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Will I be declared insolvent if my late partner’s estate is declared insolvent?

As you were married in community of property, you and your spouse are jointly liable for each other’s debt.

My husband and I were married in community of property and he passed away. We had sold our house a few years ago and have no assets as such, except two cars that are financed in my name with the bank. I do believe that all his debt had life insurance cover, but one bank is requesting a letter of authority or executorship from me but he had no assets and no will.

There are two life insurance policies where his two kids and I are nominated as beneficiaries but we still await an outcome on that. As it stands they are saying if the debts don’t get paid by the credit life cover I will be liable to pay his debts. I don’t think I can afford to do that. If declared insolvent does that mean I am declared insolvent as well? I am not sure what to do at this point. Some guidance would be helpful please.

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As you were married in community of property, this means that both you and your late husband’s assets and liabilities before and after the marriage are joined together to form a communal estate. There are certain exceptions – for example, if a will stipulates that an inheritance should not form part of the joint estate, then that inheritance must be excluded. Both spouses have the right of disposal over all the assets as well as the responsibility of all liabilities in the estate as they are the joint managers of the assets and liabilities of the communal estate.

Important to keep in mind is the fact that an in community of property marriage means that you and your spouse are jointly liable for each other’s debt, including debt that you and your spouse incurred before you got married and during your marriage. Further, because your estate is viewed as a single estate, your spouse had the capacity to bind the joint estate through his actions.

Upon the death of a spouse who is married in community of property, the appointed executor will administer the communal estate, meaning that the executor will need to take all the assets and liabilities of both spouses into account. The executor is tasked with determining if there are enough assets in the estate to settle the liabilities and is required to ensure that the creditors are paid. Once all the liabilities of the estate have been settled, the executor will then be able to determine the distribution of the balance of the estate to the beneficiaries. Should there not be enough assets within the communal estate to settle the liabilities the estate will be insolvent, and the executor would need to notify the creditors and the estate will be dealt with in terms of the insolvency act.

As your husband died without a will, the law of intestate succession would apply and will determine the way in which the estate is distributed and who would benefit from it. In terms of intestate succession, you would inherit the greater of either R250 000 or the child’s share. A child’s share is calculated by dividing the deceased’s half of the estate by the number of surviving children plus the surviving spouse. It is important to remember that, given your marital regime, only the deceased’s half of the joint estate will be available for distribution after all debts have been settled.

As your husband died without a will, you can nominate a person or company to act as the executor, subject to approval by the Master of the High Court. The process of winding up an estate can be complicated and extremely time-consuming. We recommend that you get a professional executor appointed to assist you in dealing with the complexities of finalising the estate. The executor will have specific skills, knowledge and expertise which would lessen your burden by helping you finalise the insurance claims. The executor will contact the creditors and assist you with negotiating payment terms to settle the outstanding liabilities and the liquidation and distribution of any remaining assets.

Do you have any questions you would like answered by registered financial planners?

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