Factual Matrix: When a Referee’s Report Reveals More Questions Than Answers
The parties in this matter were married out of community of property with the application of the accrual system and subsequently divorced on 1 November 2022. Their divorce was formalised through a settlement agreement which was incorporated into the divorce decree granted by the court. The settlement agreement itself, however, was conspicuously silent on a critical issue: it made no provision whatsoever for the payment of any portion of the applicant’s pension interest to the respondent as the non-member spouse.
What the settlement agreement did provide for was the appointment of a referee to establish the value of the parties’ respective assets and liabilities as at the date of divorce. This mechanism was necessary because the applicant’s estate had shown a greater accrual than that of the respondent, thereby triggering the respondent’s entitlement to an accrual claim under section 3(1) of the Matrimonial Property Act 88 of 1984. The parties, unable to agree on the value of the respondent’s accrual claim themselves, delegated this task to an independent expert.
A referee was duly appointed on 3 April 2023 and proceeded to conduct her work in accordance with the terms set out in the settlement agreement. Nearly a year later, on 5 March 2024, the referee delivered her report to the parties, concluding that the respondent’s accrual claim amounted to R1,664,336.66. It was at this juncture that the true dispute between the parties crystallised, revealing a fundamental disagreement not about the quantum of the claim, but about the manner in which it should be discharged.
The applicant proposed to tender payment of the entire accrual claim from his retirement benefit held with the L Retirement Annuity Fund. He submitted that the value of his retirement benefit stood at R2,369,469.68, which was more than sufficient to satisfy the respondent’s accrual claim in its entirety. The applicant’s motivation for this proposal was both practical and financial. He contended that his retirement benefit constituted the bulk of his estate and represented the only asset from which the respondent’s complete accrual claim could be paid without requiring him to realise any of his other assets that had been explicitly excluded from the accrual calculation.
The respondent, however, vigorously opposed this proposal. Her objection was rooted in the tax consequences that would inevitably flow from a payment sourced from the applicant’s retirement fund. She submitted that such a payment would be subjected to tax deductions applicable to retirement fund withdrawals, which would reduce the amount she would actually receive by an estimated R326,911.00. The respondent characterised this outcome as prejudicial, unjust, and fundamentally unfair, particularly given that accrual claims, being proprietary in nature, are ordinarily not subjected to tax deductions when paid directly by the spouse whose estate has shown the greater accrual.
A significant revelation emerged during the proceedings: neither the parties nor the referee had considered the tax liability applicable to the applicant’s retirement benefit when calculating the accrual claim. The applicant submitted that had this tax liability been properly factored into the calculation, it would have reduced the accrual amount due to the respondent by R660,268.75, bringing her entitlement down to R1,331,202.29. This meant that the accrual calculation itself was potentially flawed from the outset, having been conducted on the basis of the gross value of the retirement benefit rather than its net, after-tax value.
The applicant’s financial position became a contested issue. He alleged that he did not have money readily available in his bank account to pay the amount of the respondent’s accrual claim personally, hence his proposal to utilise his retirement benefit. The respondent disputed this assertion and painted a different picture of the applicant’s financial standing. She alleged that the applicant had built a substantial estate valued at R9,653,949.00, comprising a portfolio of immovable properties, which demonstrated that he possessed the means to pay the accrual claim himself without resorting to his retirement savings.
The applicant countered that he should not be compelled to sell immovable property that had been explicitly excluded from the accrual calculation merely to enable the respondent to avoid what he characterised as her tax obligations. He maintained that these tax consequences should have been considered during the accrual calculation itself and that the respondent was attempting to circumvent the proper legal consequences of including retirement benefits in the accrual computation.
The standoff between the parties escalated when the applicant delayed payment of the amount determined by the referee. This delay prompted the respondent to take decisive action. On 25 March 2024, she obtained a warrant of execution which was sent to the sheriff with instructions to attach the applicant’s bank account. Faced with this enforcement action, the applicant proposed a compromise. He agreed to continue paying the respondent’s spousal maintenance and to retain her on his medical aid scheme in exchange for the respondent instructing the sheriff to uplift the attachment of his bank account. The parties reached an agreement that any spousal maintenance and medical aid contributions paid during this interim period would be deducted from the respondent’s ultimate accrual claim once these proceedings were finalised.
The respondent’s personal circumstances added another dimension to the dispute. She submitted that the rehabilitative maintenance provided for in the settlement agreement had ceased in April 2024, as it had been stipulated for a period of only eighteen months. She characterised herself as an unemployed housewife who had assumed this role at the applicant’s insistence. During the marriage, she had been fully dependent on the applicant to provide for the family’s financial needs and, due to her responsibilities in running the household, had been deprived of the opportunity to build her own estate. She needed the accrual payment for her immediate maintenance, which precluded the possibility of transferring any portion of it to a retirement fund to avoid tax liability.
The applicant contested this narrative. He denied ever having insisted that the respondent become a housewife. On the contrary, he alleged that he had repeatedly requested the respondent to find employment to assist in covering their ever-increasing household expenses. He further submitted that even when the respondent had found employment, she had been unable to retain any position for more than three months at a time.
Curiously, the referee’s report itself lacked clarity on several fundamental issues. It did not explicitly state whether the applicant’s retirement benefit had been included in or excluded from the accrual calculation. The method and formula employed by the referee to arrive at the figure of R1,664,336.66 were not apparent from the face of the report. What the report did contain, however, was the referee’s opinion that she agreed with the applicant’s legal representatives that the accrual claim should be paid through the applicant’s retirement benefit. Notably, the referee provided no explanation or reasoning for this view, leaving the parties and ultimately the court to grapple with its implications.
