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Family and Divorce law in South Africa - A Comprehensive Guide
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living annuities and divorce

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Living Annuities and Divorce in South African Law.


In an significant ruling impacting divorce settlements, the Supreme Court has overturned a High Court ruling that excludes a living annuity from a spouse's estate. A 2016 a ruling by the Johannesburg High Court that a living annuity should not be taken into account for the purposes of calculating the assets in divorce proceedings has been overturned on appeal by the Supreme Court of Appeal (SCA). The SCA ruled in the case of Montonari v Montonari that the right to the revenue stream of a living annuity formed part of the assets of a marriage for the purposes of divorce.

The 2016 Montonari Judgment

The view of the High Court in the Montonari case ruled that  a living annuity, underwritten by an insurer, are actually owned by the insurer and not the annuitant. They are not able to be incorporated as assets in the annuitant’s estate available for distribution in a divorce.

Even though an actuary provided evidence that the income of the living annuity had a economic value, which could be capitalised, this was dismissed by the court.

The court ruled that the month-to-month or periodical income from the living annuity could only be considered in respect of a maintenance claim by the other spouse, together with other income sources.

The case of ST v CT  in 2018

The case of ST v CT (2018) was the very first time the issue of whether or not a living annuity forms part of the assets of a divorce had come before the SCA.

The judge reached a similar conclusion. It acknowledged that the capital backing a member held living annuity is possessed by the insurer and does not fall into the assets of the annuitant.

The month-to-month income generated from the living annuity, forms part of total income and has a bearing on whether the annuitant has the means to pay maintenance to the other spouse.

The court did not have to give consideration to the issue of whether the right to a future annuity is a right capable of valuation simply because evidence was not lead by the parties on this.

The 2020 Montonari Judgment – SCA

Leave to appeal the 2016 judgment was awarded to the spouse of the annuitant, which succeeded.

The SCA  made an order that:

The value of the annuitant’s right to future annuity payments under a living annuity is an asset in his estate for the purposes of calculating the accrual in his estate.

The matter must be remitted to the trial court for the admission of evidence on the value of the annuitant’s right to receive future payments in respect of the living annuities.

The findings of the SCA

The SCA pointed out that in the 2016 High Court hearing, the parties were unsuccessful to define the issue correctly. The SCA observed that the High Court judgment and declaratory order perpetuated the misunderstanding that the applicant’s target was exclusively the underlying capital value of the annuities.

The witnesses gave evidence that the capital is held by the insurer and the annuitant is entitled to an income stream equal to between 2.5% and 17.5% of the capital.

The High Court should have determined that the annuity, and not the capital, is the asset that would be reflected in the annuitant’s balance sheet.

The actuary who gave evidence ventured an opinion when pressed, that a market value could be placed on the income stream produced at any given time. To that end, regard would be had to variables such as the investment return assumptions, and the annuitant’s mortality

The court acknowledged that the living annuity enjoys the protection provided by 37A and 37B of the Pension Funds Acts so an annuitant cannot give part or all of the living annuities to an ex-spouse in terms of a divorce order or agree to split the annuity income with the ex-spouse.

The SCA noted that the High Court in 2016 took the evidence of the actuary into account that future annuity income which the annuitant draws is an asset which can be valued, but then it mistakenly thought the annuity income to be relevant only for purposes of a maintenance claim. It should have found it to be an asset in the respondent’s estate, which is subject to accrual, and have allowed the actuary to provide a valuation of that income stream.

The case of De Kock v Jacobson 1999

The SCA relied on the decision of De Kock v Jacobson,1999 where a husband’s pension was seen as an asset in the joint estate of a couple married in community of property. Upon his retirement, prior to the divorce, he discontinued to be a member of the pension fund to which he had belonged and his pension benefit was altered into a pension. His right against the pension fund had two components; a right to a cash payment (which he conceded fell within the community of property) and a right to monthly payments by way of pension. In this case it was not a living annuity. The court in De Kock determined that there was no logical or legal reason why both the cash element and the accrued right to the pension should not form part of the community of property existing between the parties prior to the divorce. The SCA agreed with the reasoning and its wider application to this case which was not in community of property.

Comment

While the legal principle is sound that a right is capable of valuation and capitalisation, the practicalities of applying this to living annuity income is very complicated.

In the case of ST v CT outlined above, it was mentioned that in valuing living annuity income regard would be had to variables such as the investment return assumptions, the level of draw downs between 2,5% and 17,5% and the annuitant’s mortality. (The right to receive any particular annuity installment is subject to a condition of survivorship, particularly that the annuitant should be alive on the date on which the next annuity installment becomes payable. If the annuitant does not survive to the next date, the right to the annuity would cease.) These factors would need to be considered in the valuation of the right.

The case was referred back to the high court for valuation of the right to future payments. Although it would be very educational to see the way the living annuity is valued by actuaries, the parties may possibly potentially reach a settlement on the valuation of the right as the cost and delay of proceeding to court might dictate this. This was the situation in the De Kock case.

It is significant to note that this does not influence the obligations of the administrator to make payment of living annuity income to the annuitant only which is always protected in terms of section 37A of the Pension Funds Act. This case does not alter that at all. Living annuity income can still only be paid to the annuitant.

The actuarial computation of the capitalized value of the right to living annuity income will need to be managed by the divorce attorneys. Financial advisers might be required to assist by supplying them with the capital value of living annuity as well as a history of draw down rates for the purposes of valuation. It will be interesting to see how actuaries address this difficult exercise.

Even though this case dealt with the right to living annuity income, the concept would apply likewise to a right to income from a guaranteed annuity which might be easier to value than a living annuity.

