• Kaplan Blumberg

Living annuities in divorce

Updated: Jul 3, 2020

Husbands and wives can no longer use living annuities to reduce divorce settlements.

A 2016 ruling by the Johannesburg High Court that a living annuity cannot be taken into account for the purposes of calculating the assets on divorce has been overturned on appeal by the Supreme Court of Appeal.

In the 2016 judgement, the husband had purchased living annuities with his pension benefit which arose out of his employment throughout the course of the marriage. He later instituted divorce proceedings, and in addition to a claim for spousal maintenance, sought a declaratory order that living annuities which provide his monthly source of income do not form part of his assets in his estate, and thus were not subject to the wife’s accrual claim. The wife lodged a counterclaim seeking an order against the husband for the payment of an amount equal to the difference in the accrual of the respective estates of the parties.

The husband’s attorney had argued that living annuities cannot be deemed an asset in the estate for purposes of calculating the accrual as the capital investment is owned by the insurer, and not the insured, and that he was only entitled to the annuity income. The Court accepted this reasoning, on the basis that if the contrary were found to be true, it would defeat the purpose of the annuity which was to provide income to pensioners so that they do not become the burden of the State. The Court further indicated that the payment of the living annuities received by the pensioner is relevant and should be taken into account to assess the wife’s future maintenance needs.

On appeal of the 2016 judgement, the wife’s attorney argued that the Court had erred in finding that ownership of the funds invested in the annuities or used to purchase the annuities belonged to the insurer, and that it was further incorrect that the annuities did not form part of the husbands’ estate for purposes of calculating the accrual. The consequence of the finding was that a married person who accumulated wealth during the course of the marriage could dispense of that wealth by investing or purchasing a living annuity, thereby diminishing their estate for purposes of calculating the accrual claim in divorce.

The Supreme Court of Appeal found that the trial Court should have found that the right to annuity income was an asset in the husbands’ estate, which is subject to the accrual and there should have been a valuation of the income stream. The Honourable Court sent the case back to the High Court, ordering it to consider evidence on the value of future payments the husband would receive from his living annuities.

For more information or assistance, contact our offices on 041 363 6044 or info@kaplans.co.za.

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