ADOPTION

When a child is adopted , he/she becomes the legitimate child of the personss who have adopted him/her , as though he/she had been born of them during the existence of a lawful marriage . The child takes their surname or retains his/her previous surname and the adoptive parents become the child’s legal guardians.

The adoptive parent have the same rights and obligations as normal biological parents. The adoption also terminates the rights and obligations , existing between the child that is being adopted , and his/her natural parents and their relatives .

An adopted child is able to inherit in terms of the adoptive parents will and should the adopted parents get divorced the same rules will apply regarding custody of the adopted child, as it would with a biological child.

Children may be adopted at any age and the child does not necessarily have to be orphaned. The adoption of children is done through the Department of Child Welfare and there are certain legal requirements that have to be met. The Commissioner of the children’s court will then finalise the adoption once all the requirements have been met to the satisfaction of the Court.

Divorce Orders and Pension Funds

The Divorce Amendment Act No. 70 of 1979, provides that a court may award a portion of a member spouse’s pension interest to the non-member spouse when dividing the joint estate of the parties.

A member’s pension interest is deemed to be an asset in his/her estate when determining these benefits and this “pension interest” equates to:

the benefits to which that party would have been entitled to
in terms of the rules of that fund
if his/her membership of the fund would have been terminated
on the date of the divorce
on account of his/her resignation from his/her office.

The provisions of the Act 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.

The definition of “pension interest” only includes a benefit or value in a pension fund that the member’s spouse would have been entitled to if his membership of the fund would have been terminated on the date of divorce on account of resignation. If a member has left the fund, and the divorce is made final after he or she has withdrawn from the fund, there is no pension interest.

Although the award is made at the time of the divorce, the non-member spouse may only receive the award when the amount accrues to the member – the date upon which the pension interest, becomes due and payable to the member spouse, his/her dependants or nominees in terms of the rules of the fund, i.e. – on retirement, on death prior to retirement, on termination of service or membership of the fund, or on dissolution of the fund.

The Act provides for the valuation of the pension interest.

Pension and Provident Funds

The Pension interest is an amount equal to the member’s benefit which would have become payable in terms of the rules of the fund had the member resigned on the date of divorce.

In Ex parte Randles: re King v King, the question that arose was where the member spouse had the option of either a cash withdrawal benefit or a greater preservation benefit on withdrawal – which one could the non-member souse have? The Court decided that the value of pension interest is determined by the rules of the fund in question and, in particular, refers to the amount that actually accrues to the member on his resignation from service, not the amount that the member might have become entitled to, had he elected to preserve his benefit.

Retirement Annuity Fund

Pension Interest is equal to the sum of all contributions in respect of the member to the fund up to the date of the divorce plus simple interest thereon calculated up to that date at the prescribed rate of interest applicable on the date of the divorce.

Section 7(7)(b) of the Divorce Act reduces the amount deemed to be part of the member’s assets by the amounts of the pension interest, which, have been paid over or have been awarded to former spouses.

No settlement agreement entered into between the parties is enforceable unless it had been made an order of the Court.

The Court must order that a percentage of pension interest must be paid by the fund to the non-member spouse; the order must express a percentage of the pension interest.

In Maharaj v Maharaj, the parties divorced and no mention was made in regard to the division of the joint estate. A claim was made for 50% of the proceeds of the pension benefit, but the court held that a simple division of the joint estate was not sufficient to award a former spouse a portion of the member’s pension interest. The court must make a specific award.

The Fund must be specifically named in the court order, preferably with its registration number and the court order must order the fund to endorse its records with the provisions with the order. Once the order has been received by the fund administrator, then, the records can be flagged.

The fund will not be liable to pay interest to the non-member spouse as the Divorce Act does not allow payment of interest. The member will in his/her personal capacity be liable for payment of such interest.

In terms of current income tax practice, when the member spouse withdraws he or she is liable to pay tax on that withdrawal benefit. Paragraph 2B of the Second Schedule to the Income Tax Act stipulates that while the member is liable for tax on the full amount of the benefit the member spouse may recover the amount of tax paid from the non-member spouse.

The first debit from a member’s pension benefit when it accrues will be the tax payable on that benefit. Thereafter divorce orders and/or other deductions in terms of Section 37D are payable in chronological order.

The Divorce Amendment Act of 1989

The Divorce Amendment Act allows some relief to spouses who might otherwise receive nothing from a marriage. Prior to August 1989, parties to a divorce could not take pension benefits into account when dividing the joint estate. And, in many matters, the only, or major benefit in a joint estate was the pension.