The Jurisdictional Conundrum: Can a Motion Court Order Payment from an Unnamed Retirement Fund?
The proceedings before Marumoagae AJ revealed a fundamental jurisdictional difficulty that neither party nor their legal representatives appeared to have contemplated when launching their respective applications. The court identified two crucial legal issues that arose from the applications and required determination. The first was whether a family motion court could order a retirement fund that had not been joined to the proceedings, and which had not been ordered to do anything in terms of section 7(8) of the Divorce Act 70 of 1979 by the court that granted the divorce order, to pay the non-member spouse any portion of the member spouse’s retirement benefit. The second issue was whether a retirement fund was legally entitled to assist its member in settling an accrual claim against him.
The settlement agreement incorporated into the divorce decree neither mentioned nor identified the applicant’s retirement fund. More significantly, it made no directions whatsoever regarding the payment of pension interest as at the date of divorce. This omission proved fatal to the applicant’s case. The applicant had approached the motion court after the divorce trial court had already granted the divorce decree. He now sought an order compelling his retirement fund to pay the respondent’s accrual claim, despite the fund never having been named, identified, or joined in the original divorce proceedings.
The legislative architecture governing pension interest claims on divorce is found primarily in section 7(7) of the Divorce Act, which deems a pension interest to be an asset in the retirement fund member’s estate. This deeming provision allows the non-member spouse to claim a portion either agreed to by the parties and endorsed by the court, or determined by the court where the spouses failed to reach agreement, as at the date of divorce. The pension interest must accrue to the member spouse’s estate to allow the non-member spouse to claim it as of the date of divorce.
In M.W.S v N.S.S and Another 2021 (6) SA 201 (NWM), the court articulated this principle with clarity. The position established was that although the non-member spouse has a share in the member spouse’s pension interest, before the pension benefit accrues to the member spouse, the non-member spouse cannot claim his pension interest in terms of section 7(7) and cannot claim any payment or even expect the fund not to pay out the pension interest to the member spouse.
Once the pension interest has been deemed an asset in the member spouse’s estate, section 37D(4) of the Pension Funds Act 24 of 1956 dictates that the prescribed portion thereof must be deducted by a retirement fund that is either named or identifiable from the court order for purposes of being paid to the non-member spouse. The Pension Funds Adjudicator in Barnard v Municipal Gratuity Fund [2009] 2 BPLR 143 (PFA) recognised that legally qualified persons sometimes fail to understand and comply with the requirement relating to the naming of a fund in a divorce order. The Adjudicator held that it would be unduly onerous to require a party whose claim has fallen due to make a formal application for rectification of the divorce order even in circumstances where the fund is identifiable from the facts or circumstances.
The critical question was which court possesses the jurisdiction to make orders against retirement funds regarding pension interest payments. The wording of section 7(8)(a)(i) of the Divorce Act is explicit and unambiguous. It provides that the court granting a decree of divorce in respect of a member of such fund may make an order that any part of the pension interest of that member which, by virtue of subsection seven, 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. The emphasis on “the court granting” the divorce decree is determinative.
In Ndaba v Ndaba [2017] 1 All SA 33 (SCA); 2017 (1) SA 342 (SCA), the Supreme Court of Appeal held that section 7(8) creates a mechanism in terms of which the pension fund of the member spouse is statutorily bound to effect payment of the portion of the pension interest as at the date of divorce directly to the non-member spouse as provided for in section 37D(1)(d)(i) of the Pension Funds Act and section 21(1) of the Government Pension Law of 1996.
The practical operation of section 7(8) was further elucidated in C.N.N v N.N [2023] 2 All SA 365 (GJ); 2023 (5) SA 199 (GJ). The court held that this provision plays four important practical roles. First, it provides the divorce court with a discretion to make an order that a portion of the member spouse’s pension interest is due to the non-member spouse. Secondly, it empowers the court to make an order against the identified retirement fund, which may or may not have been joined in the divorce proceedings as a party, to pay the prescribed portion of the member spouse’s pension interest to the non-member spouse when the benefits accrue to the member spouse. Thirdly, it authorises the court to direct the registrar of the court to notify the identified fund of the order for such a fund to endorse its records in respect of its member that a portion of that member’s benefits will be paid to the non-member spouse. Fourthly, it creates an obligation on the administrator of the identified fund, once an endorsement in the records of the fund has been made, to provide proof of such endorsement to the court in writing. This approach was adopted with approval in P.L.B v L.R.B (36798/2014) [2025] ZAGPPHC 600 (4 June 2025).
The court in the present matter emphasised that section 7(8) clearly indicates that it is only the court that granted the divorce order that has the discretion to order a retirement fund to make payment of the portion of the member spouse’s pension interest to the non-member spouse. Most significantly, this section indicates that the applicant was not entitled to come to court on motion proceedings to request the court to order his retirement fund to pay any portion of his retirement benefit after the divorce order had been granted, where the retirement fund concerned was not named or identified and ordered to pay anything to the non-member spouse. This is an order that must be issued by the court that dissolves the parties’ marriage.
The applicant’s legal representatives had argued that since the matter was enrolled in the family court roll, the motion court constituted an extension of the divorce trial court and therefore possessed a discretion to order the retirement fund to make payment of the pension interest even though the fund was not named or identified in the settlement agreement, let alone joined in the proceedings. Marumoagae AJ expressed doubt that the relevant provisions of the Divorce Act and the Pension Funds Act support this approach.
