A very important decision... the marriage contract

A VERY IMPORTANT DECISION...

It is not surprising that engaged couples sometimes feel a little besieged. There are hundreds of decisions that they need to make and in the whirlwind it is easy to forget one of the most important choices, namely, which matrimonial property system will be applicable to their marriage.

Unfortunately, this is one decision you can’t postpone. Once you are married, it is extremely difficult to change your matrimonial property system. It is important to understand your options and make a decision BEFORE you get married.

Here follows an explanation of the three options you have for your civil marriage:

1. Marriages in community of property

People marrying after 1988 are automatically married in community of property UNLESS they marry out of community of property by entering into an antenuptial contract which either includes or excludes the accrual system.

'In community of property' means that everything the couple own, and their debts, from before their marriage are put into a joint estate. All assets and debts acquired during the marriage also fall into the joint estate. The spouses are co-owners of the joint estate, each owning a 50% share thereof.

Each spouse can perform certain acts binding on the joint estate without the consent of the other spouse. Examples of such acts are:
• the selling of certain movable assets such as a car;
• the borrowing and lending of money;
• dealing in shares on the stock exchange;
• dealing with a deposit in a bank in the name of the spouse who deals with it;
• the setting up of a company or close corporation; and
• generally, transactions performed by a spouse in the course of his or her business, trade or profession.

One spouse may however harm the joint estate if he or she can act totally freely with it. Therefore, in order to protect each spouse from the other, there is a requirement of joint management. This means that a spouse may not perform certain acts without the consent of the other spouse. There are certain transactions for which the written consent of the other spouse is necessary:
• the selling of immovable property (land);
• the selling of insurance policies, mortgage bonds, fixed deposits, or any similar asset;
• the selling of jewellery, coins, stamps, paintings or any other assets held mainly as investments;
• the withdrawal of money in the name of the other spouse from a bank or building society;
• entering into a credit agreement;
• the purchase of land on instalments;
• the binding of oneself as a surety; and
• generally, suing or being sued.

There are also certain transactions for which the other spouse’s consent is required, but it need not be written. Oral consent is sufficient for:
• the disposal of furniture and the other contents of the joint household;
• the receipt of money owing to the other spouse from earnings, salary, pension, inheritance, dividends from investments in the name of the other spouse, and proceeds from an insurance policy
in favour of the other spouse; and
• donations to third parties of assets of the joint estate.

At the end of the marriage, the joint estate is divided equally between the spouses. However, on divorce, the courts have discretion to order what is called a forfeiture of benefits. Under this power, the court can order that one spouse forfeit or lose part or all of his/her half-share of the joint estate if there has been substantial misconduct on the part of that person or the circumstances of the marriage or duration of the marriage warrant it. The idea is that no-one should benefit financially from a marriage which he or she has caused to fail.

Some of the advantages of marriage in community of property are:
• It is automatic without having to enter into a special contract.
• If you are the financially weaker spouse, you get to share in the assets of your spouse.

Some of the disadvantages of marriage in community of property are:
• The economically stronger spouse has to share his or her assets with his or her spouse.
• The spouses are jointly liable for each other’s debts. This is particularly problematic on insolvency as both spouses will be treated as insolvent.
• The joint administration of the estate is quite complicated.
• While the marriage is a happy one, it is no real problem to obtain your spouse’s consent. But when the marriage starts to fail, the requirement of joint consent is difficult to satisfy.

2. Marriages out of community of property

Before they marry, two people can enter into an agreement called an antenuptial contract (“ANC”). It is a contract entered into before marriage. The purpose of an ANC is to change some or all of the automatic financial consequences of marriage. An ANC allows the husband and wife to decide on the financial consequences of their marriage.

Spouses can include any provisions they want to in their ANC – as long as the provisions are not against the law, good morals or the nature of marriage. Basically, a husband and wife can construct their very own marriage system in an ANC. But in practice, people enter into one of two types of ANC:
• an ANC which excludes community of property, community of profit and loss and the accrual system; or
• an ANC which community of property and community of profit and loss but which includes the accrual system.

How do you enter into an ANC? There are a number of requirements:
1. The contract must be entered into before the marriage.
2. To be fully binding, the contract must be in writing.
3. The contract must be signed by the husband-to-be and the wife-to-be before a notary (a special kind of attorney) and two witnesses.
4. The contract must be registered in the deeds registry within a specified time.

There are two basic aspects to marriage out of community of property (without the accrual system):
• There is no joining of the estates of the spouses into one joint estate. Each spouse has his or her own separate estate. The husband’s estate consists of his premarital assets and debts, and
all the assets and debts he acquires during the marriage. The wife’s estate consists of her premarital assets and debts, and the assets and debts she acquires during the marriage. Spouses married out of community of property are generally not liable for each other’s debts.

