The elephant in the room…

Wedding bells, white dresses and the elephant in the room… the antenuptial contract!

By: Tracy van der Spuy
Attorney, LLB (University of Stellenbosch)
23 April 2020

Introduction

The build up to your wedding day can be both a beautiful and stressful time for anyone. You have been dreaming about this day all your life and you plan everything down to the finest detail to ensure that this day goes down without a hiccup. Between deciding on the perfect flower arrangements, seating charts and whether or not you really need to have that three-tier cake, couples sometimes overlook the importance of having that important conversation, “Are we going to conclude an antenuptial contract (ANC)”?

The purpose of this article is to delve into the different matrimonial property regimes in South Africa and to highlight the legal consequences of each regime, which is an important consideration, in the context of death or divorce.

We have three matrimonial property regimes in South Africa which will be discussed in greater detail below, namely:

1. Marriage in community of property;
2. Marriage out of community of property (with the accrual system); and
3. Marriage out of community of property (without the accrual system).

1. Marriage in community of property

All marriages concluded in South Africa are automatically deemed to be in community of property, unless excluded by way of an antenuptial contract. In other words, this regime is considered to be the default matrimonial property system in South Africa and many people opt for this system, given the fact that is it relatively simple and cost effective to conclude. When a couple opt for this system, their individual estates are bound to form a joint estate (or communal estate), which includes all assets AND liabilities. So, if either party enters the marriage with a mountain of debt to their name, the spouse automatically becomes liable for half of that debt. This debt may even include the spouse’s liability to a former partner for the payment of child maintenance. Put differently, if either party owns an asset, such as immovable property, congratulations – you now own a half share of that property by virtue of your marriage in community of property! Therefore, it is always important for couples to be completely transparent when it comes to their financial interests to afford each party a fair opportunity to decide which matrimonial property regime to adopt that will place the parties on equal footing.

There is, however, a proviso to the above. Not all assets automatically fall into the communal estate at the commencement of a marriage in community of property. For example, a spouse may be a beneficiary in terms of a will where the inheritance specifically excludes the said inheritance from the communal estate.

In a marriage in community of property, both spouses have the capacity to bind the communal estate through certain acts which do not require the consent of a spouse, such as:

• Selling certain movable assets such as a car or household furniture;
• Entering into transactions or contracts in the course of his/her business, trade or profession;
• Forming a company or a trust;
• Making deposits at a banking institution or transacting on the stock exchange; and
• Making donations that do not prejudice the other spouse.

Even though consent from your spouse is not required when performing any of the above listed acts, it is crucial to note that if a spouse becomes insolvent (they are unable to pay their debts), both spouses will be declared insolvent as they have a communal estate. To put this in a practical perspective, if a spouse has their own business, in the form of a sole proprietorship, and they apply for an overdraft facility but the business is unable to honour the payment obligations in terms of this facility, the creditor may make a claim against the communal estate. This means that a spouse, through no fault of their own, may lose everything simply by virtue of their marriage in community of property.

There is some protection for parties that have concluded a marriage in community of property, in that certain acts require the spouse’s consent, in order for the act or transaction to be deemed valid. The consent required may either be informal or written, depending on the context of the transaction.

Instances of transactions where informal consent is required from your spouse include receiving money which is due to the other spouse, from sources such as:

• The proceeds of an insurance policy;
• Donating from the communal estate where the donation prejudices the interest of the other spouse, for example, donating furniture from the common household;
• An inheritance, donation or prize;
• Remuneration, bonuses, allowances for service rendered or by virtue of their trade, business or profession; and
• Dividends or interest on investments in their name.

Transactions which require formal written consent from your spouse (signed by two witnesses) include:

• Entering into a contract to purchase immovable property;
• Entering into an agreement in terms of the National Credit Act, no. 34 of 2005;
• Alienating immovable property which belongs to the communal estate; and
• Entering into a contract of suretyship, wherein one spouse binds the communal estate as surety for the debt of a third party.

After digesting all this information, the next consideration is the consequences of a divorce when married in community of property. Unless a spouse seeks a forfeiture order (which is specifically stated in the divorce summons and is not an automatic right), all the assets and liabilities of the joint or communal estate will be equally divided between the spouses.

The Court has a discretion to grant a forfeiture order and will consider the following factors when making its decision:

• The duration of the marriage;
• Any substantial misconduct by one or both of the parties (if applicable);
• The circumstances leading up to the breakdown of the marriage.