Section 37D(4) of the Pension Funds Act refers specifically to proceedings before the divorce trial court, and not any other court post the granting of the divorce order. The Legislature, when drafting this provision, intended that the divorce trial court situated in any court that has jurisdiction to grant a divorce, including the Regional Magistrate Court, once the pension interest had been deemed an asset in the member spouse’s estate as of the date of divorce, should name or identify the retirement fund from which the non-member spouse can claim his or her share of the member spouse’s pension interest that would have accrued due to the divorce.
The court held that the only post-divorce court proceedings that can legitimately be regarded as an extension of the divorce trial court are variation proceedings, because they require the court to reassess its order and amend it. An application not intended to amend the court order but that seeks different relief, such as directing the retirement fund to make payment after the finalisation of divorce proceedings where the court order was silent on the name of the retirement fund and the portion of the pension interest that ought to be paid to the non-member spouse, is not an extension of the divorce trial proceedings. This represented a fatal blow to the applicant’s application.
The court was careful to clarify that this did not mean the respondent, as the non-member spouse, loses her right to claim a portion of the applicant’s pension interest simply because the settlement agreement incorporated in the divorce order is silent on this issue. The Ndaba case made it evident that if the non-member spouse failed to plead and specifically claim for his or her portion from the member spouse’s pension interest, he or she does not forfeit his or her entitlement to a share in the member spouse’s pension interest. The proper cause of action for the applicant was to make an application to amend the settlement agreement incorporated into the divorce order to bring it in line with sections 7(7) and (8) of the Divorce Act.
The situation would have been materially different if the court that granted the divorce order had named or identified the retirement fund that had to make payment of the portion of the member’s pension interest to the non-member spouse, and that retirement fund refused or delayed making payment. Under such circumstances, any party may approach a motion court to compel the retirement fund to comply with the divorce trial court’s order. This would not constitute an extension of the divorce proceedings, but rather an entirely new application designed to ensure that the court order is respected and implemented.
Conceptual Confusion: Distinguishing Pension Interest Claims from Accrual Claims
A critical conceptual distinction emerged in the judgment that lies at the heart of the matter: the difference between a pension interest claim and an accrual claim. The court observed that the applicant sought to settle the amount of the respondent’s accrual claim from the benefit held by his retirement fund after the divorce order had been granted. However, this did not mean that the portion of his retirement benefit called the pension interest did not accrue to his estate when the divorce order was granted.
In terms of section 1 of the Divorce Act, the phrase “pension interest” can be described as the notional benefit to which the retirement fund member would have been entitled to receive in terms of the rules of his or her fund if his or her membership of such a fund had terminated on the date of the divorce. This description was coined by the Office of the Pension Funds Adjudicator and has not been disturbed by any judgment of any superior court. In Davids v Momentum Retirement Annuity Fund & another [2012] JOL 28798 (PFA) and Govender v Lanxess Staff Provident Fund and others [2014] JOL 31421 (PFA), the Adjudicator applied this understanding. The court in B.S.M (nee M) v N.A.M (HCA18/2015) [2016] ZALMPPHC 2 (17 June 2016) held that the pension interest is simply a value calculated as at date of divorce.
The court noted a legislative development that introduced potential confusion. In 2024, the Legislature promulgated the Pension Funds Amendment Act 31 of 2024, which amended several pension-related statutes including the Pension Funds Act 24 of 1956, the Post and Telecommunication-related Matters Act 44 of 1958, the Transnet Pension Fund Act 62 of 1990, and the Government Employees Pension Law (Proclamation 21 of 1996). This legislation introduced an entirely new definition of the phrase “pension interest” without amending the definition of this phrase contained in the Divorce Act. The court observed that the Legislature created a possible difficulty for divorcing spouses and divorce courts because it is not clear which definition should be relied upon by the courts when determining non-member spouses’ portions of their member spouses’ pension interests. The Legislature did not simply amend the definition in the Divorce Act if it was found to be deficient in any way, but rather provided two seemingly contradictory definitions.
In an attempt to deal with this potential challenge, the Legislature afforded the new definition a measure of supremacy where it is found to conflict with that contained in the Divorce Act. In terms of section 1(2) of the Pension Funds Amendment Act, in the event of a conflict between the provisions of this Act and the Divorce Act, the provisions of this Act prevail. Since none of the parties requested the court to interpret what the pension interest means in the context of the Pension Funds Amendment Act, Marumoagae AJ held that the application should be disposed of in accordance with the definition of this phrase in the Divorce Act.
The C.N.N case provided clarity on how pension interest is determined in practice. The court held that a pension interest is that portion of the member spouse’s contributions plus investments thereon held by his or her fund which is calculated by that fund as at the date of divorce after receiving a divorce order instructing it to pay part of such contributions plus investments to the non-member spouse. The fund will determine what amount the member spouse would be entitled to receive had such member exited the fund because of resignation as at the date of divorce.
A fundamental problem arose in the present matter: the divorce trial court did not make any order regarding any portion of the member spouse’s pension interest being allocated to the non-member spouse. The parties themselves in their settlement agreement did not make provision for the allocation of the applicant’s pension interest in terms of sections 7(7) and (8) of the Divorce Act to the respondent as of the date of divorce. While this was not entirely clear from her report, it appeared that the appointed referee included the value of the applicant’s pension interest in her calculation of the respondent’s accrual claim, without considering the tax implications. Even though the applicant desired that the referee’s report should be made an order of court, none of the parties had taken steps to bring either the referee’s report or the settlement agreement itself within the realm of sections 7(7) and (8) of the Divorce Act.
