The Montanari SCA Judgment and what it means for the accrual system

Aside from a meticulously thought out seating plan for guests, couples are faced with many decisions leading up to their wedding day, one of these being the daunting and sobering task of deciding whether to enter into an antenuptial contract (“ANC”).

The Supreme Court of Appeal (“SCA”) recently handed down a judgment in Montanari v Montanari (on 5 May 2020) which had a profound effect on the South African legal position in so far as the dissolution of marriages and the calculation of the accrual are concerned.

Prior to this case, funds invested in living annuities were not deemed to form part of a spouse’s estate for the purposes of calculating that spouse’s accrual.  This led to many individuals moving retirement funds into living annuities in order to reduce the amount payable by them as accrual in the instance of pending divorce proceedings.

Subsequent to this case, one can no longer keep their living annuities solely within their estate and such annuities which are acquired in the duration of the marriage will now form part of the accrual, when and if there is divorce (if such marriage was subject to the accrual system).

Background to the matter

Mrs Charmaine Montanari (“the Applicant”), and Mr Emillio Montanari (“the Respondent”)were married in December 1999, out of community of property with the inclusion of the accrual system. In 2008, 2012 and 2015, the Respondent used his pension benefit, which arose from his employment, to purchase “living annuities” from Glacier Financial Solutions (Pty) Ltd, a member of the Sanlam Group.

In instituting divorce proceedings in 2014, the Respondent claimed spousal maintenance as well as a declaratory order to the effect that for the purpose of calculating his accrual, the living annuities (which provided him with a monthly income) do not form part of the assets in his estate.

The Respondent argued that living annuities were not deemed an asset in a party’s estate for purposes of calculating the accrual and a living annuity is not considered to be a pensionable interest as defined in terms of the Divorce Act 70 of 1979 (“the Act”). The Respondent argued that the ownership of the capital value of the annuity’s vests in the insurer and he, as such, was only entitled to the annuity income.

At the trial, the summation of the evidence advanced by the Respondent’s expert witnesses was that the capital of a living annuity belongs to the provider of the benefit and not the annuitant and therefore does not form part of the annuitant’s estate for the calculation of the accrual. The Court a quo accepted the Respondent’s version and, in its reasoning, indicated that if the contrary to the above were found, it would defeat the purpose of a living annuity which is to provide income to pensioners so that they do not become a burden on the State. The Court a quo further concluded that the payment of the living annuities received by the pensioner is relevant and could be taken into account to assess the Applicant’s future maintenance needs.

The appeal

The Applicant was not satisfied with the decision and on appeal, raised a number of arguments. She argued that the Court failed to find that ownership of funds invested in the annuities belonged to Sanlam and that the annuities did not form part of the Respondent’s estate for the purposes of accrual. This would have the consequence that if a married person invested all their money in a living annuity prior to instituting divorce proceedings, it would reduce the amount to be taken into account for the purposes of calculating accrual.

She further stated that there was no indication in contracts concluded between the Respondent and Sanlam that ownership of the invested funds would vest in the insurer. The Applicant relied on the provisions of the Financial Institutions (Protection of Funds) Act 28 of 2001 which apply to the living annuities as they constitute ‘trust property’ as defined in that Act.  It was argued that the attention of the trial Court was not drawn to these authorities in ST v CT because if they had, they would not have concluded that the living annuity belonged to the insurer.

The Court made reference to the decision made in De Kock v Jacobson, where it had to determine whether a pension that the husband was receiving was an asset in the joint estate of a couple married in community of property. The Court affirmed that the accrued right to pension should form part of the party’s property. The Respondent has a clear right to investment returns yielded by his capital re-investment with Sanlam, in the form of future annuity income which he draws from the agreement. Such annuity is evidently an asset which can be valued. The Court held that the Court a quo perpetuated the misdirection by dismissing the appeal. Thus, there was no basis to deviate from the ST v CT judgment.

The appeal was upheld with costs and the value of the Respondents right to future annuity payments was declared an asset in his estate, for the purposes of calculating the accrual.

In order to avoid such a scenario and to make parting ways less stressful, please email info@hjw.co.za for assistance with the drafting and reviewing of your ANC.

Written by Emmah Morton – Candidate Attorney

This article is provided for informational purposes only and should not be substituted for legal advice on any specific matter. Any opinions expressed herein are subject to the law as at the time of writing and will change in accordance with any change in the law. We recommend that you contact HJW Attorneys at info@hjw.co.za directly for advice applicable to your specific matter.