What often happened, was that husbands, (and normally it was the husband who was the breadwinner, and sole provider) would convert assets into cash, and put them into retirement annuity funds, and pension funds. This would effectively frustrate the claims of spouses to any portion of the joint estate because these pension benefits are generally unimpeachable. As a result of abuses like this, and also because it was quite clearly prejudicial to these non-member spouses, some measure of relief was due to them and the Divorce Amendment Act was introduced.

This article will deal with some of the aspects of the Divorce Amendment Act and will touch on a few of the anomalies in the law. For further information on some of the income tax aspects, see the earlier article published on Billboard.

Section 37 of the Pension Funds Act

Section 37 A of the Pension Funds Act, deals with the alienation of pension benefits by a pension member. It provides that pension benefits are not reducible, transferable or executable. The section provides that pension benefits may not be alienated, or pledged, or ceded. There are, of course exceptions and the Maintenance Act, for example, allows for the attachment of pension benefits in respect of maintenance. Sections 37B and C provide for what happens to pension benefits in the event of insolvency and on death. Section 37 D provides that a fund may make deductions from benefits where the member has a housing loan, or where the member has been dishonest, or where the fund pays a member’s medical aid subscription, insurance premium or for any other purpose deemed by the Registrar to be valid.

Division of Pension Benefits on Divorce

Apart from the exceptions specifically dealt with in the Pension Funds Act, the Divorce Amendment Act provides that a court making an order of divorce, may order the fund to make payment of benefits to the non-member spouse when those benefits become payable. The benefit, which is payable is that benefit the member spouse would be entitled to if that member spouse were to withdraw from the fund at the date of the divorce. One of the difficulties with this is that the benefit due may only be paid when the member spouse (or estate) becomes entitled to the benefit. If the member spouse withdraws or retires, the non-member spouse would become entitled to the benefit at that time.
If the member spouse died, the death would trigger the payment of the benefit and the non-member spouse would be entitled to receive his or her benefit then.

If the non-member spouse predeceased the member spouse the claim to the pension benefit would become a claim in favour of the estate. It would have to be held over until the benefit in terms of the divorce became accessible. This could mean that the estate of the non-member spouse could remain open for some time pending the receipt of the benefit.

Note, too, that the court does not have the authority to order the fund to make payment of any interest but the parties could deal with this outside of the divorce agreement.

This problem, i.e. that the non-member spouse can only have the benefit at some indeterminate future date is in fact where the law is lacking. At the time of the divorce, there is generally a need for finances for extraordinary expenses. The spouses often require money to establish a new home, meet new expenses and so on. These and other aspects of the Act are still under consideration.

Note, too, that this attachment of pension benefits under the Divorce Amendment Act, applies to pension funds that are not necessarily registered with the Registrar of Pension Funds. These other funds, for example are those established by collective agreements in terms of the Labour Relations Act.

It is also important to note that the benefit must be “flagged” in the records of the fund as quickly as possible after the order is received. There could be problems where the order is not registered, and is not capable of being carried out such as for example where the share of the non-member spouse was greater than the actual value as a result of a drop in the share price.

Greater Benefits

If the benefit were greater than the one-third allowance to be commuted on the member’s retirement, what would happen then?

Example:

i) At the time of a divorce, the court makes an order for the spouse to get 50% of the Pension benefit.

ii) The 50% equates to R160 000 (at the time of the divorce).

iii) The member retires two months later, and his total pension amount is R 325 000; the one-third allowable commutation, in terms of the second schedule to the Income Tax Act, is R 108 000.

Basically, there are a few possible courses of action:

1 The member spouse cannot give more than he or she is able to give. Thus, if the Income Tax Act provides a maximum retirement amount of one third, the other spouse would be entitled to take a third only, and then, so much of the balance due as equates to her share would have to be paid by the member spouse on the terms agreed upon by the parties. An unsatisfactory arrangement.

2Alternatively, it could be argued that the Divorce Amendment Act is a later one than the Income Tax Act, therefore in terms of the Laws of Interpretation of Statutes, the later act, giving the other spouse rights to an amount greater than one third would prevail and the amount could be taken by the non-member spouse. This unfortunately is not a course that would be favoured. It would have the effect of turning pension funds into provident funds. There could be a manipulation of the law whereby spouses would get divorced, under a collusive divorce action, solely with the intention of getting the full pension in a cash commutation.

If regard is had to the Pension Funds Act, section 37 D, the Act refers to the settlement of a fund member’s housing loan liability. It states that any loan by a fund to a member in terms of section 19(5) can be deducted from the benefit payable to a member “…to an amount not exceeding the amount which in terms of the Income Tax Act, 1962, may be taken by a member or beneficiary as a lump sum benefit as defined in the Second Schedule to that Act; or…”

Although the section quoted refers to a loan in terms of section 19(5) it could be argued that the plain rules of interpretation must apply to those amounts due and payable to a divorced spouse. If the amount of the order exceeds the one-third-commutation amount, then, the divorced spouse may take only the amount up to that one third (less the tax) and the balance must be paid by the member spouse, as he is able to.