The court expressed doubt whether a family motion court, where a variation of the settlement agreement incorporated into the divorce order is not sought, can make any order as to how the member spouse’s pension interest that accrued at the date of divorce ought to be paid by the retirement fund not named or identified in the divorce order. In terms of section 7(7) of the Divorce Act, a pension interest is deemed to be an asset in the retirement fund member’s estate to allow the non-member spouse to claim a portion either agreed to by the parties, as endorsed by the court, or that is determined by the court where the spouses failed to reach an agreement on the date of divorce. This is usually half of the value of the entire member spouse’s pension interest. The pension interest must accrue to the member spouse’s estate to allow the non-member spouse to claim it as of the date of divorce.
The respondent’s accrual claim, which includes the value of the applicant’s pension interest, should be settled in accordance with sections 3 and 4 of the Matrimonial Property Act. This claim consists of the value of all the matrimonial assets of both parties, which were not excluded from the accrual calculation, and were combined and divided in half to establish what should be paid to the respondent. The fact that the pension interest was the asset with the most significant value does not make the accrual claim a pension interest claim payable in terms of section 7(8) of the Divorce Act. It may well be convenient for the applicant to satisfy the respondent’s accrual claim from his pension interest, but this has many legal implications that militate against retirement benefits generally being used to settle monetary claims against retirement fund members.
The first challenge identified by the court was that it is not clear how many creditors the applicant has who may also want to be paid what they are owed. The fact that the applicant conceded that he does not have the money to settle the respondent’s accrual claim raised possible questions about his state of solvency. Arranging to pay the respondent’s accrual claim from his retirement benefit may be regarded as an attempt to be released from his debts, with the effect of prejudicing his creditors or preferring one creditor above others, which are acts of insolvency under sections 8(c) and (d) of the Insolvency Act 24 of 1936.
This has significant repercussions for the respondent, particularly where any of the applicant’s creditors can successfully apply for his sequestration in the future. If the respondent’s retirement benefit can be used for purposes other than those contemplated in sections 1, 7(7) and (8) of the Divorce Act, such as settling the accrual claim, this may be regarded as a transaction that could be set aside as a voidable disposition in terms of sections 29 and 30 of the Insolvency Act. This is because retirement benefits are generally protected from creditors under section 37A of the Pension Funds Act and are not intended to settle debts.
The court examined Reynolds v Reynolds [2020] JOL 48796 (GJ), where the member spouse was allowed to use his retirement benefit to pay the non-member spouse’s accrual claim. In the Reynolds matter, the parties were also married out of the community of property with the application of the accrual system. The parties concluded a settlement agreement which stated the amount of the accrual claim that the member spouse had to pay to the non-member spouse as of the date of divorce. This settlement agreement was incorporated into the parties’ divorce decree. The court emphasised that the amount stated in the settlement agreement did not constitute half of the member spouse’s pension interest, but represented the non-member spouse’s share of the difference between the accrual of the parties’ estates. The member spouse undertook to raise a loan against his retirement benefit to pay the non-member spouse’s allocated amount of her accrual claim because he did not have the money readily available to make such a payment himself.
When the member spouse’s application for a loan against his retirement benefit was unsuccessful, he approached the court to amend the settlement agreement to allow him to use his retirement benefit to pay the amount of the non-member spouse’s accrual claim. The court opined that this amendment was intended to bring the parties’ settlement agreement within the ambit of sections 7(7) and (8) of the Divorce Act read with section 37D(1)(d) of the Pension Funds Act. Upon receipt of the amended settlement agreement, the member spouse’s retirement fund paid the amount of the non-member spouse’s accrual claim after deducting the applicable tax payable on pension withdrawal benefits.
Marumoagae AJ expressed respectful disagreement with the approach adopted in the Reynolds case. The court in Reynolds did not interrogate whether it was permissible for the member spouse to use his retirement benefit to settle the non-member spouse’s accrual claim, and from the court’s analysis of the facts, it appeared that it accepted that this was permissible. The present court disagreed with this approach because the prescribed amount was not the amount of the portion that the non-member spouse ought to have been allocated in terms of section 7(8) of the Divorce Act, but the entire value of the non-member spouse’s accrual claim, which the member spouse failed to raise enough money to pay himself.
At least in the Reynolds case, the settlement agreement identified the relevant retirement fund and made provision for this fund to pay a prescribed amount to the non-member spouse. However, Marumoagae AJ held that the fund did not have a legislative obligation to assist its member to settle its accrual claim but only to pay the portion assigned to the non-member spouse in terms of section 7(8) of the Divorce Act. In other words, the court ought to have established the value of the amount that constituted the non-member spouse’s portion of the member spouse’s pension interest after the calculation of the non-member spouse’s accrual claim. This is the only amount that the fund was legislatively obliged to pay to the non-member spouse, not the entire amount of the accrual claim.
The court concluded that ordering the applicant’s retirement fund to settle the respondent’s entire accrual claim would be unfair, having regard to the tax that is generally applicable to pension withdrawal benefits. An accrual claim is a proprietary claim that does not constitute income in the hands of the party whose estate has shown a smaller accrual. Such a spouse is entitled to receive the entire net payment of the accrual claim after calculation. The court doubted whether this amount should, or indeed does, attract tax, although the tax liability would be considered with respect to the pension interest in the course of the accrual calculation.
The Tax Liability Dilemma: Recalculating Accrual When Pension Interests Are Involved
The respondent raised a concern that proved central to the court’s analysis: her accrual claim could not be paid from the applicant’s retirement benefit because of the tax liability that this benefit attracts. It was argued on behalf of the respondent that the amount due to her would not attract any tax deduction if paid personally by the applicant because it would not be regarded as income for the purposes of the Income Tax Act 58 of 1962. Apart from not being permissible for the reasons already outlined, the court held that ordering the applicant’s retirement fund to settle the respondent’s entire accrual claim would be unfair, having regard to the tax that is generally applicable to pension withdrawal benefits.
