How Long Does Pension Payout Take After Divorce?

How Long Does Pension Payout Take After Divorce?

Divorce can be quite complicated, especially when it comes to dividing assets like pensions. Generally, any pension earned during the marriage is considered marital property, which means it can be split between the spouses.

According to the Divorce Act, you can only claim pension benefits if one spouse is still a member of the pension fund. If that spouse leaves the fund, either by retiring or making an early withdrawal, the pension benefit then belongs solely to them, and there is no longer any pension interest to divide. Any benefits that were accrued before the divorce will need to be treated like any other asset in the couple’s joint or separate estate.

Once the divorce is finalized and all necessary documents are submitted, the pension fund has 45 days to send the relevant claim documents to the member’s former spouse. The former spouse then has 120 days to decide how they wants to handle their share of the pension interest and must return the completed claim documents to the fund.

After the fund receives all the required paperwork, they have 60 days to process and pay out the former spouse’s portion of the pension interest.

Duration For Pension Payout Take After Divorce

Recent changes to pension laws mean that individuals are now eligible for an immediate payout of their portion of the pension fund. This generally occurs within 60 days after the divorce. This update is a positive development, as it offers prompt financial support to those who may require funds quickly.

The Marital Systems in South Africa and Their Impact on Retirement Fund Claims

Marriages in Community of Property

• In marriages governed by a community of property, both spouses’ pension interests are considered part of their joint estate. Consequently, the non-member spouse is entitled to claim 50% of the member spouse’s pension interest as of the divorce date.

Marriages Out of Community of Property with Accrual

For couples married out of community of property with accrual, the value of one spouse’s pension fund is factored into the calculation of their estate’s value solely for determining accrual.

Marriages Out of Community of Property Without Accrual (Before November 1, 1984)

• In marriages before November 1, 1984, spouses maintain separate estates, and there is no automatic sharing of assets upon divorce unless a court orders a redistribution under Section 7(3) of the Divorce Act. In such cases, a pension interest belongs to the spouse’s estate and can be included in the asset pool if the court orders redistribution. Alternatively, the parties may mutually agree to share the pension interest in a settlement agreement.

Marriages Out of Community of Property Without Accrual (After November 1, 1984)

• In marriages after November 1, 1984, spouses retain their separate estates, and there is no sharing of assets at divorce. Any division of pension interests must occur by mutual consent. The parties can also decide to share the pension interest through a settlement agreement.

The Clean-Break Principle

The Pension Funds Amendment Act of 2007 introduced the clean-break principle, which governs how retirement fund benefits are handled following a divorce. This principle allows retirement funds to deduct a specific amount or percentage from a member’s benefits upon divorce and transfer that amount to the non-member spouse or a retirement fund of their choice. Essentially, it enables a non-member ex-spouse to access their agreed-upon or court-ordered share of the member spouse’s retirement savings.

Under this principle, any assigned amount can be paid to the non-member spouse based on a divorce order granted under the Divorce Act, regardless of when the divorce occurred. However, the amount cannot exceed 100% of the value of the member’s withdrawal benefit at the time of the divorce. For the fund to make this deduction and payment, it must be directed to update its records accordingly and/or to process the payment to the non-member spouse.

The non-member spouse has the option to receive the funds as a cash lump sum or have the money transferred to an approved pension fund. It’s important to note that the fund cannot deduct and pay interest on the assigned amount, except in cases where the payment to the non-member spouse exceeds the time limits set by the Act.

Knowing how pension payouts are handled in a divorce is essential for both parties. This knowledge helps ensure a fair division of assets and sets realistic expectations about when each person can expect to receive their share. I hope the provided information is helpful, share your thoughts below in the comment section.