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Financial and estate planning advice for cohabiting couples

Cohabitants leave themselves financially exposed in the event of the relationship coming to an end or in the event of death.

If you’re a cohabiting couple and, like many of couples, have made a concerted effort to get your financial affairs in order, bear in mind that cohabitation is not a recognised legal relationship in South Africa and you may be financially exposed as a result of this.

Contrary to popular belief, living together as a couple does not create the existence of what is often termed a ‘common law marriage’.  Our law does not recognise common-law marriages and confers no legal status on couples who choose to live together rather than get married. While there are some areas of our law that have adopted a broader definition of the term ‘spouse’ which can be construed to include cohabiting couples, couples who are not legally married need to take extra steps and precautions when developing their estate plans and getting their affairs in order.

Recognition and protection provided by legislation

With regard to some Acts, cohabitation is recognised as a relationship with legal implications and these include the following:

Domestic Violence Act

With an increase in the number of reported domestic violence cases since the beginning of lockdown, it is comforting to know that cohabitation is recognised by the Domestic Violence Act.

Medical Schemes Act

The Medical Schemes Act permits the ‘spouse or partner’ of the principal member to be added as a dependent on their medical scheme. This means that a person can add their cohabiting partner and their minor children as dependents on their medical aid.

Income Tax and Estate Duty Act

In terms of the Income Tax, Estate Duty and Transfer Duty Acts, cohabitants are treated as spouses for the purposes of tax legislation, and the term ‘spouse’ is defined to include a permanent, same-sex or heterosexual relationships. In the absence of any proof to the contrary, the definition in these acts provides that cohabitants are deemed to be in a union without community of property. The financial benefits that flow from this broadened definition include that donations tax is not payable on donations between spouses, and no transfer duty is payable on the transfer of property between spouses on the termination of the relationship. Further, estate duty is not payable on any asset bequeathed to a spouse, and CGT is not payable on the disposal of an asset from one spouse to another. 

Life insurance

If you are cohabiting, you are free to nominate your partner as a beneficiary in a life insurance policy although it is essential to be clear when making your beneficiary nomination. If you intend nominating your partner on your policy, be sure that they are specifically named and that you do not reference them in broad terms such as ‘my partner’ or ‘family’.

Child maintenance

When it comes to child maintenance, our law does not make a distinction based on whether the parents are married or unmarried. Both parents are responsible for the maintenance of their children regardless of the living arrangements of the parents. In short, all parents, whether married or not, living together, separated or divorced and parents of adopted children, are required to support the financial needs of their children, and their duty of support is legislated by the Maintenance Act of 1998 and the Maintenance Amendment Act of 2015. 

Beneficiary on pension fund

Cohabiting couples are permitted to nominate each other as beneficiaries on their retirement funds, bearing in mind that the final decision regarding allocation of benefits rests in the hands of the fund’s trustees. When making a determination, the trustees will take into consideration whether the nominated partner qualifies as a ‘dependent’ in terms of the fund rules.

SA Compensation for Occupational Injuries and Diseases Act

Important to bear in mind during the Covid-19 outbreak, the surviving partner of a cohabiting couple may claim for compensation if their partner dies as a result of injuries or illness received during work, although they would have to prove that they were living together as ‘husband and wife’ at the time of death.

Unfortunately, the legal recognition and protection for cohabiting couples end there and, in the event of death or break-up, parties to such a relationship can find themselves in a highly prejudicial situation. Cohabitants have no legal duties towards each other and no reciprocal duty of support. Particular areas of exposure include the following:

Property ownership

If the home is owned by one partner, they are entitled to evict the other partner in the event of a break-up. They will also be entitled to sell the property without notifying their partner, which can leave the other party in a very precarious position.

Moveable property

If you’re in a cohabiting relationship, everything you purchase remains your own – although this can get complicated in circumstances where you have bought household items together, and it may be difficult to prove ownership down the line.

Financial arrangements

In the absence of a formal agreement between the two parties, the couple’s financial arrangements can be particularly complex in the event of death or a terminated relationship. In general, banking institutions do not allow joint bank accounts for cohabitants which means that the party in whose name the bank account is registered will be held liable for any money owed as a result of overdraft or loan. Without a marital contract to fall back on, separating the couple’s affairs can be particularly difficult, especially when it comes to household expenses, debt, lease agreements and pets.

Spousal support

Whereas in a formal marriage each spouse owes the other a reciprocal duty of support, no such obligation exists in a cohabiting relationship. Where a married couple applies for divorce, the Divorce Act of 1979 makes provision for the court to grant a spousal maintenance order. Similarly, when a spouse dies, the surviving spouse can claim the deceased’s estate in terms of the Maintenance of Surviving Spouses of 1990. Unfortunately, there is no such legislation which makes provision for maintenance in respect of couples who live together. Unless the couple can prove the existence of what is referred to as a ‘universal partnership’, they leave themselves financially exposed in the event of the relationship coming to an end or in the event of death.

Death

In the absence of a valid will, partners in a cohabiting relationship leave themselves particularly exposed should one of them die. A cohabiting relationship is not recognised under the laws of intestacy in South Africa, and the surviving partner is therefore at risk of being completely disinherited should the other partner pass away. In terms of the law of intestate succession, the deceased partner’s estate will devolve to his nearest blood relatives in the event of death and will not fall to his cohabiting partner.

Pension fund interest

While a person is entitled to nominate his life partner as a beneficiary to his retirement fund, it is important to bear in mind that a person in a cohabiting relationship will not be entitled to their partner’s retirement fund interest if their relationship comes to an end. Where a couple has done all their retirement saving through one partner’s retirement fund, this can result in a significant financial loss for the other partner in the event of a break-up.

Cohabiting couples should take steps to protect their assets and personal finances by entering into a formal cohabitation agreement. Also referred to as a domestic partnership agreement, this document is designed to set out the regulations regarding the couple’s finances, property, assets, pets and even maintenance. As cohabiting partners are at risk of being excluded from inheriting in terms of the laws of intestacy, having a carefully drafted will is of the utmost importance.

ADVISOR PROFILE

Eric Jordaan

Crue Invest (Pty) Ltd

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