It was not an answer, according to the court, that the respondent could avoid tax by transferring the value sought to be paid to her through the applicant’s retirement fund to a retirement fund to which she may be a member. An accrual claim is a proprietary claim that does not constitute income in the hands of the party whose estate has shown a smaller accrual. Such a spouse is entitled to receive the entire net payment of the accrual claim after calculation. The court doubted whether this amount should, or indeed does, attract tax. However, the tax liability would be considered with respect to the pension interest in the course of the accrual calculation itself.
In S.L.M. v H.A.C (18281/2021) [2025] ZAGPJHC 687 (19 June 2025), the court accepted the argument that when retirement benefits accrue, the Income Tax Act sets out the tax rates that will be applied to the benefit, which is dependent on whether the accrual was a “withdrawal benefit” or “retirement benefit”. This recognition demonstrates that tax consequences cannot be divorced from the consideration of pension interests in matrimonial property calculations.
The principles governing the timing and methodology of tax consideration in accrual calculations were comprehensively addressed in T.M.W v J.J.W (46463/2007) [2010] ZAGPPHC 587 (24 February 2010). The court in that matter held that in light of the fact that the accrual should be determined at date of divorce, the pension interest could only be determined at that same date. The valuation should be based on a deemed resignation, and therefore the definition of “pension interest” in section 1 of the Divorce Act should be read to include the after-tax withdrawal benefit that would be payable to a member if he or she had opted to take a total withdrawal benefit as at date of divorce, because only that could be the net accrual as at date of divorce.
The T.M.W case went further in establishing the inescapable connection between tax liability and accrual calculations. The court held that in order to determine the accrual, the parties’ net interest will have to be determined at date of divorce. Therefore, the pension interest tax liability as at date of divorce must be taken into account when the accrual is calculated. This principle strikes at the heart of the present dispute, as it appeared that neither the parties nor the referee had considered this fundamental requirement when calculating the respondent’s accrual claim.
These cases clearly illustrate that there is no way tax can be avoided when retirement benefits are made to settle accrual claims against member spouses. This is why it is important to include the member’s pension interest when determining the growth of his estate and the applicable tax liability in respect of such a benefit when the accrual claim is calculated. The failure to do so results in an inflated accrual calculation that does not reflect the true net value of the estate that has shown the greater accrual.
The Reynolds matter provided further insight into the practical consequences of failing to address tax liability at the calculation stage. The tax liability was not considered when the accrual claim was calculated in that case, leading to the fund deducting tax on the accrual claim amount that it was ordered to pay to the non-member spouse. The tax deduction aggrieved the non-member spouse because had the member spouse paid the amount of the accrual claim himself, there would not have been tax implications for either of them. The court held that to the extent to which there would have been any tax payable, each party would have had to deal with it on his or her own. The court held further that there was no provision in the parties’ settlement agreement that deductions should be made from the non-member spouse’s amount of her accrued claim and that she was entitled to receive the entire amount as stated in the amended settlement agreement.
Most importantly, the Reynolds court held that by amending the settlement agreement, the intention was not to award a portion of the member spouse’s pension interest to the non-member spouse. This was done to enable the member spouse to access money to discharge his obligations in terms of the settlement agreement. The court further held that the member spouse received payment from his retirement fund, and that he was liable for the applicable tax on the withdrawal benefit. While Marumoagae AJ disagreed with the view that a retirement benefit can be used to settle the entire accrual claim of the non-member spouse, he nonetheless agreed that where the retirement fund is ordered to make such payment, the member spouse should be ordered to pay the applicable tax.
However, it was unnecessary to make such an order in the present matter because it did not appear to be competent under the legislative framework already discussed. If such an order were to be made, the respondent could not be expected to shoulder the tax that is likely to be imposed by the applicant’s retirement fund. The court was clear that the non-member spouse should not bear the burden of tax consequences that flow from an improper method of settling an accrual claim.
The applicant’s position in the present matter raised concerns about the accuracy of the entire accrual calculation. He alleged that neither the parties nor the referee considered the tax liability on his retirement benefit when the accrual was calculated. Had it been considered, it would have reduced the accrual amount due to the respondent by an amount of R660,268.75. This meant that the respondent would have only been entitled to an amount of R1,331,202.29 rather than R1,664,336.66. The difference between these two figures is substantial and demonstrates the material impact that proper consideration of tax liability has on accrual calculations where pension interests form a significant component of the marital estate.
Some clarification was provided in the applicant’s heads of argument that the referee did not consider the tax liability that attaches to the applicant’s retirement benefit as a liability when calculating the accrual. This created the impression that the value of the retirement benefit was considered, but on a gross rather than net basis. The calculation appeared to have been based on the written submissions provided by the parties to the referee without proper consideration of the tax consequences that would inevitably flow from the inclusion of the pension interest in the accrual calculation.
The court agreed that the referee ought to have considered the tax liability on the applicant’s pension interest when calculating the accrual. It seemed that if the tax liability were considered, this might materially change the amount that should be paid to the respondent. As such, it would be premature to order the applicant to make any payment to the respondent before the recalculation of the accrual. The court was inclined to dismiss both the main application and the counter-application to allow the parties to initiate a process that would lead to the recalculation of the accrual, having regard to the tax liability in the applicant’s pension interest, to determine the amount that should be paid to the respondent personally by the applicant and not by the applicant’s retirement fund.