Where the spouses are in agreement, insofar as the division of the joint estate is concerned, a settlement agreement can be drawn up and incorporated in the decree of divorce and made an order of Court. However, as is often the case, where the spouses disagree as to how the communal estate is to be divided, the Court has the authority to appoint a liquidator, whose fee is paid by the communal estate, to realize and divide the assets of the communal estate on its behalf.

2. Marriage out of community of property (without accrual)

This matrimonial property regime, otherwise known as “the cold exclusion” requires the conclusion of an ANC where community of property and profit and loss are excluded. The ANC is by far the most important contract a married couple will conclude and is entered into BEFORE the marriage.

The purpose of an ANC is to change all (or some) of the automatic financial consequences of marriage. A coupe may include any provisions they like in their ANC provided that the said provisions do not violate the law and are not against good morals or the nature of marriage. It is important to keep in mind that an ANC is problematic to amend as it dictates the proprietary and financial consequences of a couple’s future and impacts the rights of the couple’s creditors.

A marriage out of community of property means that there is no joint or communal estate and each party retains their own separate estate, which consists of his or her pre-marital assets and liabilities as well as all his or her assets and liabilities acquired during the subsistence of the marriage. This means that each spouse administers their own separate estates and has full and exclusive control over their own property.

Consent from your spouse is not required to enter into any transactions and, in simple terms, the concept of “what’s mine is mine and what’s yours is yours” applies. Your partner’s creditors cannot attach your assets, but in the same breath, you are not entitled to your partner’s riches either. This means that the financially weaker partner to the marriage does not get a share of the partner’s estate, even if she or he has contributed to the growth of the said estate.

The next aspect to consider is how one goes about registering an ANC?

A possible reason why a marriage out of community of property may not be an attractive marital property regime for some couples is the cost associated with registering an ANC as the process involves a notary public and the Deeds Office. An ANC is executed by the potential spouses and attested to by a notary public, in the presence of two witnesses. Once the ANC has been signed, it is forwarded to any Deeds Office in the country to be registered.

It is important to remember that registration of an ANC must take place within 3 months of the date it was executed by the spouses in front of the notary public. However, if the ANC is executed outside the Republic of South Africa, the period to register same is 6 months from the date of execution. In the event that the ANC is not signed or registered timeously, a joint application seeking condonation for the late signing or registration of the ANC after the date of the marriage will have to be brought to the High Court in terms of the Deeds Registries Act, no. 47 of 1937. This application must be brought as soon as reasonably possible after the couple discovered that the ANC was not properly signed or registered.

The consequence of a divorce in the instance where a couple is married out of community of property without accrual is that each party retains their separate estate as there is no sharing of assets, unless the Court granting the decree of divorce makes an order for a redistribution of assets, in terms of the Divorce Act (only available to couples who concluded their marriage out of community of property PRIOR TO 1 November 1984, which is when the accrual system was introduced). For example, a spouse’s pension interest forms part of their separate estate and may form part of the assets reditributed, if such an order is granted. It is crucial to keep in mind that a redistribution order will only be granted if the Court is satisfied that it is equitable and just to do so. In coming to such a decision, the Court will consider the contributions made to the marital home by the party seeking the resdistribution order as well as the existing means and obligations of either party. The Divorce Act stipulates two requirements to be met in order for the Court to consider granting a redistribution order:

• The spouse seeking the order must have contributed directly or indirectly to the maintenance or increase of the other spouse’s estate during the subsistence of their marriage; and
• The Court must be satisfied that by reason of such contribution, it would be equitable and just to make the redistribution order.

Due to traditional gender roles, this redress is most often utilised by women. However, it is possible for men to seek a redistribution order if they can prove that they would be financially disadvantaged if such an order is not granted and that he contributed to the improvement or advancement of his spouse’s estate during the existence of their marriage.

Unfortunately, a redistribution of assets is NOT AVAILABLE to couples who concluded their marriages after 1 November 1984, which is when the Matrimonial Property Act, no. 88 of 1984 was enacted. The rationale behind this argument is that the introduction of the Matrimonial Property Act presented couples with 3 possible matrimonial property regimes and if the parties still elected to marry out of community of property, without the accrual system, one of the parties cannot seek a redistrubution of assets. Accordingly, upon dissolution of the marriage, each party retains their separate estate. In this instance, any party seeking acknowledgement for their contribution to their spouse’s estate will find it extremely challenging to prove their entitlement as contributions play no role in this instance.

