On 10 August 2016 the Johannesburg High Court (Victor J) ruled that a living annuity does not form part of a spouse’s estate for purposes of calculating the accrual claim. See the judgement of the court in M v M [2016] ZAGPJHC 387. A summary of this judgement was placed in FISA Focus Weekly on 15 March 2018, which you can access here.
The plaintiff (C) in that matter was in the midst of getting divorced from her husband (E) and claimed that the capital invested in a living annuity in E’s name should be taken into account when calculating the accrual claim upon divorce. C appealed to the full bench of the South Gauteng High Court, without success, and appealed further to the Supreme Court of Appeals.
The funds in question were invested in a living annuity by E and originated from a pension pay-out arising from his previous employment. The funds were placed with Glacier by Sanlam in what is generally known as a member owned living annuity. Throughout the litigation in all three courts both parties agreed that the living annuity does not form part of E’s “pension interest” of as defined in the Divorce Act, 70 of 1979.
The Supreme Court of Appeals (Maya P with Wallis, Mokgohloa, Dlodlo JJA and Eksteen AJA concurring) had some criticism for both parties as well as both courts below in that the issues at hand were not fully clarified. Looking at the nature of the contracts between Glacier and E and the legislation dealing with living annuities, the court agreed that E was not entitled to the capital invested in the living annuity while alive, but only to an income stream produced by the capital. The only exception is that if the capital is depleted beyond a minimum amount, the full amount may be withdrawn. However, E’s entitlement to the income stream has a value and that value should be taken into account when calculating E’s accrual in the process of determining an accrual claim upon dissolution of the marriage. The court referred with approval to the judgement in De Kock v Jacobson 1999 (4) SA 346 (W), where it was ruled that the pension pay-outs a party received formed part of the joint estate of that party due to a marriage in community of property.
The appeal was allowed and the matter was referred back to the court of first instance to hear evidence on the value of the pension income stream emanating from the living annuity.