It would be unfair for the applicant to be forced to pay an amount of an accrual claim which was calculated without considering the tax liability in his pension interest. Once the respondent’s accrual claim had been properly determined with due regard to tax consequences, it ought not be paid from the applicant’s retirement fund because it cannot be regarded as part of the pension interest as defined in section 1 of the Divorce Act. The accrual claim should be paid as contemplated in the Matrimonial Property Act, where assets that form part of the accrual should be identified, collected and realised to settle the accrual claim. Alternatively, the spouse whose estate has shown a larger growth can raise funds to settle the accrual claim of the other spouse. The court was not convinced that retirement funds are suitable vehicles for this purpose.
Legislative Lacuna: The Urgent Need for Clarity on Pension Sharing in Accrual Marriages
The court’s analysis revealed a fundamental structural deficiency in the current legislative framework governing the intersection of accrual claims and pension interests. Marumoagae AJ observed that despite best efforts, he could not locate a decided case where a court explained how a member spouse’s pension interest should be dealt with when an accrual is calculated for parties married out of community of property with the application of the accrual system. The dearth of decided cases that articulate the correct legal position regarding the calculation of accrual claims where one of the parties to the marriage is a retirement fund member might be influenced by the fact that it is generally taken for granted that a pension interest should be part of the calculation without determining the approach that should be followed when such a calculation is made.
The dispute in the present application made it clear that an accrual calculation where the value of a retirement benefit ought to be considered raises several challenges. First, it is not clear whether the architecture of sections 7(7) and 7(8) of the Divorce Act allows for the accrual of the member spouse’s pension interest due to the divorce for any reason other than a claim by the non-member spouse for a portion of the member spouse’s pension interest. In other words, can retirement fund members, through settlement agreements incorporated into divorce orders, legally force their retirement funds to use their retirement benefits to settle accrual claims against them?
Secondly, where the parties’ settlement agreement does not address the sharing and payment of the member spouse’s pension interest, but appoints a referee to assist the parties to calculate the accrual claim of the party whose estate has shown a smaller accrual post the granting of the divorce order, can the referee include either or both of the parties’ pension interests in the calculation of the accrual? If the referee considers the value of the member spouse’s retirement benefit in her accrual calculation, would a retirement fund he or she identified, which is neither named nor identified in the settlement agreement incorporated into the divorce order, be obliged to make payment of any amount or percentage of the member spouse’s retirement benefit allocated by the referee to the non-member spouse? For the reasons provided in the judgment, it appeared that these questions should be answered in the negative.
The South African Law Commission, as it was then known, had presciently identified this very problem decades earlier. In its Discussion Paper 77 on Project 112 dealing with the sharing of pension benefits, published on 31 July 1998, the Commission correctly noted that it must be concluded that the matrimonial property dispensation following upon an accrual marriage is not a suitable vehicle to effect pension sharing on divorce. The Commission submitted that it would be better to account for pension accrual separately and to find a method of providing the non-member spouse with a share of the member spouse’s pension, proportionate to the pension entitlement accumulated during the marriage.
This observation, made more than two decades before the present judgment, remains unaddressed by the Legislature. The court emphasised that should the Legislature not urgently step in, member spouses’ retirement benefits will be eroded through accrual claims settlements and, in the process, defeat the social security imperative of retirement savings. This will also lead to member spouses being prejudiced by not having their tax liability considered when pension interests are included in the broader calculations of the accrual claims. The warning issued by Marumoagae AJ carries significant implications for the retirement savings industry and the financial security of divorcing spouses.
The erosion of retirement benefits through their use as vehicles to settle accrual claims poses a systemic risk to the social security function that these savings are intended to serve. Retirement funds exist to provide financial security to members in their old age, not to serve as convenient sources of liquidity for settling matrimonial debts. The legislative framework protecting retirement benefits from creditors under section 37A of the Pension Funds Act reflects this policy imperative. Allowing retirement benefits to be routinely accessed for accrual claim settlements undermines this protective regime and potentially exposes members to financial vulnerability in retirement.
The court was not convinced that South African law regulating the sharing of pension interests on divorce permits any court to make an order directing any retirement fund to settle monetary claims against its members, let alone amounts arising from accrual claims. Should a court grant such an order, that would amount to judicial innovation that is not supported by statutory law. Under such circumstances, the non-member spouse should not be expected to shoulder the tax liability on the entire amount of her accrual claim generally applicable to pension withdrawal benefits.
The treatment of referee reports added another layer of complexity to the legal landscape. In section 38 of the Superior Courts Act 10 of 2013, provision is made for the court to refer any matter arising from the proceedings for enquiry and report to a referee appointed by the parties, and the court may adopt the report of any such referee, either wholly or in part, and either with or without modifications. This section provides for the appointment of a referee to resolve disputes. The parties’ settlement agreement made provision for the appointment of a referee to determine the accrual amount payable to the respondent.
The authoritative position on the binding nature of referee reports was established in Wright v Wright and Another 2015 (1) SA 262 (SCA). Madjiet JA, as he then was, stated that he agreed with the learned judge’s finding that Estate Young is authority for the proposition that a court is bound by the findings of a referee contemplated in section 19bis, unless it can be found that the conclusions arrived at by the referee were unreasonable, irregular or wrong. While there are recent high court decisions that appear to contradict this view, such as Gasa v Singh NO and Others (13338/2008) [2009] ZAKZDHC 26 (25 June 2009), the Supreme Court of Appeal’s pronouncement on this issue remains the most authoritative to date.
The Gasa matter held that the purpose of referee appointments is that either where there are highly technical aspects where the assistance of a neutral expert is required or where the bulk of the documentation is such that a referee can streamline the process, the report of the referee would not only assist the court but help to limit the length of the proceedings by highlighting, through its analysis of the documents or the factual situation relating to accounts, exactly which aspects or incidents or transactions are in dispute between the parties. The report of the referee does not bind the court but assists it by in essence summarising the results of the referee’s investigations. This approach, however, conflicts with the Supreme Court of Appeal’s position in Wright.
