Antenuptial Contracts: What does it all mean?
Entering into a marriage or civil partnership is one of the most exciting and stressful milestones in life. There are so many fun decisions to make about venues, décor and cakes, that the tough decisions sometimes tend to be pushed to the side. Other than the daunting task of planning the seating chart, you also need to seriously consider whether you are going to enter into an antenuptial contract and if so which one and what will be excluded?
We’ve set out the options below in basic terms to help you start discussing which option is best for you, but it is important to remember that you are your partner are unique and it is always best to discuss your choice with an expert.
IN COMMUNITY OF PROPERTY
In South Africa the standard form of marriage is in community of property. This means that two estates are joined and each spouse owns an undivided half share of the joint estate.
Each spouse has the right to deal with the assets of the joint estate, however, spouses will need to obtain consent from each other for certain transactions. You individual power is limited when marrying in community of contract.
Creditors may seize the entire estate to satisfy debts of either spouse which means that on insolvency the entire estate may be lost.
Upon termination of the marriage, assets which are not always capable of division have to be divided between the spouses or sold. Marriage in community of property is not ideal for individuals who intend to partake in business ventures in light of the financial risk involved and we recommend that all clients seriously consider the advantages of having an antenuptial contract in place rather than being married in community of property.
If you do not enter into an antenuptial contract before you get married, you will automatically be married in community of property. It is very expensive and complicated to change your status to out of community of property after you are married, however, we can assist with this application should it be required.
OUT OF COMMUNTIY OF PROPERTY
This is the form of marriage where, by means of an antenuptial contract, community of property and profit and loss are excluded.
The contract is signed before a Notary Public and registered in the Deeds Office. The antenuptial contract provides that in respect of property and contracts, there is no change in the legal status of the spouses. Each has his/her own estate and neither party is liable for the debts of the other.
The parties are entitled to incorporate any conditions in the antenuptial contract provided that such conditions are legal and morally correct.
There are two types of antenuptial contracts. One which specifically excludes the accrual system and one in which the accrual system is applicable. The exclusion of the accrual system has the legal effect that both spouses lead completely separate financial lives and that neither party has a claim against the other on termination of the marriage.
When the accrual system is applicable each spouse still retains financial and legal independence and equality. However when the marriage is terminated, either by death or divorce, the accruals of each separate estate (excluding inheritance and donations received during the subsistence of the marriage and any other accruals specifically excluded by the parties) are divided equally or in agreed proportions. The ‘accrual’ is the amount by which the person’s estate has grown.
At the commencement of the marriage the parties declare the value of their separate estates and this value will increase according to the consumer price index to determine the present day ‘start’ value.
Upon termination of the marriage (by death or divorce) the value of the two estates are compared. The smaller value is then deducted from the larger value and the balance is divided between the parties in equal shares or as agreed in the antenuptial contract. The accrual system, if used, may apply specifically to certain assets or it may exclude certain assets. There are some types of assets which are automatically excluded from the accrual calculation by law.
Here is a basic example of how the accrual is calculated:
Spouse A’s estate is valued at R500,000.00 at the time of entering into the antenuptial contract.
Spouse B has no relevant assets and has chosen to incorporate a nil starting value in the contract.
The antenuptial contract has no special exclusions and allows for a 50/50 split between the spouses on termination.
Upon termination of the marriage it is calculated that Spouse A’s estate is valued at R5million and Spouse B’s estate is valued at R3million.
Spouse A’s starting value must be deducted from his present day value. Using CPI, it is calculated that Spouse A’s starting value is R1million in present day terms so his estate value is R4million for purposes of the accrual calculation.
This means that Spouse A’s accrual is R4million and Spouse B’s accrual is R3million. The difference between the two estates is R1million and Spouse B will have a claim against Spouse A for R500,000.00 (50% of the difference).
At Pagdens we are aware that the terminology in marriage contracts can be very confusing and although deciding which contract is best for you and your spouse is a very personal decision, it is important to understand the legal consequences of the options before deciding which is best for you.
Contact us to answer any questions relating to antenuptial contracts or their legal consequences. Our 3 qualified and experienced Notaries are available to discuss your unique situation so that you can make the best decision for your future.
This article is for general information should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact an attorney for specific and detailed advice. Errors and omissions excepted (E&OE)