Regardless of the difficulties in valuation, this case is a step in the right direction. There is a obvious injustice that during membership of a fund, the non-member spouse has a right to share in the pension interest. Nevertheless, on retirement when a living annuity is purchased from an insurer that right ends. The answer to the inequity is legislative intervention which has been proposed by industry organisations.

To sum up. Parties cannot hide their liquid sum by purchasing a living annuity and then claiming based on the law that it does not form part of the accrual anymore.

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  • Home
  • Divorce
    • The Reasons for Divorce
    • The Divorce Process in South Africa
    • Rule 41A Mediation
    • The Marital Property Regimes >
      • Marriage out of Community of Property, new case
      • Marriage in Community of Property
      • Marriage out of community without accrual >
        • Understanding Post-1984 Marriages
      • Marriage out of community with the inclusion of the accrual
      • Anti-Dissipation Interdicts Divorce
      • Universal Partnerships
      • Antenuptial Contracts
      • Register Antenuptial Contract Online
      • Changing your matrimonial regime.
      • Postnuptial Contracts
    • Division of Assets at Divorce >
      • Forfeiture of Assets in a Divorce
    • Evicting your spouse divorce
    • Retirement Funds and Divorce
    • Living Annuities
    • Hiding Assets in a Divorce
    • Trusts and Divorce >
      • Can I hide assets in Trust?
    • Divorce a Missing Spouse
    • Adultery and Suing a Third Party
    • Domicile in Divorce Cases
    • International Divorces in South Africa
    • Expat South African Divorce
    • International Jurisdiction
    • Spousal Visas
    • International Divorce Law >
      • UK Divorce Laws
    • Choosing a Divorce Attorney
    • On-line Divorce
    • Lawyer Fees and Costs
    • Important Aspects of a Divorce
    • Divorcing a Narcistic Spouse
    • Dealing with Emotions During Divorce and Separation
    • Divorce Statistics
    • Divorce Therapy and Counselling >
      • Marriage and Relationship Therapists
    • Rebuilding Your Financial Life
    • Divorce Attorney Cape Town
    • Ingredients of a successful relationship
    • What are the elements of a successful marriage?
    • Uncontested Divorce
    • Uncontested Divorce - What Happens on the Court Day?
  • Maintenance
    • Spousal maintenance
    • How to calculate Child Maintenance?
    • Maintenance Defaulters
    • What Happens if you don't pay child maintenance
    • Child Maintenance Frequently Asked Questions
    • Rule 43 Interim Maintenance Pending Divorce >
      • Can I appeal a Rule 43 Order
      • Apply for Costs in Rule 43
      • Financial Disclosure Rule 43
      • Rule 43 Maintenance
    • The Maintenance Manual
    • Grand Parents and Maintenance
    • Variation of Maintenance due to loss of employment
    • Contempt of Court Maintenance
  • Children
    • Section 28 of the Children's Act
    • Relocation and Child Abduction >
      • Frequently Asked Questions about Child Relocation
      • Child Relocation to New Zealand
    • The Hague Convention >
      • Child Participation in South African Family Law and the Hague Convention
      • International Child Custody Law South Africa
      • Hague Applications and Domestic Violence
      • Mirror Orders and the Hague Convention
      • Tips on international child custody
    • Unmarried Parents and the Law
    • Unmarried Fathers Rights
    • Parenting Plans >
      • Parenting Plan
      • Conflict and dispute-resolution mechanisms
    • The non-custodian parent and contact
    • Appointing a Guardian in a Will
    • Introducing a new partner to your child
    • Refusal of Contact
    • Suspending Parental Rights
    • The Law on Grandparents Rights over Children
    • Parental Alienation >
      • Alienating Children
      • Parental Alienation Imprisonment
      • What is the effect of Parental Alienation on children?
    • Living Arrangements
    • What effect does divorce have on children?
    • The Voice of the Child in Divorce
    • Facilitation
    • Joint decisions about your child
    • Paternity Disputes
    • The Family Advocate
    • Parenting during separartion
    • Children's Act 38 of 2005
  • Abuse
    • Domestic Violence Legislation and Case Law
    • The New Domestic Violence Act 14 of 2021
    • Gender Based Violence in South Africa
    • Domestic Abuse Forms
    • Evicting a Spouse
    • Being married to a Narcissist.
    • Divorcing an Abusive Spouse
    • What is Coercive Control?
    • What is Emotional Abuse
    • What is Sexual Abuse
    • What is Financial Abuse >
      • Economic Abuse
    • What is Stalking
    • What is Verbal Abuse
    • What is Spiritual Abuse
    • What is Social Abuse
    • Revenge Porn
    • Interdict Intimate photos
    • Steps to obtain a Protection Order
    • Domestic Violence eBook
    • The Protection Order
    • Who Qualifies for a Protection Order
    • Breaching a Protection Order
    • Questions on Domestic Abuse
    • Signs of an Abusive Relationship
    • Domestic Violence Information
    • Harassment >
      • Harassment Forms
  • Cohabitation
    • Universal Partnerships in South African Cohabitation
    • Maintenance and Cohabitation
    • Interim Maintenance and Cohabitation
    • Sample Cohabitation Agreement
    • Engagement and the law
  • Formalities for marriage in south africa
    • South Africa's New Marriage Bill: A Step Towards Equality and Inclusion
    • Same Sex
  • Family Law eBooks
  • Family Law Links
    • The South African Court System
    • Court Rolls
    • Family Law Legislation
    • Family Law Blog
    • New Family Law Cases
    • Register for the Online Family Law Course
  • About the Author
  • Contact
  • Charities