In the present case, the referee merely stated that she agreed with the applicant that his retirement fund should be directed to pay the respondent’s accrual claim. It did not seem to Marumoagae AJ that the referee made a ruling in this regard that could be viewed as binding on the court. If she did, that would amount to an error of law and could be regarded as irregular or wrong, as it directly contradicted the legal position outlined in the judgment. The parties did not appear to quarrel much about the way in which the accrual claim was calculated, and there was nothing before the court that could justify the court finding any fault with the referee’s calculation of the respondent’s accrual claim.
However, the actual calculation was not apparent on the face of the report. Nonetheless, it could be accepted that the calculation was accurate and that the respondent was entitled to be paid R1,664,336.66. However, the court could not ignore the applicant’s point that this amount did not account for tax on his pension interest, which raised questions about the accuracy of the accrual calculation. This might necessitate the recalculation of the accrual claim in this matter. A referee’s report cannot be regarded as a judgment debt, and where fundamental errors in methodology have been made, such as failing to account for tax liability on pension interests, the report cannot bind the court or the parties.
The method and formula used to calculate the respondent’s accrual claim were not particularly clear from the referee’s report. Nonetheless, the referee concluded that the value of the respondent’s accrual claim was R1,664,336.66. The referee opined that she agreed with the applicant’s legal representatives that this amount should be paid through the applicant’s retirement benefit. She did not provide any explanation of what informed this view. While it is possible to attack the referee’s report on the basis that it is unreasonable, irregular, or potentially wrongly leads to inequitable outcomes, as recognised in (UM214/20) [2023] ZANWHC 147 (22 August 2023), none of the parties materially objected to her report in this regard.
The only aspect that the respondent had an issue with concerning the referee’s report was the recommendation that the applicant’s retirement fund should pay the amount of her accrual claim because of the tax liability associated with retirement benefits. Otherwise, the respondent insisted that the payment must be made to her in accordance with the calculations made by the referee. The applicant, on the other hand, contended that the settlement agreement did not provide that the referee’s report was final and binding. The referee’s report is not a judgment debt. Further, the referee was not granted the power to determine how the accrual would be paid. Her finding cannot be elevated to a court order.
A court sitting as a motion court post the granting of the divorce order, where the retirement fund was not named or identified, is not competent to order the retirement fund to pay any portion of its member’s retirement benefit without an application for the variation of the divorce order. Such a court is not an extension of the court that granted the divorce order. An order directing any retirement fund to make payment of a portion of its member’s retirement benefit to the non-member spouse must only be done in terms of section 7(8) of the Divorce Act, read with section 37D(4) of the Pension Funds Act. This represents the current state of the law, inadequate though it may be for addressing the complex realities of modern matrimonial estates where pension interests often constitute the most significant asset.
The court’s ultimate conclusion was stark and unequivocal. Both the main application and the counter-application were dismissed with no order as to costs. The parties were left to initiate a process that would lead to the recalculation of the accrual, having regard to the tax liability in the applicant’s pension interest, to determine the amount that should be paid to the respondent personally by the applicant and not by the applicant’s retirement fund. Until the Legislature intervenes to create a coherent framework for dealing with pension interests in accrual marriages, divorcing spouses, their legal advisors, and the courts will continue to grapple with the conceptual and practical difficulties so comprehensively identified in this judgment.
Questions and Answers
What is the definition of “pension interest” under the Divorce Act?
The phrase “pension interest” is described as the notional benefit to which the retirement fund member would have been entitled to receive in terms of the rules of his or her fund if his or her membership of such a fund had terminated on the date of the divorce. This description was coined by the Office of the Pension Funds Adjudicator and has not been disturbed by any judgment of any superior court. The B.S.M case simplified this by holding that the pension interest is simply a value calculated as at date of divorce.
Which court has jurisdiction to order a retirement fund to pay pension interest to a non-member spouse?
Only the court that grants the divorce decree has the discretion to order a retirement fund to make payment of the portion of the member spouse’s pension interest to the non-member spouse. This flows from the explicit wording of section 7(8)(a)(i) of the Divorce Act, which refers specifically to “the court granting a decree of divorce”. A motion court sitting after the divorce has been granted is not an extension of the divorce trial court and lacks jurisdiction to make such orders unless the proceedings constitute a variation application.
Must a retirement fund be named or identified in the divorce order for it to be obliged to pay pension interest?
Yes. Section 37D(4) of the Pension Funds Act dictates that the prescribed portion of the pension interest must be deducted by a retirement fund that is either named or identifiable from the court order. The Barnard case recognised that it would be unduly onerous to require formal rectification where the fund is identifiable from the facts or circumstances, but some form of identification remains essential. Without naming or identifying the fund, it has no obligation to make payment.
Can a motion court post-divorce compel a retirement fund to pay if the fund was not named in the divorce order?
No. The court held that a motion court sitting after the divorce order has been granted, where the retirement fund was not named or identified, is not competent to order the retirement fund to pay any portion of its member’s retirement benefit without an application for the variation of the divorce order. The proper cause of action would be to apply to amend the settlement agreement incorporated into the divorce order to bring it in line with sections 7(7) and (8) of the Divorce Act.
Does a non-member spouse forfeit their right to pension interest if it was not specifically pleaded or claimed in the divorce proceedings?
No. The Ndaba case made it evident that if the non-member spouse failed to plead and specifically claim for his or her portion from the member spouse’s pension interest, he or she does not forfeit the entitlement to a share in the member spouse’s pension interest. The right exists by operation of law where the pension interest is deemed to be an asset in the member spouse’s estate, regardless of whether it was specifically pleaded.
