Montanari v Montanari

The parties married in December 1999 out of community of property subject to the accrual system. During the marriage, the respondent husband used proceeds from his pension benefit to purchase three living annuities from Glacier Financial Solutions (Pty) Ltd (part of Sanlam Group) in July 2008, March 2012, and January 2015. In 2014, the respondent instituted divorce proceedings and sought a declaratory order that his living annuities were not assets in his estate and not subject to accrual. The applicant wife counterclaimed for her accrual entitlement. The parties agreed to separate the issues, with the question of whether the living annuities formed part of the respondent's estate for accrual purposes being determined first. The trial court (Victor J) found in favour of the respondent, holding that the capital belonged to Sanlam and only the annuity income belonged to the respondent. The full court (Keightley J, Modiba and Sardiwalla JJ) dismissed the applicant's appeal, relying on the SCA's decision in ST v CT. The applicant sought special leave to appeal to the Supreme Court of Appeal.

• Whether living annuities as defined in section 1 of the Income Tax Act 58 of 1962 form part of an annuitant's estate for purposes of calculating accrual in a divorce
• Whether the underlying capital of living annuities vests in the insurer or the annuitant
• Whether an annuitant spouse's right to future annuity payments constitutes an asset that can be valued and included in accrual calculations
• Whether living annuities constitute 'trust property' under the Financial Institutions (Protection of Funds) Act 28 of 2001
• The correct interpretation and application of ST v CT [2018] ZASCA 73

The application for special leave to appeal was granted. The appeal was upheld with costs. The order of the Full Court was set aside and replaced with: (a) The appeal is upheld with costs; (b) The value of the respondent's right to future annuity payments under the three Personal Portfolio Living Annuities is an asset in his estate for purposes of calculating accrual; (c) The matter is remitted to the trial court for admission of evidence on the value of the respondent's right to receive future payments from the living annuities.

An annuitant spouse's right to future annuity payments under a living annuity, as defined in section 1 of the Income Tax Act 58 of 1962 read with General Note 18 of the Second Schedule, constitutes an asset in his or her estate that is subject to accrual upon divorce, even though the underlying capital belongs to the insurer. While the capital invested in living annuities vests in the insurer and cannot be claimed by the annuitant, the annuitant's contractual right to receive regular annuity income is a valuable right capable of actuarial valuation and must be included in calculating the accrual of that spouse's estate. The income stream generated by living annuities is an asset that falls within the definition of property for accrual purposes under the Matrimonial Property Act 88 of 1984.

The Court made several important observations: (1) Expert witnesses improperly ventured into legal interpretation regarding ownership questions, which are matters of law for the court to determine, not expert opinion. (2) The proper formulation and recording of separated issues is essential to avoid confusion and misdirection in litigation. (3) The failure to produce the actual living annuity contracts at trial was problematic when their terms and effect were in dispute. (4) Living annuities do not constitute 'trust property' under the Financial Institutions (Protection of Funds) Act 28 of 2001, and there is no fiduciary relationship between insurer and annuitant—the relationship is purely contractual. (5) The distinction between 'member-owned' living annuities and 'fund-owned' conventional life annuities is significant to understanding their legal nature. (6) The decision in Commissioner, South African Revenue Service v Higgo 2007 (2) SA 189 (C) is distinguishable as it dealt with a different type of annuity contract concluded before living annuities were defined in the Income Tax Act.

This judgment is of major significance in South African matrimonial property law as it clarifies the treatment of living annuities in divorce accrual calculations. It distinguishes between the underlying capital of living annuities (which belongs to the insurer) and the right to future annuity income (which is an asset of the annuitant). The judgment provides certainty that a spouse cannot avoid accrual claims by converting assets into living annuities before divorce. It also demonstrates the importance of properly formulating separated issues in litigation. The case extends the principles from De Kock v Jacobson regarding pension rights to the context of living annuities, ensuring equitable distribution of marital property while respecting the statutory framework governing retirement products. It also confirms that ST v CT remains good law on the question of capital ownership but does not preclude valuation of income rights for accrual purposes.