South Africa has excellent laws aimed at protecting the vulnerable, but the average person is often unaware of them, and in many instances does not have the necessary resources to rely on them, says Angélique Visser, member of the Fiduciary Institute of Southern Africa (Fisa), Fiduciary Practitioner of SA®, and Director of Baraza Wealth.
Top priority on the wedding ‘to do’ list should be a discussion with a fiduciary specialist. Poor or no planning in terms of which matrimonial property regime to choose and whether to include or exclude accrual will be much more severe than choosing the wrong colour flowers for your wedding.
“If you do proper planning prior to your marriage or prior to entering into a long term relationship you can prevent many legal battles later on,” says Visser.
Marital Property Law can be described as the rules that govern the monetary consequences of marriage – both during the marriage and at termination, whether the latter is due to death or divorce.
In community or out of community
A marriage in community of property means there is one estate that belongs to the spouses jointly in equal undivided shares. The separate estates of individuals merge when they marry, and the spouses have equal rights to administer the joint estate for the duration of the marriage.
If individuals do not wish to be married in community of property, they may enter into a contract known as an antenuptial contract, prior to their marriage. It is important for this contract to be registered before their marriage to ensure that it is enforceable.
The effect is that each individual will retain their estate, which consists of assets and liabilities, after conclusion of the marriage, as well as all estate assets acquired during the existence of the marriage.
The couple-to-be should decide whether to include or exclude the accrual system.
If the accrual system is not explicitly excluded, it will by default be included which means that the net assets accumulated by each spouse during the existence of the marriage are shared equally between the spouses at the dissolution of the marriage, either by divorce or death.
It is important to note that the spouse who had no or little accrual cannot simply claim specific assets such as the holiday house or wine collection. They will only be able to claim an amount that will leave them with the same value as the spouse with the large accrual.
“The parties may, however, agree to share specific assets to ensure both end up with an equal value of assets acquired during the marriage,” notes Visser.
The default marriage regime in SA is in community of property. This means that if a couple concludes a marriage in front of a marriage officer without first having entered into a contract, they will be married in community of property.
“The result is that more people are married in community of property than out of community of property. In the UK the default regime is out of community of property. I believe there are more advantages to be married out of community of property,” says Visser.
|In community of property||Out of community of property|
|Spouses do not have the capacity to act independently with joint estate assets.||Each spouse has full capacity to act with their assets and does not need the consent of the other.|
|The assistance of a spouse is required when contracts are entered into.||Each spouse may enter into contracts without the assistance of the other.|
|Each spouse is responsible for the debt of the other spouse.||Neither spouse is responsible for the debt of the other unless they signed surety for the other spouse’s debt.|
|The assets of the joint estate – the assets of the deceased and surviving spouse – will be managed by the executor when one spouse dies, and executor’s fees will be levied on the value of the joint estate.||Only the estate of the spouse who died will be administered by the executor, and fees will only be levied on the deceased’s estate.|
|Financial institutions place a hold (freeze) on the bank accounts of the deceased and the surviving spouse since the executor has to deal with the joint estate. This could put the surviving spouse in a difficult financial situation.||Financial institutions may only place a hold (freeze) on the bank accounts of the deceased and not the surviving spouse as they have two separate estates.|
|The joint estate assets are at risk when one of the spouses has a business and the business is liquidated.||Only the estate assets of the spouse whose business is liquidated will be at risk.|
Many couples prefer to live together without formalising their relationships, despite the fact that the South African legal framework provides equal rights to all individuals who enter into marriage.
“These couples are referred to as life or domestic partners and are currently the least protected in law. It is often only once the relationship ends that they raise questions about financial rights,” says Visser.
“Battles with a partner’s heirs, if the partner is not provided for in a deceased partner’s will, can carry on for years and cost them dearly in legal fees when the relationship ends.”
This could be prevented by having up-to-date wills and by entering into an agreement that regulates the financial affairs between them. The agreement is generally drawn up by a lawyer and is quite similar to a partnership agreement that can be adjusted as circumstances change.
“It gives some comfort that you will be entitled to claim against the estate that you have contributed to should there be disputes when the relationship ends.”
Obvious pitfalls and valuable tools
Visser often finds that business owners who have sold an interest to a business partner in a closed corporation (CC) have no agreement on what will happen to the interest when one of the members dies.
In terms of the Close Corporations Act (which still exists, even though one cannot register a new CC) one will need the other member’s consent to transfer the deceased member’s share.
“In most of these instances the co-member does not give their consent because they do not want the children or the spouse of the deceased member to be a part of their business.”
The matter is bound to end up in court with potential dire financial consequences. It is important to have an agreement that will allow for the transfer of the interest upon death.
Visser says a valuable tool in estate planning is to add a clause in the antenuptial contract that allows for life assurance policies for the benefit of the children.
The proceeds of these policies will be exempt from estate duty. That could mean a saving of 20% or even 25% depending on the size of the estate.
“People need to take responsibility in order to make informed decisions,” says Visser.
She advises couples-to-be to seek advice if they feel overwhelmed by the options and the consequences.
Brought to you by the Fiduciary Institute of Southern Africa (Fisa).