Legal steps can trip romance
It is important to understand the financial options governing your marriage
IN SA there are three options to choose from when deciding which marital property regime will apply to a marriage. It is important for everyone, from young couples to successful businessmen or women, to ensure they make the right choices.
The different options are in community of property, an antenuptial contract with the specific exclusion of the accrual system (which is a marriage out of community of property) and an antenuptial contract with the inclusion of the accrual system (which is automatically the case if there is no specific exclusion).
If an antenuptial contract isn’t signed, a couple will automatically be married in community of property. This means they will become joint owners of all assets owned at the time of the marriage and those acquired during the marriage. No formal transfer of assets is necessary because the creation of the joint estate is automatic.
Most couples choose to consult with an attorney and enter into what is known as an antenuptial contract. This document is usually notarised by an attorney and is registered in a deeds office.
An antenuptial contract automatically includes the accrual system unless it is specifically excluded.
If a couple expressly excludes the accrual system they are then married out of community of property and will essentially be in exactly the same position financially as they were before they got married. Their estates are entirely separate and there is no sharing of wealth or liabilities. This can, of course, create difficulties for the poorer spouse if the marriage ends in divorce.
The accrual system in terms of an antenuptial contract means that during their marriage, spouses’ estates are completely separate:
They cannot be sued for debts incurred by the other spouse.
They have no claim to any assets the other spouse acquires during the course of the marriage. When the marriage ends, through death or divorce, the accrual system comes into play and the estates of the spouses are valued for the purposes of the accrual sharing.
There are a number of assets that are automatically excluded from a person’s estate for the purposes of the accrual calculation, including non-patrimonial damages, inheritances, legacies, donations from third parties and donations between spouses.
When entering into an antenuptial contract, couples can decide to include what is known as a “commencement value”, which is the net value of their estate at the start of the marriage. They can also exclude certain assets in the antenuptial contract.
Young married couples who haven’t yet accumulated any significant assets often start with a commencement value of zero.
When certain assets are excluded in an antenuptial contract, the calculation of the accrual can become fairly complicated. For example, if one of the excluded assets is sold during the marriage there are various rules that apply to how the proceeds must be treated.
The accrual claim is essentially half of the larger accrual minus the smaller accrual. The accrual in a spouse’s estate is the net asset value of their estate at the end of the marriage minus the commencement value (increased for inflation), less any assets specifically excluded in the antenuptial contract, and automatically excluded assets.
If a spouse’s debts exceed their assets, their accrual will be zero. An accrual cannot be a negative figure. It is important to realise that the accrual claim only entitles the claimant to a sum of money, not to specific assets in the other spouse’s estate.
The first step in assessing the accrual claim is to calculate the net asset value of each spouse. It is imperative that both spouses fully disclose their assets and liabilities. Once the net value of their estates has been confirmed, the commencement values set out in the antenuptial contract are subtracted. The commencement value is adjusted in accordance with the current value of money by dividing the current consumer price index (CPI) by the CPI for the month in which the parties got married and multiplying that figure by the commencement value amount. Then, excluded assets are subtracted.
While the accrual system and being married out of community of property may seem the fairest and the safest route to follow when getting married, they can become skewed when one spouse has accumulated substantial wealth prior to the marriage. In this situation, once the large commencement value has been increased to take into account the current day value of money, there may be little left for the other spouse to share in. These are all issues that need to be examined when entering into an antenuptial contract.
In addition, the bargaining power between prospective spouses is often not evenly balanced. This can lead to an “unfair” agreement being concluded that prejudices the spouse who chooses to stay at home, look after children and not further their career.
An antenuptial contract automatically includes the accrual system unless it is specifically excluded