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The division of assets on divorce

Understanding the consequences of your matrimonial property regime is an essential first step in the process.

The nature of your matrimonial property regime will determine how your assets will be divided in the event of a divorce. Acrimonious and litigious divorces are expensive, time-consuming and emotionally draining, and only serve to reduce the value that each spouse will ultimately receive in terms of the divorce order. If you’re contemplating a divorce, understanding the consequences of your matrimonial property regime is an essential first step in the process.

Marriage in community of property

If your marriage is in community of property, all assets belonging to you and your spouse prior to your marriage, plus all assets that you accumulate during the subsistence of your marriage form part of the joint estate, and this includes all debts incurred both before and during the marriage. Upon divorce, the joint estate will effectively be divided equally between the two parties. However, it is important to bear in mind that both parties have full contractual freedom when it comes to negotiating and agreeing upon a divorce settlement.

A couple may choose to strictly enforce their matrimonial property regime when dividing their assets, or opt for a negotiated settlement that is more suited to their specific circumstances. The reality, however, is that getting two spouses to communicate after their marriage has broken down is challenging at best. Employing the services of an experienced divorce mediator can be effective in bringing both parties to the negotiation table and fleshing out a settlement agreement that is acceptable to each party. Bear in mind that if the spouses cannot reach a settlement agreement, the court can appoint a liquidator to divide the assets on behalf of the joint estate, which is never ideal.

In terms of Section 9(1) of the Divorce Act, the court has discretion when granting a divorce on the grounds of irretrievable breakdown of a marriage in community of property to order that the patrimonial benefits of one party be forfeited in favour of the other. This means that, taking the couple’s circumstances into account, the court may 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. When deciding whether or not to grant a forfeiture order, the court will consider the duration of the marriage, the circumstances which gave rise to the break-down of the marriage, and any substantial misconduct on the part of either spouse if applicable to the circumstances.

When it comes to retirement fund benefits, the non-member spouse will be entitled to claim 50% of the pension interests of the member spouse at the date of divorce. In terms of the ‘clean break’ principle introduced in the Pension Funds Amendment Act (2007), non-member spouses can access a court-ordered share of the member spouse’s retirement savings on divorce, whereas previously this was only permitted when the member spouse exited the fund.

Marriage out of community with the accrual system

Where a couple is married out of community of property with the accrual system, each spouse keeps a separate estate over which they have absolute control and independence. When the marriage comes to an end as a result of divorce, a claim comes into existence to a share of the accrual. The accrual is effectively the net increase in the value of each spouse’s estate since the commencement of the marriage, meaning that the spouses share equally in the increase in value of both of their estates while the marriage existed.

When it comes to calculating the accrual, bear in mind that only the debt that each spouse incurred from the commencement of their marriage is included in the accrual calculation. On divorce, the net value of each spouse’s commencement value at the date of marriage is deducted from the net value of each estate at the end of marriage. So, if the husband’s estate has grown more than the wife’s estate, the wife is entitled to claim up to 50% of the value by which the husband’s estate exceeds the growth in hers. Bear in mind that certain assets are to be excluded when determining the accrual. This includes any assets expressly excluded in terms of the couple’s ante-nuptial contract, and any inheritance, legacy, trust or donation received by a spouse from a third party during the marriage. Also excluded are any donations between spouses, and any damages (as a result of defamation or for pain and suffering) that accrued to a spouse.

If a couple is married with the accrual system, the spouse’s pension fund interest will be taken into account when determining the value of his estate for the purposes of the accrual calculation, and a claim can be laid to a portion of the retirement fund.

Marriage out of community without the accrual before 1 November 1984

In respect of spouses married out of community of property before 1 November 1984, each spouse retains their own separate estate and there is no sharing of assets. However, because those entering into marriage contracts prior to 1 November 1984 did not have the option of the accrual system, the courts may consider a ‘redistribution of assets’ in the event of divorce. In terms of Section 7(3) of the Divorce Act, a court may order a redistribution of assets where it feels that it is equitable and justifiable to do so. The spouse seeking a redistribution order must demonstrate that they contributed directly or indirectly to the maintenance or increase in their spouse’s estate during the marriage, although it is not necessary for them to show exactly which assets they contributed to. The court will also take into account the existing financial means and obligations of each spouse and is required to use its discretion when contemplating a fair redistribution of assets. Bear in mind that a spouse’s pension interest may form part of the redistribution order.

Marriage out of community without the accrual after 1 November 1984

Where a couple is married out of community of property after 1 November 1984, they are deemed to have expressly excluded the accrual system and, as such, each spouse is deemed to keep a separate estate over which they have absolute control and independence, and there is no redistribution of assets on divorce. In the event of a divorce, each spouse keeps their own estate, plus all growth in their respective estates that occurred during the marriage, less any losses. Further, each spouse remains responsible for their own debt, and the other spouse cannot be held responsible. Any share in the pension interest must take place by mutual consent, or in terms of a settlement agreement as a personal obligation. The claim a spouse may institute would be for spousal maintenance.

When it comes to dividing assets in the event of a divorce, there is always the question of whether a trust constitutes part of a spouse’s personal assets and therefore part of his personal estate. Generally speaking, our law is of the view that trust property should not be considered part of a spouse’s estate for the purposes of dividing assets on divorce because the trustee is not the owner of the property, but is merely someone who holds property for the benefit of others (i.e. beneficiaries).

However, this area of law is not clear cut, and there are circumstances in which trust property can be considered upon divorce, especially in circumstances where there is misuse or abuse of a trust. The court will seek to determine whether the spouse is using the trust as an ‘alter ego’ trust or a ‘sham trust’ by looking at whether the entity is a trust in the real sense, who controls the trust property, when the trust was created, and what the intention of the founding donor was when creating the trust.

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Eric Jordaan

Crue Invest (Pty) Ltd

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