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Seven things to consider when choosing a marriage contract

Getting your marital contract wrong can cause financial distress if your marriage comes to an end.

Lockdown restrictions have eased, South Africa is off the UK’s red list, and summer appears to be here – which means it’s officially wedding season. Your marriage contract can be one of the most important financial documents you will ever sign as it sets out the financial consequences of your future relationship and getting it wrong can cause financial distress if your marriage comes to an end. Your future self will thank you for taking the time now to carefully consider the marital regime options available to you. Here are seven factors to consider when choosing an appropriate marriage contract for you and your future spouse:

Costs

Remember, if you get married without signing an ante-nuptial contract before your marriage, you will be deemed to be married in community of property, which may not be ideal. If you’re planning to get married with an ANC, don’t leave it until the last minute. You will need to have your contract drafted and notarised by an attorney and, once signed, it will need to be registered at the Deed’s Office which can take between two and four weeks depending on delays.

The cost of drafting an ante-nuptial contract can range from around R2 500 for a basic contract and can increase in price as the contract becomes more complex, with the fee generally including the costs of registering the ante-nuptial contract with the Deed’s Office.

When contemplating your marriage contract, do not let the upfront costs of an ante-nuptial contract deter you from entering into this form of marital regime. The financial implications of choosing an inappropriate marital regime can be far greater and more onerous in the longer term, so rather spend money upfront getting sound legal and financial advice.

Assets

What happens to your respective assets from the date of marriage is another important consideration, especially if you are entering into a marriage with a sizeable estate. If you choose to get married in community of property, remember that all the assets belonging to you and that of your spouse will be merged into a single, joint estate of which you own a 50% share, including all assets that you owned prior to the date of marriage and those that you accumulate during the course of your marriage, subject to a few exceptions.

On the other hand, if you and your spouse choose to get married out of community of property, you will each maintain and administer your own separate estates, including those assets that were acquired before and during the subsistence of the marriage. It is only on the dissolution of an out of community marriage that the accrual system, if incorporated into your ANC, comes into play.

Debt

Debt is a significant contributing factor to marital breakdown, so it is important to fully understand the financial implications of debt in the context of your future marriage. While the concept of a community of property marriage may appear equitable on the face of it, this type of marital regime involves the joining of all debt, including debt that was incurred by each spouse before the marriage as well as all debt incurred by each spouse during the course of the marriage. This means that, through the act of marriage, you can become jointly and severally liable for the debt of your spouse – even if you entered into the marriage debt-free. What’s more, while you remain married, your spouse can continue racking up debt in the name of the joint estate for which you can be held personally liable. For these reasons, it is advisable to explore and understand how debt would be treated in the context of an out of community marriage.

Remember, as mentioned above, parties to an out of community marriage retain separate estates throughout the duration of the marriage, and one spouse cannot bind the other spouse without their knowledge and/or consent. Once again, it is only upon the dissolution of the marriage through divorce or death that the existence of the accrual system will come into play. If you are married with the accrual, any debt held in your name will be used in determining the accrual value of your estate. On the other hand, if you have excluded the accrual system from your contract, you remain fully liable for all your debt, both pre- and post-marriage – and your spouse’s debt can in no way impact your estate.

Insolvency

A devastating consequence of an in community of property marriage is that where one spouse is declared insolvent, the other spouse will simultaneously be declared insolvent. This is because there is only one communal estate that, if found to be insolvent, will affect the co-owners of the estate. The advantage of an out of community of property marriage is that where one spouse becomes indebted or declared insolvent, the other spouse’s estate cannot be attached by creditors.

Where the couple is married without the accrual system, one spouse’s indebtedness or insolvency will have no impact at all on the other spouse. However, where a couple is married with the accrual system, one spouse’s reckless financial dealings can impact the other spouse’s share of the accrual.

To protect against this, Section 8(1) of the Divorce Act provides that where one spouse’s conduct seriously prejudices the value of their estate and, in doing so, prejudices the other spouse’s share of the accrual, the prejudiced spouse may approach the courts for an immediate division of the accrual meaning that they do not need to institute divorce proceedings in order to protect the accrual of their estate.

