Divorce and debt

2011-03-12 08:16

I recently met a self-made woman who told me that she was married in community of property because she wanted to share her wealth with her husband.

Signing an antenuptial contract felt selfish, she said, as that made her question her commitment to the marriage.

When you get married, the last thing you want to be thinking about is divorce, even if the figures are stacked against you (about half of South African marriages end in divorce). Divorce, however, is not the only reason you need to review your marriage contract – consider debt as well.

Depending on the type of marriage contract you enter into, you may be liable for your spouse’s debt, and that is simply not good financial planning. Even if your spouse died, the creditors would be able to claim your savings to settle the debts of your partner.

In community of property (COP)

If you’re married in community of property, this means that you and your spouse have a joint estate. Everything you have is owned by both of you, equally. The same holds true if you divorce – you share the assets.

This is the default contract under South African law because it was seen to protect women who stayed at home to raise children – she had equal claim to the family’s finances. However, as many women (and men) have discovered, you also share all liabilities, like debt.

Judy von Klemperer of Shepstone & Wylie Attorneys says marriage in community of property also limits your legal rights, as you cannot enter into certain forms of contract (including the purchase of a property) unless you have the consent of your spouse.

According to Angelique Visser, head of products at FNB Trust Services and a member of the Fiduciary Institute of South Africa, the pitfalls of this regime are:
» If one spouse passes away, the bank accounts of the deceased and the surviving spouse will be “frozen” as all the assets will be dealt with by the executor;

» All claims on the estate have to be settled before the surviving spouse can expect to be awarded any assets; and
» Your spouse can bequeath their half-share of the family estate to a third party, and if you don’t get along with that third party (perhaps a child from a previous marriage, for example), there could be endless complications.

The positive side is that as a partner, you know you are entitled to half of the family estate.

Out of COP

You need to enter into this contract before the marriage takes place. When are you married out of community of property? It means your estates are not considered jointly. They are separate according to the law. This is commonly known as an ANC (It has nothing to do with the political party. It simply stands for antenuptial contract.)

Visser says the advantages are:
» One spouse doesn’t need the consent of the other when entering into contracts;

» If your spouse dies, the executor of the estate will deal only with the estate of the deceased, not a joint estate;

» The remaining spouse’s bank accounts won’t be frozen upon the death of his or her partner;

» Costs will be levied only on the estate of the deceased, not on the joint estate; and

» You are not responsible for each other’s debt.

The downside of this particular regime is that if one spouse has earned a lower income or taken time off work to raise a family, they may not be entitled to any of the spouse’s assets in the case of a divorce.

Out of COP with accrual

If you don’t specifically exclude the accrual system in your ANC, this will automatically apply to your marriage. Accrual means “increase”, so anything you both gain during the marriage will constitute an “accrual”.

If you divorce, you are each entitled to an equal share of what you have amassed together during the course of the marriage.

However, whatever assets you had prior to the marriage remain separate.

You are also not responsible for each other’s debts.

Visser says a result of this regime is that both spouses accumulate assets to the same value during the marriage as the spouse with a low value estate will have a claim against the estate of the spouse with the larger estate. In the event of death, the executor deals only with the estate of the deceased, and costs are only levied on the deceased’s assets.

This marriage contract tends to be the fairest as it protects a stay-at-home parent financially while protecting both spouses from each other’s debt.

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