The issue of divorce is always a sensitive subject and not one anyone wants to think about. However, divorce is not as taboo as it was in the 1970s and 1980s and the acceptance of it as being a part of life is unfortunately growing. The 2011 data (publis
In light of this, pension funds need to ensure that divorce orders granting the payment of a portion of pension interest to a spouse are valid as these funds may become victims of fraudulently created court orders requesting this.
Legislative muscle hard to circumvent
A pension fund has a limited ability to deduct amounts from a member’s pension benefit, specifically in relation to divorce. Section 37D(4)(a) of the Pension Funds Act of 1956 permits a pension fund to deduct from a member’s benefit, an amount assigned by the court to a non-member spouse in terms of a divorce order granted in terms of the Divorce Act of 1979. The amount payable to a non-member spouse is deemed to accrue to a member on the date on which the decree of divorce is granted.
A careful perusal of a divorce order will give an indication of its validity. As a court document, the divorce order should bear an official stamp of the court, and each page should either bear the same stamp or a marking from the registrar of the court. A settlement agreement attached to a divorce order should similarly bear a marking from the registrar of the court.
“If it does not, the document should be treated with suspicion, since a party could attach any settlement agreement which benefits him or her and there would be no way of immediately testing its authenticity. An additional method to verify the authenticity of a court document is to contact the member spouse to verify the information.If there is any doubt as to the validity of a court document, a pension fund can and should request a duplicate original of the court order.Preferably, any copy of the order should be recovered from the attorney acting in the divorce,” says Michelle David, Director at Norton Rose Fulbright.
Walk the line or walk the plank
Our courts and the Pension Funds Adjudicator have held boards of pension funds accountable for the negligent mismanagement of funds. Section 2 of Financial Institutions Protection of Funds Act 2001 provides that trustees must observe the utmost good faith and exercise proper care and diligence with regard to the assets of the funds they administer. Section 7C of the Pension Funds Act likewise provides that the board shall take all reasonable steps to ensure that the interests of its members are protected at all times and requires a board to act with due care, diligence and good faith.
“Accordingly, incorrect payments made on the basis of a fraudulent or unenforceable court order cannot simply be written off by a fund, since the board must account for all payments and disbursements made. Such a payment must either be recovered by the fund or the trustees could be faced with personal liability,” says Melissa Cogger, Candidate Attorney at Norton Rose Fulbright.
Given the size of pension funds and the vast quantity of divorce orders that impose obligations of payment on funds, the potential for fraud and corruption is great. Pension funds should therefore examine their service level agreements with administrators to ensure that appropriate checks and protocols are required to prevent against such harm. Failure to do so may lead to a negligent mismanagement of funds and personal liability.
Keeping your guard up is key for survival
Since the birth of democracy in 1994, fraud and corruption in South Africa has been growing rapidly to the point that South Africa is ranked among the top 20 countries in the world where fraud is a significant way of life. It is therefore very important that those safeguarding pension funds need to be on their guard as they may be found liable in certain cases.
Addressing the media at the 9th Annual Visa/FNB Card Security Week in April; Bryce Thorrold, Visa Head of Country Risk Management for Sub-Saharan Africa at FNB, said that fraud is continuously shifting from physical card fraud (as chip and pin has increased security) to “card not present”-fraud (CNP) adding that fraudsters are increasingly targeting smaller merchants as the banks’ security proves difficult to breach.
This means that criminals will be targeting what they regard as soft targets and with the proper documentation, this may be possible.
There is a way around this. Addressing the 14th annual Compliance Institute conference, ENS Forensics executive Steven Powel gave a few guidelines to achieve this. “Companies need to safeguard themselves against fraud. This can be achieved by establishing a dedicated independent anti-corruption policy, committing to ethical practice, implementing internal controls to prevent this from happening and informing authorities of fraudulent activities, no matter how small.”
Editor’s Thoughts:
Divorce is never an easy thing to deal with, but it is becoming an increasingly prevalent feature in modern society. Because of this, the courts have to constantly re-model the country’s legislative framework to ensure that members of the public are well protected when it comes to this type of fraud.
This does give the broker leeway to upsell and encourage his/her clients to diversify their investments which would protect them against such fraud. In this case a prenuptial agreement will protect the client for any investment made during the marriage. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughtsjonathan@fanews.co.za.
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Added by Raymond, 26 Sep 2016