Fixed property

Most married couples aspire to own a home of their own and understanding how homeownership will be dealt with in your marriage is therefore important. If you and your spouse are married in community of property, your home will be owned jointly with each of you effectively owning a 50% share of the property. Further, in a community of property marriage, you will need written consent from your spouse and the signature of two witnesses in order to purchase a property meaning that you are not free to enter into fixed property transactions on your own. Similarly, when selling the property, you will need written permission from your spouse in order to proceed with the sale, which can be an ineffective and clumsy way of dealing with assets in a marriage.

If you choose to get married out of community of property, you are free to buy and sell immovable property at will with no spousal consent or permission being required. Where your ANC includes the accrual system, the value of your property will be taken into account for the purposes of determining the value of the accrual in the event of a divorce or should one spouse die. Remember, even though you and your spouse retain separate estates in an out of community marriage, you are still able to purchase a property in both of your names, which is often the safest, most practical option.

If you choose to marry out of community excluding the accrual, a danger arises where the primary residence is registered in one spouse’s name because, if the marriage irretrievably breaks down and becomes acrimonious, the other spouse can find themself without accommodation. This is because each spouse retains their own separate estate and there is no sharing of accrual upon dissolution.

Divorce

When it comes to divorce, the process in a community of property marriage is relatively simple as it involves the joint estate being equally divided between the two spouses. The only exception to this is where one spouse brings an application for a forfeiture order on the grounds that the other spouse has unduly benefitted financially from the marriage. So, while the divorce process may appear simple, it is very often inequitable as it regularly results in one spouse benefiting more than they contributed financially to the marriage.

On the other hand, an out of community of property marriage that excludes the accrual can also be inequitable, especially where one spouse is a full-time, stay-at-home parent while the other remains economically active. In the event of a divorce, the stay-at-home parent can find themself financially prejudiced as a result that they were unable to grow their net worth during the subsistence of the marriage.

When it comes to divorce, the accrual system is widely believed to be the most equitable way of sharing assets between divorcing spouses. Remember, where a marriage contract includes the accrual, each spouse retains and controls their own estate during the course of the marriage. The commencement value, being the value of their respective estates at the date of marriage, is recorded in the ANC. Upon divorce, the commencement value of each estate and the extent to which each estate has grown during the marriage is calculated, and this is referred to as the accrual. As a result, everything that each spouse owned before the marriage remains theirs, and the value of everything that accrued during their marriage is shared equally between the two. Important for the equitable distribution of assets in the event of divorce is therefore to ensure that the ante-nuptial contract accurately reflects the commencement value of each spouse’s estate.

Death

Where a marriage is dissolved by the death of the first dying spouse, the nature of the marriage contract will determine how the estate will be dealt with. Being a single, joint estate, where a spouse to a community of property marriage dies, the entire estate is wound up. Once all estate costs and debts have been paid, the surviving spouse has a claim against the estate for their 50% share. The remaining 50% of the net estate will be distributed in accordance with the testator’s will or, if no will exists, in accordance with the laws of intestate succession.

If you get married out of community without the accrual, your deceased estate will be wound up either in accordance with your will or in terms of intestate succession laws, whichever applies, and the estate administration will have no bearing on your surviving spouse’s estate.

Although the accrual calculation in the event of a spouse’s death can be complex, this form of marital regime remains more equitable than the other two regimes because each spouse gets to share equally in whatever they have built together during the subsistence of the marriage. Upon the death of the first dying spouse, the executor will take into account the commencement value of each estate as it appears in the ante-nuptial contract, and then calculate the growth in each estate during the course of the marriage, and this growth is then shared equally between the two spouses. Where the deceased spouse has the smaller accrual, their estate will have a claim against the surviving spouse for their share of the accrual. Conversely, where the deceased spouse has the larger accrual, the surviving spouse can claim against the deceased estate for their share of the accrual.

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Eric Jordaan

Crue Invest (Pty) Ltd

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