If this were not so, parties could conceivably enter into collusive divorce actions, and thus free up greater amounts than they would otherwise be entitled to. Surely a situation not envisaged by the drafters of the legislation.

The matter is not yet settled.

The Divorce Amendment Act, while noble in its intentions, falls a bit short of perfection with a number of anomalies. The Act has in fact been referred to the Law Commission and will be dealt with in due course.

The Common Law Spouse – Does he (or she) exist?

Many people who live together, have decided that they do not need to formalise their relationship with marriage.

There, may, however, be troubles ahead and the “I don’t need a piece of paper or a ring” could cost couples dearly in any break-up, or death. It is all down to the erroneous concept of the “common law spouse” – a figment of the imagination, and something that doesn’t exist.

Today, parties are either married, or they are not.

Marriage carries with it many rights (an obligations) but marriage also carries with it certain financial benefits.

Recently, in the Constitutional case of Volks v Robinson, the court held that unmarried couples in a permanent relationship are not entitled to the rights that married couples would have. In the case before the Judges, they had to decide whether unmarried persons who lived together were entitled to the same rights and duties as married people. They held that such heterosexual unions did not have the same rights as married persons and the court held that it was reasonable for legislation to differentiate between married persons and unmarried heterosexual couples for the purposes of conferring benefits that usually arise out of marriage.

Thus, if you are entitled as a married person – to benefits accorded to married people, you may not have the same rights if you are not married.

If you are not married – you cannot claim the rights due to a “married person”.
A “common law” spouse, will not be entitled to many of the rights of a properly married spouse, insofar as rights of inheritance, matrimonial rights and so on. For example, a man who lives with a woman without being married to her, would not receive any benefit from her estate if she were to die intestate. The parties could of course bequeath their respective estates to each other, but this forms the subject of a separate debate.

There is, of course, section 37C of the Pension Funds Act. This is the section which takes care of “dependants” of the deceased member. Where parties live together in a heterosexual relationship, and do not marry each other, the surviving partner would be entitled to claim some benefit of the death benefit. This however is not on the basis of a “common law” marriage, but is based on the survivor being “dependant” on the deceased member.

There are two Adjudicator determinations which offer some guidance to trustees on the rights of “common law” spouses.

The first one is Maritz v Absa Group Pension Fund. In this case, there was a “spouse’s” pension payable on the death of the member. The fund rules excluded the surviving life partner, on the basis that she was not married to the member at the time of his death. The Adjudicator held that she was not entitled to succeed in claiming a spouse’s pension. The Adjudicator followed the decision in Volks v Robinson. If the woman had been married to the deceased she would have been in a position to benefit and she would have been paid a spouse’s pension.

The second determination is Van der Merwe and Another v Central Retirement Fund and Another. In this case, the Adjudicator had to decide whether an unmarried partner could be accommodated under any of the categories of “dependant”. Under the Volks v Robinson ruling he held that the surviving spouse did not qualify as a “spouse” under the definition of dependant, (she was not properly married) and neither did that surviving partner qualify factually as a dependant. She was in fact not dependant on her partner.

It must be borne in mind, that if the surviving partner in the Van der Merwe case, was a women who stayed at home, did not earn any money, and looked after the common home, cared for the deceased member and earned no income – on the death of the member she would most certainly be entitled to receive some benefit because she was factually dependant on the deceased for maintenance and support during his lifetime.

Where Married couples live apart

The situation of married couples who live apart, also raises interesting questions.

Where a spouse is separated from his or her partner but not yet divorced, that partner would have all the rights and duties of a person still married and living together with that partner. If the rules of a fund provided for a spouse’s pension with no qualification, that spouse would obtain the monthly annuity even though he or she did not live with the deceased member.

Divorce finally ends that bond, but until the parties are legally divorced, and the court has granted a final order of divorce, the spouse remains a “spouse” and that person will benefit where the fund has a spouse’s benefit incorporated into the rules.

It is important, therefore, for parties who are married, to update their beneficiary nomination forms and make provision for those partners who they would leave behind. The nominated beneficiary would have slightly stronger rights if there are no other dependants, but where there are other dependants then the nominee’s claim will be considered together with those of the other dependants .

It is important for members to update beneficiary nomination forms to ensure their partners are named as nominees and are guaranteed the right to be considered for a share of the benefits or, are guaranteed the benefit itself if there are no dependants.

Trustees might also have the duty of advising their members of the implications of not nominating their lifelong partners as nominated beneficiaries, and not leaving those partners to await their fate at the hands of the trustees and other dependants.