What is the difference between a pension interest claim and an accrual claim?
A pension interest claim is a claim for a portion of the member spouse’s retirement benefit as calculated at the date of divorce, payable in terms of section 7(8) of the Divorce Act. An accrual claim is a proprietary claim arising from section 3 of the Matrimonial Property Act, which consists of the value of all matrimonial assets of both parties that were not excluded from the accrual calculation, combined and divided in half. The fact that the pension interest may be the asset with the most significant value does not transform the accrual claim into a pension interest claim.
Can a retirement fund be used to settle a member spouse’s accrual claim?
The court held that it is not clear whether the architecture of sections 7(7) and 7(8) of the Divorce Act allows for the accrual of the member spouse’s pension interest due to divorce for any reason other than a claim by the non-member spouse for a portion of the member spouse’s pension interest. The court was not convinced that South African law regulating the sharing of pension interests on divorce permits any court to make an order directing any retirement fund to settle monetary claims against its members, including amounts arising from accrual claims. To do so would amount to judicial innovation not supported by statutory law.
What are the potential insolvency implications of using retirement benefits to settle accrual claims?
The court identified that arranging to pay the respondent’s accrual claim from the applicant’s retirement benefit may be regarded as an attempt to be released from debts, with the effect of prejudicing creditors or preferring one creditor above others, which are acts of insolvency under sections 8(c) and (d) of the Insolvency Act. If the member spouse can be successfully sequestrated in future, using retirement benefits to settle accrual claims may be regarded as a transaction that could be set aside as a voidable disposition in terms of sections 29 and 30 of the Insolvency Act, because retirement benefits are generally protected from creditors under section 37A of the Pension Funds Act.
Must tax liability on pension interests be considered when calculating an accrual claim?
Yes. The T.M.W case held that in order to determine the accrual, the parties’ net interest will have to be determined at date of divorce, and therefore the pension interest tax liability as at date of divorce must be taken into account when the accrual is calculated. The definition of pension interest in section 1 of the Divorce Act should be read to include the after-tax withdrawal benefit that would be payable to a member if he or she had opted to take a total withdrawal benefit as at date of divorce, because only that could be the net accrual as at date of divorce.
Who bears the tax liability when a retirement fund is ordered to pay an accrual claim?
The Reynolds case held that where a retirement fund makes payment, the member spouse receives payment from his retirement fund and is liable for the applicable tax on the withdrawal benefit. The non-member spouse should not be expected to shoulder the tax liability on the entire amount of her accrual claim generally applicable to pension withdrawal benefits. An accrual claim is a proprietary claim that does not constitute income in the hands of the party whose estate has shown a smaller accrual, and such a spouse is entitled to receive the entire net payment of the accrual claim after calculation.
Is a referee’s report binding on the court and the parties?
The Wright case established that a court is bound by the findings of a referee contemplated in section 19bis, unless it can be found that the conclusions arrived at by the referee were unreasonable, irregular or wrong. However, a referee’s report cannot be regarded as a judgment debt. Where fundamental errors in methodology have been made, such as failing to account for tax liability on pension interests, the report cannot bind the court or the parties. The court retains discretion to adopt the report of any referee either wholly or in part, and either with or without modifications, as provided in section 38 of the Superior Courts Act.
What powers does a referee have in determining accrual claims?
A referee appointed in terms of section 38 of the Superior Courts Act is empowered to conduct enquiries and provide reports to assist the court. The referee’s mandate is typically defined by the settlement agreement or court order appointing them. In the present case, the referee was empowered to compile details of all parties’ assets and liabilities identified in financial disclosure forms and to calculate the accrual. However, the referee cannot make binding determinations on matters of law, such as how the accrual should be paid or which assets should be used to satisfy the claim.
What did the South African Law Commission identify as the problem with accrual marriages and pension sharing?
The South African Law Commission correctly noted in its Discussion Paper 77 on Project 112 that it must be concluded that the matrimonial property dispensation following upon an accrual marriage is not a suitable vehicle to effect pension sharing on divorce. The Commission submitted that it would be better to account for pension accrual separately and to find a method of providing the non-member spouse with a share of the member spouse’s pension, proportionate to the pension entitlement accumulated during the marriage. This observation remains unaddressed by the Legislature.
What are the consequences if the Legislature does not intervene to clarify pension sharing in accrual marriages?
The court warned that should the Legislature not urgently step in, member spouses’ retirement benefits will be eroded through accrual claims settlements and, in the process, defeat the social security imperative of retirement savings. This will also lead to member spouses being prejudiced by not having their tax liability considered when pension interests are included in the broader calculations of accrual claims. The legislative lacuna creates ongoing uncertainty for divorcing spouses, their legal advisors, and the courts.
How should an accrual claim be paid according to the Matrimonial Property Act?
The accrual claim should be paid as contemplated in the Matrimonial Property Act, where assets that form part of the accrual should be identified, collected and realised to settle the accrual claim. Alternatively, the spouse whose estate has shown a larger growth can raise funds to settle the accrual claim of the other spouse. The court was not convinced that retirement funds are suitable vehicles for this purpose, as they serve a distinct social security function and are protected from creditors under section 37A of the Pension Funds Act.
Written by Bertus Preller, a Family Law and Divorce Law attorney and Mediator at Maurice Phillips Wisenberg in Cape Town and founder of DivorceOnline and iANC. A blog, managed by SplashLaw, for more information on Family Law read more here. For free and useful Family Law tech applications visit Maintenance Calculatorand Accrual Calculator.
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