My question revolves around an instance where a German resident concluded a loan agreement with a German bank and subsequently lent the money to their daughter who is a permanent resident in South Africa (the daughter has resided in SA for 15 years and is married to a SA citizen).
There is no formal (signed) loan agreement in place between the father and the daughter. The loan exists between the German father and his bank in Germany, thus the daughter forms no legal party to the loan. The money was moved via forex from Germany to SA in instalments to assist the daughter in building a property. Equal values from both husband and wife were paid towards the house build. The daughter’s husband paid his 50% share from life savings. The daughter is married in community of property and is in the process of getting divorced.
A few questions I would like to pose:
- Can the loan held in the father’s name form part of the daughter’s liabilities in her joint estate?
- Can the husband be held liable to settle 50% of the father’s loan by virtue of being married in community of property to the daughter, despite having already paid his 50% contribution towards the build (the remaining 50% constitutes the German loan)?
Thank you for sending in the question. The issues raised by you highlight one of the potential problems that may arise for couples married in community of property. To answer the questions, I think it is important to first understand the implications of a community marriage.
This form of marital property regime is referred to as the default option, as no antenuptial contract needs to be signed.
In the absence of an antenuptial contract the couple will be deemed to be married in community of property, which may not be the ideal system to be married under.
In a community of property marriage, all assets and liabilities belonging to either party 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.
This means that both parties have a 50% interest in all assets in the joint estate. No asset belongs to either party, and everything is jointly owned.
One of the greatest disadvantages of this marital regime is that the couple remains jointly liable for each other’s debt, including debt that was incurred before the marriage. In a community of property marriage, one spouse has the capacity to bind the joint estate through their actions, which can have devastating effects on the joint estate.
Let’s look at your specific questions, firstly with regard to the loan held in the father’s name. As you correctly pointed out, the daughter forms no party to the loan concluded by her father with a German bank. It does not, however, stop there as the father subsequently lent money to his daughter. The fact that there is no written agreement between the two does not change the validity of the loan between father and daughter, or more correctly the joint estate held by the daughter and her husband.
The legal effect of this is that the father has a claim against the joint estate for the repayment of the loan.
In turn, the loan owed to him by the joint estate of the daughter and her husband will be an asset in the estate of the father. This means that the German bank, should they need to call up the loan from the father and he for some reason is not able to repay the loan, can lay a claim against the joint estate of the daughter and her husband as this is an asset in his estate.
In an indirect way, the joint estate of the daughter and her husband can therefore be held liable for the loan by the German bank, not through a legal agreement but through a claim that it has against the father, in whose estate the loan to his daughter is an asset which can be attached in legal proceedings.
The law does provide for spouses married in community of property to obtain consent from the other spouse before entering into a transaction. Where a spouse did not obtain such consent before entering into a loan agreement, for example, this failure cannot be used to avoid liability in the joint estate, but this may be a factor to consider when entering into divorce proceedings and a division of the joint estate is negotiated.