Last week a three-judge bench of the Johannesburg High Court pronounced on the level of disclosure required by those appearing in a maintenance court. Both parties must now make full financial disclosure: every detail, including trusts and offshore assets, as well as an explanation if a spouse enjoys a particularly luxurious lifestyle.
A judge can now call for an explanation if one spouse pleads poverty yet appears to live the life of Riley.
While the judgment pertained to Rule 43 (pre-divorce) maintenance actions in the high court, the decisions of the high court are binding on those magistrate’s courts that deal with divorce or maintenance.
What is Rule 43?
Rule 43 is similar to Rule 58 of the magistrate’s court. It sets out the procedure to be adopted by spouses seeking maintenance prior to a high court divorce and when maintenance is sought in the latter court.
It is more often than not the only court hearing the spouses will have before reaching a settlement of the financial aspects of the divorce. This why the judgment is so important.
Why was a full bench decision necessary?
Three divergent decisions on maintenance by high courts in Gauteng caused uncertainty.
Judge Spilg’s approach in TS vs TS was multi-pronged; in it he stated that:
- Without proper financial disclosure, the court has little to work on in cases involving child support other than the product of competing typewriters.
- If an applicant were unable to reply to the respondent’s contentions an unfair trial might result, something which goes against the spirit and letter of the Constitution.
- If the one party is alleged to be concealing assets or an income stream then a lifestyle questionnaire or a brief hearing covering the lifestyle of the parties would assist in reaching an informed decision, as opposed to doing the best one can with the paucity of detail provided on untested affidavit evidence.
Self-employed deadbeat parents
In SC vs SC the respondent had his own business. Judge Splig carefully analysed what both the applicant and respondent put before court (pointing to lifestyle) and observed the following:
- It is obvious that the underlying source of each party’s income is the starting point of any investigation. The underlying source is not necessarily, nor even predominantly, an amount deposited into a bank account at the end of each month. It can be other forms of benefits that have an economic value, such as the right to occupy a residential property indefinitely, the use of a motor vehicle or credit card facilities.
- The mere fact that a party claims to earn a salary and produces a pay slip or even an IRP5 form [employee tax certificate] tells a court very little unless it is self-evident that he or she is strictly a wage earner with no personal connection to the employer. By way of example; salary can be converted in the books and retained as a loan account or converted into equity or an investment. The use of assets registered in the name of a legal entity or a trust, such as a residential home or motor vehicle can be used indefinitely for the de facto sole benefit of a party and recurring purchases or expenditure such as groceries, petrol, vehicle maintenance, clothing, entertainment and even utility bills can be put through the company, while school fees can be taken out of a trust which provides for such an expenditure.
Judge Splig admonished presiding officers to be astute in such cases and to place proper weight on the external manifestations of the parties’ disposable income by reference to the lifestyle enjoyed by them when they lived together, whether they lived debt-free and were able to access ready sources of funds as and when needed unless proof is provided that the individual breadwinner or both lived beyond their means by reference to overdrafts, genuine loans, or had disposed of a capital asset. In short, these various structures are invariably established not simply to protect individuals from personal liability but serve legitimate tax structuring objectives to defer or convert income.
The conclusion of the full bench: Your lifestyle says it all
The full bench held that lifestyle says it all. Both parties are required to make a full and frank disclosure of their relative financial positions to the court and the other party by way of an affidavit.
These affidavits must also be accompanied by Form E – also under oath – and filed seven days before the hearing. Form E, a 20-page document that each spouse completes, will give a maintenance officer a clear insight into the lifestyle of the parties. A lifestyle investigation will prevent the parties from ducking and diving and is an incisive and long overdue manner of getting to the bottom of what has been a vexing issue in our society for far too long.
Last year a feisty self-employed Pretoria mother got hold of TS vs TS and SC vs SC and produced seven lever arch files of financial documents in the Pretoria Maintenance Court. The magistrate took one look at the trolley load and ordered that she produce no more than one lever arch file for the hearing.
The matter is presently being taken on review in the Pretoria High Court on the basis that full disclosure was made, as stipulated by the high court. The magistrate was not obliged to read every financial document – only those referred to by the parties.
The magistrate’s decision to curtail the mother’s constitutional right to a fair hearing is to be reviewed. She has also asked the high court that the magistrate pay the costs of the review application on a punitive scale out of her own pocket so that the taxpayer is not burdened with this expense.
Read the full bench judgment here.