Discover essential guidelines for understanding pension interest in divorce proceedings. Learn how to navigate your rights and make informed decisions regarding retirement benefits with expert insights.
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The term ‘pension interest’ arises in divorce proceedings and refers to a notional amount representing the retirement benefit the member spouse would receive from their retirement fund at the date of divorce. Calculating pension interest enables divorcing spouses to share in each other’s retirement benefits immediately after divorce rather than waiting until formal retirement.
The pension interest calculation takes place at the divorce date, provided the member's spouse is still an active member of the retirement fund at that time. For pension and provident funds, if the member spouse resigns or retires before the divorce date, no pension interest exists, and the benefit accrues solely to the member spouse, thereafter treated as an ordinary asset within the estate.
It is crucial to understand that a divorcing spouse's right to claim pension interest depends significantly on the marital property regime:
Pension interest calculations differ according to the type of retirement fund:
Accurate wording of the divorce order is essential to successfully claim pension interest. Ambiguities can cause fund administrators to reject the settlement agreement, leading to costly high-court amendments. Thus, your divorce order must include:
Once the retirement fund confirms the validity of the divorce order, it must contact the non-member spouse to determine their payment preferences. Available options are either to receive the entire benefit in cash or transfer the benefit into another retirement fund. It is essential to note that the non-member spouse cannot partially withdraw cash when transferring the balance; the choice must be either a full cash withdrawal or a full transfer.
Given the potential tax implications of withdrawal, seeking guidance from an experienced financial advisor is strongly recommended to ensure informed decision-making.
* Tapfuma is a Certified Financial Planner professional at Crue Invest.
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