Divorce is not just an emotional and legal process—it carries significant financial and tax implications that many people overlook. When assets are divided, pension funds are split, or lump-sum payments are made, the South African Revenue Service (SARS) has specific tax rules that can impact both parties.

Understanding how divorce settlements are taxed in South Africa is crucial to making informed financial decisions. This article breaks down the tax impact of divorce, explaining what is taxable, how pension funds are treated, and what to expect in different settlement structures.

How Divorce Settlements Affect Tax in South Africa

When a divorce settlement is reached, certain transfers of money and assets between spouses may trigger tax obligations. The main areas where tax applies include:

• Pension Fund Withdrawals
• Lump-Sum Settlements
• Capital Gains Tax (CGT) on Property Transfers
• Tax on Maintenance Payments

Knowing how SARS applies tax to these transactions can help divorcing spouses avoid unexpected financial burdens.

Tax on Pension Fund Withdrawals in Divorce

How Are Pension Funds Divided in Divorce?

In South Africa, pension funds form part of the joint estate in a marriage in community of property or out of community with accrual. This means that one spouse may be entitled to a share of the other’s pension fund.

The Pension Funds Act allows for a portion of a pension fund to be allocated to the non-member spouse in terms of a divorce order. However, this allocation may result in tax consequences.

Is There Tax on a Divorce Pension Payout?

Yes, there is tax on a divorce pension payout in South Africa. The tax rules are as follows:

If the non-member spouse withdraws their share as a lump sum, SARS will tax it immediately according to the retirement tax tables.

If the non-member spouse transfers their share to another retirement fund, no tax applies at the time of transfer.

GEPF Divorce Tax

For members of the Government Employees Pension Fund (GEPF), different rules apply.

When a divorce settlement awards a portion of a GEPF pension to a former spouse, the GEPF deducts tax before making the payout.

The member spouse’s retirement benefit is reduced accordingly.

This means that, in a GEPF divorce settlement, the tax burden is shared between both spouses, and the member spouse’s final pension is affected.

Is a Lump-Sum Divorce Settlement Taxable?

A lump-sum divorce settlement may be taxable, depending on what the payment is for.

• Pension-related lump sums – Taxable upon withdrawal.
• Property settlements – May trigger Capital Gains Tax (CGT).
• Maintenance payments – Generally not taxable.

Capital Gains Tax (CGT) on Property Transfers

When spouses transfer ownership of property as part of a divorce, CGT may apply. However, there is an important exemption:

Divorce-related property transfers between spouses are tax-free, provided they are part of a legally recognized divorce and settlement agreement.

This means that if one spouse keeps the house, no CGT is payable at the time of transfer.

However, if the receiving spouse sells the property later, CGT will apply based on the profit they make at the time of sale.

Divorce Settlement and Maintenance Payments

Are Maintenance Payments Taxable?

• For the recipient: Spousal maintenance is not taxable income.
• For the paying spouse: Spousal maintenance is not tax-deductible.

This means that the spouse receiving maintenance does not have to pay tax on it, but the spouse paying maintenance cannot claim it as a tax deduction.

For child maintenance payments, the same rules apply—no tax is payable, and no deduction can be claimed.

Dividing Business Assets and Investments

If business shares, investment accounts, or other financial assets are transferred as part of a divorce settlement, CGT may apply depending on the type of asset. Seeking financial and legal advice before structuring the settlement is critical.

Using a Divorce Settlement Calculator in South Africa

Many people try to estimate their financial position after divorce using a divorce settlement calculator South Africa. While these tools provide general insights, they cannot factor in tax implications accurately.

Every divorce settlement is different, and incorrect assumptions can lead to financial losses. Working with a legal and tax professional ensures that your settlement is structured in a tax-efficient way.

Key Steps to Avoid Tax Pitfalls in a Divorce Settlement

1. Understand the Tax Consequences Before Signing

Before finalizing your divorce settlement agreement, consult with a divorce attorney and tax specialist to calculate potential tax liabilities.

2. Consider Transferring Pension Benefits Instead of Taking a Lump Sum

If awarded part of a spouse’s pension, consider transferring it into a retirement fund to avoid immediate tax penalties.

3. Structure Asset Transfers Correctly

Ensure that property, investments, and other assets are transferred in a way that minimizes capital gains tax and keeps SARS compliance in check.

4. Know Your Rights in a GEPF Divorce Settlement

If you or your spouse is a GEPF member, understand how the divorce tax will impact both parties and how pension deductions will work.

How Van Deventer & Van Deventer Inc. Can Help

Divorce settlements are about more than just dividing assets—they have long-term financial and tax implications that must be carefully managed. At Van Deventer & Van Deventer Inc., we don’t just help you with the legal side of divorce—we ensure that your financial interests are protected.

Why Work With Us?

• In-Depth Family and Tax Law Expertise – We understand the complexities of divorce tax laws in South Africa.
• Strategic Tax Planning for Divorce Settlements – We structure settlements to minimize tax liabilities and protect assets.
• Expert Guidance on Pension Fund Splits – We advise on pension withdrawals, GEPF divorce tax, and retirement fund division.
• Ensuring Fair Property and Asset Transfers – Our legal team ensures CGT-free property transfers where applicable.

Van Deventer & Van Deventer Inc. - Expert Divorce Attorneys Johannesburg

Divorce settlements have permanent financial consequences—don’t risk unexpected tax burdens or costly mistakes. Let the trusted team at Van Deventer & Van Deventer Inc. guide you through the process with legal precision and financial foresight.

Contact us for expert advice on your divorce and settlement agreement.