Appeal court closes financial loophole in divorce cases

11 May 2020 - 06:30
Husbands and wives can no longer use living annuities to reduce divorce settlements.
Husbands and wives can no longer use living annuities to reduce divorce settlements.
Image: 123rf/margoorita

A legal loophole often used by husbands to reduce the amount their wives receive in a divorce settlement has been closed by the Supreme Court of Appeal.

A judgment last week means living annuities can no longer be used to reduce the value of an estate under the accrual system.

Describing the judgment as "seminal" and "groundbreaking", divorce lawyer Billy Gundelfinger said it was "a great victory for women [in the main] in that husbands frequently denuded their estates to the detriment of their wives by investing in living annuities".

In her judgment, appeal court president Judge Mandisa Maya overturned a Johannesburg high court ruling in favour of a husband who had argued that three living annuities were not part of his estate.

Maya said the husband had "a clear right to the investment returns yielded by his capital re-investment with Sanlam, in the form of future annuity income which he draws from the agreement".

She added: "Such annuity income is evidently an asset which can be valued. The trial court actually took that evidence into account, correctly so in my view.

"But then it erroneously considered the annuity income relevant only for purposes of a maintenance claim. It should have found it to be an asset in the [husband's] estate, which is subject to accrual."

Gundelfinger said the high court ruled that living annuities belonged to insurance companies and could not be included in accrual calculations.

"The supreme court of appeal said the trial court should have found that the right to annuity income was an asset in the husband’s estate which is subject to the accrual and there should have been a valuation of the income stream," he said.

Maya 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.