Johannesburg - Divorcees who have their hearts set on their former spouse's pension funds need to familiarise themselves with recent legislation before booking that Caribbean cruise.
That's because changes made to pension fund rules in 2007 would appear to clash with newer legislation governing the application of those rules.
According to the Pension Fund Amendments Act, divorcees are given immediate access to their former spouse's pension funds, and don't have to wait until the pension fund member dies, retires or resigns from a fund.
These rules, however, are only applicable to divorce orders granted after 13 September 2007.
For orders issued before September 2007, the Financial Services Amendment Act, introduced in November 2008, applies - and this is where the confusion for the legal fraternity comes in.
Johan Troskie, director at Deneys Reitz, says that his industry is not sure what to make of the section pertaining to court orders issued prior to 13 September 2007.
"If a divorce order is granted in January 2007, it will be deemed to have happened on the 13th of September of that year," says Troskie. "The application of the law is thus retrospective, but it will be difficult to determine what portion of the pension should be included in the split.
"How do you apply an old court order to the current fund value and what if the fund has been exhausted?" he says.
The latest amendments also limit those allowed to claim against a member's pension fund. Previously, anyone named by the court was allowed to do so, but the new rules only include former spouses, dependants and certain creditors.
"In addition, the Financial Services Act has established a pecking order of who has access to these funds. Maintenance orders take preference, followed by loans where the pension fund was used as collateral. Only then do former spouses get their share, or what is left of it," says Troskie.
The term "former spouses" includes those in civil unions, marriages and any other traditional or religious agreements, he says.
A court order's specifications will depend on what is contained in an ante-nuptial agreement. If a couple is married outside of community of property,the order won't necessarily deny former spouses of anything.
What about tax?
Tax implications should also be considered when taking receipt of a pension fund lump sum.
Transferring the funds to another pension or preservation fund is tax-free; however taking receipt of the lump sum is fully taxable. There are also different tax implications, if the member retires or resigns from the pension fund.
"The primary tax responsibility still lies with the member, but he or she has a right to recoupment from his or her former spouse," he says.
"What might complicate things even further are the new retirement tax thresholds to be introduced in March 2009, where the tax-free portion of lump sum pay-outs will be decreased," he adds.
- Fin24.com