In 2016 the Johannesburg High Court ruled that a living annuity does not form part of a spouse’s estate for purposes of calculating the accrual claim. This ruling has now been overturned by the Supreme Court of Appeal (SCA) as it ruled that the right to the income of a living annuity forms part of the assets of a marriage for the purposes of divorce.
Summary of the case
|●||The plaintiff in the matter was getting divorced from her husband and claimed that the capital invested in a living annuity in his name should be taken into account when calculating the accrual claim upon divorce.|
|●||She first appealed to the full bench of the South Gauteng High Court, without success, and then to the Supreme Court of Appeal.|
|●||The funds in question were invested in a living annuity by the husband and originated from a pension pay-out arising from his previous employment.|
|●||The SCA reviewed the nature of the contracts between Glacier and the husband as well as the legislation dealing with living annuities. The court agreed that the ex-wife was not entitled to the capital invested in the living annuity while alive, but only to an income stream produced by the capital.|
|●||As the income stream had a value, the court ruled that the value should be taken into account when calculating her accrual in the process of determining an accrual claim upon dissolution of the marriage.|
Analysis of the outcome
Lize de la Harpe, Legal Advisor: Glacier by Sanlam unpacks the reasoning of this case, as well as the impact, in a recent publication.
According to De la Harpe, this specific matter deals with whether a married annuitant’s right to future annuity payments is an asset which can be valued and included in his or her accrual upon divorce. She reiterates that the SCA reaffirmed that once a living annuity is purchased, the underlying capital is no longer accessible to the annuitant (i.e. the underlying capital is owned by the insurer and is accordingly reflected in the insurer’s balance sheet).
Furthermore, she describes that the proceeds or annuity income does not fall within the ambit of ‘pension interest’ as defined in the Divorce Act. “Accordingly, 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. Having said that, the court found that this does not disentitle the applicant from any claim whatsoever with regard to the respondent’s annuities,” de la Harpe explains.
“… annuity income is not only relevant for purposes of a maintenance claim – it is also as an asset in the annuitant’s estate, which is subject to accrual. Put differently: the value of an annuitant’s right to receive future annuity payments is an asset in his estate for purposes of calculating the accrual,” she summarised the case.
Download the publication: Living Annuities at divorce – The impact of the Montanari judgement
Various media articles also reported on the matter. Click here to read the Timeslive article.