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Why Your Marital Contract Really Matters

Posted On: Wednesday, October 4, 2023

Why Your Marital Contract Really Matters

"Farewell! God knows when we shall meet again." (William Shakespeare)

Marital contracts 101

There are various types of marital contracts, including:

In community of property. This is the default position in South Africa. The couple share all their assets in a single joint estate in which each spouse has an equal share. There is one exception, though. Inherited assets are excluded if the deceased’s Will states that the inheritance should not form part of a joint estate.

Out of community of property (with or without accrual). If you want to marry out of the community of property, you’ll need to prepare an antenuptial contract (ANC).

If the couple wants to exclude an accrual system, in which each individual owns their assets before the marriage, but shares the assets accumulated during the marriage, this needs to be expressly stated in the ANC. If not, the default position is out of community of property with accrual.

Let’s dig a little deeper into the various options.

More on “in community of property”

In this scenario you share all your assets and liabilities, regardless of whether they were accrued before and after the marriage.

If this is your choice, it’s good to know that you will need your spouse’s consent for major transactions, such as selling your house, buying and selling investments, and withdrawing funds from each other’s bank accounts.

Now, this is a tricky one: debt. All debt before and after the marriage forms part of the joint estate. Being jointly liable for each other’s debts can be complicated, especially in the case of bankruptcy. The joint estate can effectively become insolvent.

Regarding hard-earned retirement funds, these can be split equally on divorce.

And when the first spouse dies, the joint estate is dissolved, and the survivor owns 50% of the estate. The other half belongs to the heirs of the deceased.

More on “out of community of property with accrual”

In this scenario each spouse keeps the assets they brought to the marriage. Assets accrued during the marriage are shared.

This choice is often considered the fairest deal, but there are circumstances when it doesn’t make sense. For instance, there may be a significant differential in wealth between the spouses, and it might not seem fair that one partner is entitled to the growth on investments made by the other partner before the marriage.

Regarding decision-making, the spouses don’t need consent to make major financial decisions.

When it comes to debt, only the debt incurred during the marriage is included in an accrual calculation (the extent to which each estate has grown during the marriage). And the good news is that creditors cannot claim from the accrual amount.

In the case of a divorce, everything that each spouse owned before the marriage remains theirs, and the value of everything accrued during their marriage is shared equally.

And when one of the partners dies, if the surviving spouse’s estate accrual is less than that of the deceased’s estate, they can claim their share of the accrual against the deceased estate.

More on “out of community of property without accrual”

In this scenario you may get married but your finances never do. Both spouses continue to maintain separate estates after the marriage.

Regarding debt and insolvency, each spouse is responsible for their own debt, and the other spouse cannot be held responsible.

In the event of divorce, each person retains their own assets and liabilities, and there is no redistribution of assets.

Regarding retirement funds, each spouse retains their own separate estate, and there is no redistribution of the funds, although the member spouse is free to share the value of the funds as part of the settlement arrangement.

When one spouse dies, their death does not impact the survivor's estate. However, if the deceased spouse has not made sufficient provision for the surviving spouse, the spouse may be able to claim against the estate under the Maintenance of Surviving Spouses Act.

What does the future hold?

Changes to the Marriage Act are currently being discussed as the current system is very fragmented regarding the different types of marriages in existence, the different sexual orientations, and the many cultures living in our country.

The new Marriage Act will introduce a provision for redistributing assets upon divorce, regardless of the type of marital contract. This means that individuals who are married under an out-of-community contract, without accrual, will be able to ask the court for a fair division of assets, considering various factors such as their contributions to the marriage, their needs, and their circumstances.

The bottom line?   

Things can get complicated, so do get advice before you tie the knot. Our door is always open…

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