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Married in community of property: Financial planning for a joint estate

There are some potentially disadvantageous flaws to this system.

If you and your spouse are married in community of property, you share a common estate and financial planning should therefore be easy – although, unfortunately, this is not always the case.

In community of property is an imperfect system and being aware of its shortcomings is essential in the context of financial planning. Here are some considerations when managing your finances in a community of property marriage.

Marriage contract

If you are married in community of property, you will not have signed an antenuptial contract. This is because you and your spouse jointly own a common estate in equal, undivided shares and, as such, no contract needs to be entered into. In community of property is the default marital regime and, in the absence of an antenuptial contract, your marriage will be deemed to be in community.

Joint estate

In a community of property marriage, all assets and liabilities belonging to you and your spouse are merged together into one joint or communal estate, subject to a few exceptions. For instance, if a will stipulates that an inheritance should not form part of the joint estate, then that inheritance must be excluded. While this form of marital regime provides a holistic view of your finances, there are flaws to this system that can be disadvantageous such as the issue of debt.

Debt and insolvency

Important to keep in mind is the fact that an in community of property marriage means that you and your spouse are jointly liable for each other’s debt, including debt that you and your spouse incurred before you got married – including maintenance obligations to a previous spouse or to children from a previous relationship.

Further, because your estate is viewed as a single estate, your spouse has the capacity to bind the joint estate through his actions.

This means that your spouse can incur debt without your knowledge and, in doing so, make you jointly liable for repaying the debt.

You and your spouse remain jointly and severally liable for all debt in the estate, meaning that you are both equally and fully responsible for the repayment of the debt. Further, if your spouse is unable to pay his debt, his creditors have a claim against the joint estate which could lead to both of you being declared insolvent.

Spousal consent

Because each spouse is able to bind the joint estate through their actions, our law affords some protection by requiring spousal consent for certain transactions. For instance, your spouse’s consent would be needed if you want to sell a joint asset from the estate, cash in an investment, or withdraw money from a joint bank account. Written consent as well as two witnesses would be required for larger transactions such as the sale or purchase of immoveable property or entering into a credit agreement.

No spousal consent is required when conducting day-to-day transactions such as withdrawing or depositing money or making everyday purchases.

Estate planning

If your spouse passes away, bear in mind that the joint estate will be dissolved on the basis that a joint estate cannot have one owner. As the surviving spouse, you will have a claim for 50% of the joint estate, while the remaining 50% will be distributed to the nominated beneficiaries of your deceased spouse.

The executor of the deceased estate will be required to settle all debt in the estate, keeping in mind that you are jointly liable for all debt incurred both before and during the subsistence of your marriage. This means that, once all debt has been settled, you will then be able to lodge a claim for 50% of the net estate.

Problems can arise, however, if for instance one spouse bequeaths his share of fixed property to a third party. As such, estate planning is an important consideration for couples married in community to ensure that there are no liquidity shortfalls in the event of one spouse’s death.

Divorce

All assets that belong to you and your spouse, plus all assets and liabilities that you accumulated during the course of your marriage, form part of the joint estate that must be divided upon divorce. In terms of the divorce procedure, bear in mind that you and your spouse each have full contractual freedom when agreeing upon a divorce settlement.

You may choose to strictly enforce your matrimonial property regime when dividing your assets, or opt for a negotiated settlement that is more suited to your specific circumstances.

Negotiated settlements are often best achieved with the guidance of an experienced divorce mediator, keeping in mind that if you and your spouse cannot reach a settlement agreement, the court can appoint a liquidator to divide the assets on behalf of the joint estate, which is not ideal.

An exception to the division of assets in a joint estate on divorce is where one spouse claims forfeiture of patrimonial benefits on the grounds that the other spouse has benefited unduly from the community of property. Such an application can be brought in terms of Section 9(1) of the Divorce Act, which allows a court to order that one party forfeits their patrimonial benefits to the other where it finds that the party will be unduly benefitted in relation to the other as a consequence of the marriage.

Retirement funds

Your matrimonial property regime also impacts on your retirement fund benefits. If you are married in community of property, the pension interests of you and your spouse form part of the joint estate.

This means that each spouse will be entitled to claim 50% of the pension interest of the other spouse as at the date of divorce.

The pension interest in respect of pension, provident and preservation funds is the total benefit to which the member spouse would have been entitled to in terms of the fund rules if their membership had terminated due to resignation at the date of divorce. Where the member spouse is invested in a retirement annuity, the pension interest refers to the total amount of the member’s contribution to the fund up to the date of divorce plus simple interest at the prescribed rate.

ADVISOR PROFILE

Eric Jordaan

Crue Invest (Pty) Ltd

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