Hammond Pole Made Law: Divorce and accrual regulations changed forever
“I am ecstatic to announce that the law pertaining to divorce and accrual has forever been changed, following a case I attended to in 2016.” – Writes Tania Abbotts, Senior Associate at Hammond Pole Attorneys.
In a decision made on 5 May 2020, the high court ordered that a living annuity cannot be included in a spouse’s estate for purposes of calculating accrual. In essence this meant that the court confirmed that spouses involved in a divorce could purchase a living annuity, and effectively use it to place their Pension Interests, in order to reduce their total assets, when it came to assessing whether there was an accrual claim.
South African law has various marital regimes.
When parties get married, and elect to get married out of community of property, they can further elect whether to have accrual applicable or not. If it is applicable, this means that the parties will assess their individual estates at the time of divorce and depending on who has gained more during the marriage, the difference in value will be given to the spouse who has the smaller estate.
When assessing a person’s estate, all assets are considered, including Pension Interests which can be made up of: Retirement Annuities, Pension Funds, Provident funds etc. A living annuity is a financial mechanism that allows you to place Pension Interests into it, and the living annuity will then provide you with a steady income generated from the Pension Interest that you placed into the living annuity. The purpose of a living annuity is to therefore keep as much of the capital you placed into it, in order to derive a monthly income until you become deceased.
Divorce law previously
As at 2016, the law was unclear whether a living annuity fell within a spouse’s estate as it strictly did not fall within the definition of a Pension Interest. “I was involved with bringing this issue before the court in 2016”, says Abbotts. “Unfortunately, in 2016 the court ruled against our evidence and ruled that a living annuity did not form part of a spouse’s estate. The matter was then taken through the various court processes involved with appealing a decision of the High Court.”
“Whilst the matter was dealt with by another firm, the matter is now once again in my portfolio and I have received confirmation from the Supreme Court of Appeal that they went through the evidence that was placed before the court in 2016 and overruled the 2016 decision. The Supreme Court of Appeal thus has forever changed divorce law as they confirmed our case and forever determined that a living annuity can no longer be used to diminish one’s estate as the income stream derived from the living annuity (the value that a spouse will receive by getting a monthly income) will always form part of a spouse’s estate for purposes of determining accrual.”
This is a great victory not only for our client, but it is a victory for future divorces in ensuring that fairness and equality is applied throughout. No longer can one use a loophole to prejudice their spouse for purposes of diminishing their asset using a living annuity.
Contact Hammond Pole to assist with your divorce proceedings.