Legal steps can trip ro­mance

It is im­por­tant to un­der­stand the fi­nan­cial op­tions gov­ern­ing your mar­riage

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - GIL­LIAN LOWN­DES

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

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