In with the New (Year)
In with the New (Year)
When one thinks about all things that are “new” we think about new starts, new beginnings, and new horizons. Yes, even new year’s.
And this, inevitably, makes one think about weddings, getting married and starting a life with your beloved. A beautiful thing – to be sure.
In the legal space, when the topic of marriage arises, we automatically think about the legalities of this new start, new beginning, and this new couple.
How you may be asking? With the legalities taken care of in what is called a marriage contract or a prenuptial contract or an antenuptial contract (ANC).
The marriage contract is entered into before a couple gets married and is done with the sole purpose of setting out the marital regime the couple have chosen to govern their marriage. This could be married in community of property or out of community of property. There is also the notion of with accrual or without accrual to consider. And as you may guess – deciding on these factors is crucial as it decides the financial consequences of the couple’s marriage long term.
Under South African Law, if a couple does not specifically choose what marital regime to use, they are automatically married in community of property. So, if a couple intends on having a different marital regime govern their marriage, they should be looking at finalising their chosen marriage contract as soon as possible.
What can be contained in a marriage contract, you may be wondering?
Well, if a couple decides to enter into a marriage that excludes community of property, they will need to draft a marriage contract that specifically sets this out i.e. setting out that the estates of each spouse will remain distinctly separate. The marriage contract will then set out who owns which assets, how the couple will treat earnings accrued during the marriage, ownership of property as well as how things will be divided upon death or divorce. To top it all off, the couple must then still decide whether or not to include the accrual system.
Sure, this sounds intense - and feels like a lot to take in.
So, to help out, we thought we would go through the various options below –
Married in community of property
A marriage in community of property happens automatically if a marriage contract is not entered into. This type of marital regime means that there is only one joint estate between the husband and wife. Meaning that throughout their marriage the couple will share – in equal parts – all the assets and all the liabilities of one another. In what is known as a joint estate.
Another way of putting this is as follows – spouses will share in all the risks and enjoy all the benefits of this joint estate i.e. each spouse will share (equally) in each other’s profits and losses accrued or incurred during the marriage.
Practically, this also has the effect that should one spouse decide to sell an investment property, apply for a home loan, or require credit for a company they want to start, they will need to get the explicit consent of their spouse.
One of the biggest disadvantages of being married in community of property is that each spouse is responsible for all debt incurred by their partner – this will also include debt incurred prior to getting married. All contractual debt. All of it. From the get-go.
And the implication of this? There is no way to protect themselves. Nothing to separate one estate from the other. Furthermore, if one spouse is declared insolvent, both spouses will therefore be insolvent.
If one spouse incurs a debt and cannot afford to settle it, the onus will fall on the other spouse to do so.
And depending on the financial circumstances of a couple, this can be a fundamental problem.
Married out of community of property
Being married out of community of property, means exactly that. You do not fit into the in community of property mould. You get to hold on to what you had before you decided to get married.
To ensure this is the result, you need to specifically (and explicitly) state as such. A couple will need to enter into a marriage contract stipulating – in no uncertain terms – the exclusion of the in community of property regime.
Each spouse will (usually) retain their separate property and will have complete freedom to deal with it as they deem fit. The immediate bonus here is that if one spouse is declared insolvent, the other spouse’s property is protected from the insolvent spouse’s creditors.
But marriages out of community of property don’t end here. There is also the additional consideration of including or excluding the accrual system.
The accrual system
The word ‘accrual’ means an increase in value of one party’s estate since the date of the marriage.
Simply put – what you owned before you got married remains yours, but anything acquired during the marriage is now owned by both of you (or not depending on whether the parties choose to include or exclude the accrual. As the description would suggest).
It’s important to note, that the right to share in accrual can only be done when a marriage is dissolved i.e. upon divorce or death of one of the parties.
The accrual system can therefore be considered as the value of how much one spouses estate increased in value vs how much the other spouses estate increased in value. And this will indicate how much the spouse with the larger estate will need to pay the spouse with the smaller estate if the marriage comes to an end through death or divorce.
Key here is that only property acquired during the marriage can be taken into account when calculating the accrual. Furthermore, an inheritance, legacy or donation belonging to one of the spouse’s (during the marriage) cannot be included in the calculation of the accrual, unless of course that inheritance, legacy, or donation was left to both spouses jointly (and specifically).
To understand what an accrual amounts to comes down to a simple deduction of -
- all assets (all immovable and movable) acquired during the marriage (remembering that all assets acquired before are not included)
- less all assets excluded by the marriage contract
- less all inheritances, legacies, or donations
- less all debts and liabilities
- less the commencement value of the spouses’ estate prior to the marriage
= the sum of which is the value of each spouse’s accrual.
Married out of community of property without the accrual
If a couple is married out of community of property and still decides to exclude the accrual, then each spouse will have their own estate which contains all property and all debts acquired prior to as well as during the marriage. Meaning that at no time are any assets or liabilities shared between the parties. This has the practical consequence of each party’s estate at the commencement of the marriage being deemed 0.
Upon dissolution of the marriage either by death or divorce, each party to the marriage will retain their own individual assets and liabilities. Spouses who are married out of community of property have separate estates and are not liable for each other’s debts. Because no assets or liabilities whether acquired before or during the marriage are shared.
The only time a spouse will be able to lay claim to an asset is if that spouse is bequeathed it by the other spouse in their will (read our article on wills here).
We admit – it sounds rather complicated. And it can be. Especially if there are high nett worth individuals involved. There are just so many complexities that come with drafting a marriage contract. So, please get in touch with a suitably qualified attorney who can advise you on the best way forward.
If you have any questions on the information we have set out above or have a personal issue which you want to discuss with a suitably qualified legal professional, do not hesitate to contact us at NVDB Attorneys.
We are a law firm that considers honesty to be core to our business. We are a law firm that will provide you with clear advice and smart strategies - always keeping your best interests at heart.