent ruling, parties could only apply to court for a redistribution order in terms of section 7(3) of the Divorce Act if they were married before 1 November 1984 and had chosen to enter into an ANC.

Section 7 of the Divorce Act deals with the division of assets and maintenance of parties, and section 7(3) deals with the granting of redistribution orders, which entail the transfer of assets, or part of the assets, from one party to the other as the court may deem just and equitable.

Parties married with an ANC on or after 1 November 1984 were not entitled to apply for a redistribution order during divorce proceedings.

New position

Parties married with an ANC on or after 1 November 1984 are now entitled to apply for a redistribution order during divorce proceedings.

The Constitutional Court found, among others, that the date of marriage (on or after 1 November 1984) indirectly discriminates against women as they were disproportionately affected by the absence of a distribution remedy. It also declared section 7(3) of the Divorce Act unconstitutional and invalid as it failed to include the dissolution of marriage by death.

The declaration of invalidity was suspended for 24 months from the date of the Constitutional Court’s order to enable Parliament to take the necessary steps to cure the constitutional defects.

Pending the remedial steps, the apex court ordered that section 7(3)(a) of the Divorce Act must be read to exclude reference to ‘before the commencement of the Matrimonial Property Act, 1984’.

What this means is that the Constitutional Court made provision for immediate interim relief so that a party to divorce proceedings who concluded their marriage on or after 1 November 1984 with an ANC, may now apply for a redistribution order.

A court hearing the divorce proceedings may then grant a redistribution order that it deems ‘just and equitable’.

This does not mean parties married with an ANC on or after 1 November 1984 are now automatically entitled to share in their spouse’s assets upon divorce.  It is important to emphasise that a party claiming redistribution of all, or a portion of the other party’s assets would need to provide sufficient evidence to show that they contributed directly or indirectly to the other party’s estate.

Impact on the splitting of ‘pension interest’

An important question that follows the Constitutional Court’s decision is whether the door has now been opened for the potential distribution of all or a portion of a party’s ‘pension interest’ in a retirement fund upon divorce for those who are married with an ANC.

In relation to a party to a divorce, pension interest means the following: it is the benefit to which that party as a member of a retirement fund would have been entitled to under the fund rules if their membership terminated on the date of divorce on account of the member resigning from employment.

The entitlement to share in the pension interest of the other spouse is governed by sections 7(7) and 7(8) of the Divorce Act.  In terms of section 7(7)(a), the ‘pension interest’ of a party shall, subject to provisions (b) and (c), be ‘deemed to be part of his assets’.

Section 7(7)(c) of the Divorce Act specifically provides that the provisions of section 7(7)(a) – the deeming of the pension interest to form part of the assets – do not apply to divorcing parties married with an ANC on or after 1 November 1984.

The Supreme Court of Appeal confirmed in GN v JN 2017 [1] SA 342 [SCA] that the pension interest of a member spouse as at the date of divorce is by operation of law part of the joint estate for the purpose of dividing the assets between the parties.

The question is then whether, as part of the redistribution order, a party may now claim redistribution of all or a part of the other party’s pension interest. Further, may that party request that the court direct the retirement fund to pay all or a portion of the assigned (or redistributed) pension interest to the non-member spouse, as contemplated in section 7(8) of the Divorce Act?

This question is important because the Constitutional Court did not specifically deal with ‘pension interest’ and the balance of the provisions under section 7 of the Divorce Act. However, mention was made in the judgment that in relation to a redistribution claim, a court may order the ‘transfer of specific assets or an amount of money’.

If a party’s pension interest is deemed to be part of their assets as contemplated in section 7(7)(a) of the Divorce Act, and bearing in mind the Constitutional Court’s recent findings, then arguably the assets that could be redistributed in terms of section 7(3) order may include all or a portion of the other party’s pension interest (notwithstanding the provisions of section 7(7)(c) of the Divorce Act).

It remains to be seen how the splitting of pension interest in relation to parties married with an ANC will be determined. The issue is likely to result in future litigation.