• Unlike marriage in community of property, with marriage out of community of property, the husband and wife each administer their own separate estates. Each spouse has full and exclusive control over his or her own property.

At the end of the marriage, each spouse retains his or her own separate estate. One spouse generally has no right to any assets owned by the other spouse.

Some of the advantages of marriage out of community of property and without the accrual system are:
• Each spouse keeps his or her own assets and is free to deal with his or her own estate as he or she likes.
• Spouses are generally not liable for each other’s debts. Thus, if one spouse becomes insolvent, creditors cannot touch the assets of the other spouse.
• The financially stronger spouse does not have to share his or her estate with the weaker spouse. (Some of the disadvantages of marriage out of community of property and without the accrual system are:
• The financially weaker spouse does not get to share in the estate of the stronger spouse, even though he/she may have contributed to the estate indirectly by running the household and looking after the children.
• You have to enter into an ANC in order to be married out of community of property.

3. Marriages out of community of property with accrual

Under the Matrimonial Property Act of 1984 the accrual system automatically applies to a marriage out of community of property, UNLESS they agree in their antenuptial contract that they do not want the accrual system to be applicable.

The accrual system recognises that during a marriage the husband and wife keep on adding to their joint property. For example, they may add to their property by both working and bringing money into the marriage. Or one spouse may add indirectly by staying home and looking after the home and children so that they do not need to employ someone to do that. The accrual system is therefore based on the idea of marriage as a kind of partnership.

During the marriage, the spouses each have their own separate estates. Thus, most of what has been said under Option 2 applies here as well. The accrual calculation only takes place at the end of the marriage. Only the gains made during the marriage are shared. The spouses’ assets before the marriage are not shared.

How does the accrual system work?
• At the beginning of the marriage the estate of each spouse is given a net commencement value. The net value is arrived at by subtracting one’s liabilities (debts) from one’s assets.
• During the marriage each spouse controls and adds to his or her own estate.
• When the marriage ends through death or divorce, each spouse’s estate is valued again. The value of each spouse's estate at the start of the marriage gets compared with the value at the end of the marriage. This shows the increase/accrual in each spouse's property. (Inflation is taken into account.)
• The difference between the respective accruals is calculated and the spouse with the smaller accrual gets half of the difference between the two accruals.
• Certain things are excluded from the accrual system, such as inheritances, gifts and damages for non-financial loss are excluded from the accrual.

Some of the advantages of marriage with the accrual system are:
• Spouses share their gains made during the marriage. This benefits the economically weaker spouse.
• Spouses do not share their assets acquired before the marriage. Thus the accrual system appeals to people who have existing assets at the time of marriage.
• During the marriage, each spouse runs his or her estate freely.
• There is no complicated joint or equal administration.
• Spouses are not liable for each other’s debts. They only share their assets. Thus, if one spouse goes insolvent, the other spouse’s assets are protected from creditors.

Some of the disadvantages of marriage with the accrual system are:
• The financially stronger spouse has to share the profits made during the marriage.
• One has to enter into an ANC in order for the accrual system to apply.
• The accrual calculation at the end of the marriage can be complicated.

GENERAL ASPECTS

Maintenance of spouses during marriage

During the marriage, spouses owe each other a duty of support. This is so regardless of what their marriage system is. The duty is divided between them in relation to their financial means.
A spouse in need of maintenance can apply to the maintenance court (which is a magistrates’ court) for an order against the other spouse. If the other spouse then fails to pay maintenance, he or she commits a crime.

The matrimonial home

Both spouses have a right to live in the home, no matter who owns it. If one spouse ejects the other spouse from the home, the ejected spouse may apply to a court for assistance.

Jurisdiction in matrimonial actions

South African courts hold the view that the matrimonial property regime of spouses is determined by the law of the husband’s domicile at the date of marriage. A person is domiciled in that country which the law regards as his permanent home.

For example: A South African, who is studying at Oxford in the UK, gets married in Mauritius to an Australian girl. On completion of his studies, he and his wife return to South Africa. The question now arises whether their marriage is in or out of community of property. As the domicile of the husband at the date of marriage was South Africa, they would be married in community of property because they did not enter into an antenuptial contract.

Changing the marital system

The general rule is that spouses cannot change their marital system after they have married. There are some exceptions, however. The most important one allows a couple jointly to apply to court for leave to change their marital system. The court must be satisfied that there are good reasons for the change and that no creditors will be prejudiced.

The lawyer’s fee is to protect your rights so see it as an investment. And remember... “It pays to plan ahead. It wasn't raining when Noah built the ark.”

For more information contact:

MARGUERITE GREEFF
ERASMUS INC ATTORNEYS
TEL: 021 883 9167 or 074 195 1234
EMAIL: m.greeff@attorneys.law.