It is also quite common for couples who are married out of community of property to jointly own property. That being said, neither joint owner can be forced to retain their undivided half share in a property. If the coupe is unable to come to an amicable solution regarding the division of their joint property at divorce, an application may be made to the Court seeking a directive regarding the termination of joint ownership, alternatively, to have a liquidator appointed to dispose of the property on the couple’s behalf and to distribute the proceeds acoordingly.

3. Marriages out of community of property (with the accrual system)

As mentioned above, this marital regime was brought into effect by the Matrimonial Property Act, on 1 November 1984. Accordingly, all marriages concluded out of community of property, after 1 November 1984, are automatically subject to the accrual system. The basic principles of a marriage out of community of property still apply in this instance. The ANC must still be executed by the spouses, attested by a Notary Public and registered at the Deeds Office. Each spouse retains a separate estate and may manage their estate at will and further that a spouse’s creditors cannot attach the other spouse’s assets, in the instance of insolvency.

This marital property regime is, arguably, the most equitable system for parties entering into a marriage, as it allows for the financially weaker spouse to share in the growth of the two estates at dissolution. In other words, the parties share in the growth of their estates. This is what differentiates an ANC with accrual from the cold exclusion principle described above. All assets owned by either party, prior to the conclusion of their marriage, can be included or excluded from the accrual in the ANC. However, if no assets are expressly included in the commencement values for each spouse, then their commencement values are recorded as NIL in the ANC. If no assets are expressly excluded from the accrual other than those legislated, all assets attained by each spouse during the marriage form part of the accrual.

The accrual system includes a calculation which is applied upon dissolution of the marriage.The purpose of this system is to place the spouses on an equal footing at the dissolution of the marriage and allows them to share in the assets acquired during the existence of their marriage. It is crucial to note that the right to share in accrual is only exercisable upon the dissolution of the marriage. This means that such right is not transferable and cannot be attached by either spouse’s creditors during the existence of the marriage.

When applying the accrual system, it is important for both parties to ensure that the commencement values of their respective estates has been verified and accepted by their partner prior to execution of the ANC so as to avoid any dispute pertaining to the value of the spouses estate upon dissolution of the marriage.

The accrual calculation:

1. The net estate value of each spouse must be calculated. This is achieved by establishing the difference between the commencement value of the estate versus its value, at the dissolution of the marriage. In this regard, the commencement value must be adjusted with the consumer price index (CPI) to make provision for any change in the value of money from the commencement date to the date of dissolution;
2. The difference in accruals between the two estates must be calculated thereafter;
3. The spouse with the smaller estate is entitled to half of the difference of the accrual between the two estates.

Herewith a practical example of the above (Assuming that the parties enter the marriage with a commencement value of NIL):

If Party A has a net estate value of R2 000 000.00 and Party B has a net estate value of R1 000 000.00 at the dissolution of the marriage, this means that the difference between the two accruals is R1 000 000.00. Accordingly, Party B is entitled to half of the difference between the two accruals (R1 000 000.00 ÷ 2 = R500 000.00). This means that Party A will have to pay R500 000.00 to Party B, thus leaving each party with an estate value of R1 500 000.00.

The following assets are excluded from the accrual calculation:

1. Inheriteances, legacies or gifts received by either spouse during the marriage, unless the parties agree to include these assets in their ANC or if the donor stipulates that the other spouse should be included as a beneficiary of such;
2. Any damages that are awarded to either spouse as a result of defation or for pain and suffering;
3. Any compensation received during the marriage as a result of injury; and
4. Donations made by one spouse to the other.

It is possible for a forfeiture of patrimonial benefits to be applied to a marriage out of community of property which applies the accrual system. In this instance, the test is to determine whether one of the spouses will unduly benefit if they share in the accrual.

Conclusion

In conclusion, as much as we all dream on having a picture perfect wedding day, perhaps it is more important to sit with your partner to discuss your desired matrimonial property regime. A concept which has more far reaching consequences than your decision to dress your bridesmaids in teal. We, at Tim du Toit & Co Incorporated, are equipped and available to assist in setting up and registering your ANC. Alternatively, if you find yourself at the opposing end of the spectrum and possibly considering a divorce, our team is also available to assist in this regard.

Sources referred to:
1. JA Robinson, et al – Introduction to South African Family Law (2009) Fourth Edition; 2. Deeds Registries Act, no. 47 of 1937; 3. Matrimonial Property Act, no. 88 of 1984; 4. Divorce Act, no. 70 of 1979;

This article is provided for information purposes only and not for the purpose of providing legal advice. Tim du Toit & Co Inc does not accept responsibility for any loss or damages suffered due to reliance on the contents hereof.