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Contracts


Marriage Contracts


 

There are three types of matrimonial contracts in South Africa from which you can choose:

  • Marriages in community of property
  • Marriages out of community of property, which are subject to the accrual system (ante nuptial)
  • Marriages out of community of property, which are not subject to the accrual system (ante nuptial)

 

This is a choice that should not be made lightly as each of these have different financial implications for a couple’s estate.

If you wish to change the type of matrimonial contracts after marriage you and your spouse may jointly apply to a court for leave to do this. However this can only be done if there are sound reasons for the proposed change, if sufficient notice has been given to all the creditors of the spouses and if no other person will be prejudiced by the proposed change.

This process can be costly and time consuming, so we advise that you carefully consider all the options before choosing the system which will best suit both of your future needs.

 

In Community of Property

The first important thing to keep in mind here is that in South Africa you are automatically married in community of property unless otherwise stated in an anti nuptial contract.

In terms of this marriage contract all assets and liabilities are incorporated in a single, joint estate and both parties are the owners of this joint estate. This includes all assets accumulated by one or both parties prior to the marriage as well as any accumulated after marriage. Consequently all property in the joint estate will belong to both spouses as an equal, indivisible portion – and both of them will share in the profits or losses of the joint estate.

The implications of being married in community of property should be considered carefully as it extends to the point where should a spouse wishes to exercise certain juristic acts or to commence certain legal proceedings against a third party, he or she has to obtain the written consent of the other spouse and if any legal proceedings should be taken against a spouse the creditors can seize all the assets of either spouse, as it is a joint estate.

With divorce the estate is divided equally which will be more beneficial to the ‘less-successful’ spouse - for example if the wife is a stay at home mom.

In this case, assets that can be excluded are those inherited by one of the parties on the distinct understanding that they will not form part of the joint estate.


Out of community of property

This is also known as an anti-nuptial contract (ANC) or a pre-nuptial agreement (pre-nup). It is a contract entered into by both parties that sets out the rules and conditions in respect of the division of assets should the marriage come to an end due to death or divorce.

You should see an ANC as a type of insurance for your assets, similar to taking out life or car insurance - you won’t necessarily need it but it will come in handy when you do.

What the anti-nuptial entails is that each spouse keeps his or her own estate; the powers and rights they had with regard to their estate before marriage, remains the same during and after marriage. During the marriage each spouse can build up his or her own estate and each is responsible for his or her own debts.

However, the Property Act of 1984 provides two options for your Ante Nuptial Contract:

  • With application of the accrual system
  • Without application of the accrual system

 

The accrual system only comes into play at the dissolution of the marriage by death or divorce and unless clearly excluded in an anti-nuptial contract the accrual system automatically applies to all marriages in South Africa.

 

       1. Out of community of property with the accrual system

A marriage governed by the accrual system states that when it is ended, the value of the assets obtained during the marriage will be shared equally. This is done by calculating the difference in the net starting value and the net final value of the estate of each spouse and the value of this difference, taking inflation into account, is then divided equally.

To summarise, you need to determine the value of the estate at the time of the marriage and then again at the dissolution of the marriage - this must be done for both spouses.

For example:

  • Spouse 1: Estate value at start of marriage is 1 mil and at dissolution 1.5 mil which is a growth (accrual) of R 500 000
  • Spouse 2: Estate value at start of marriage is 1 mil and at dissolution 1.3 mil which is a growth (accrual) of R 300 000

 

The difference in accrual between the estates of the two parties is therefore R200 000 (R500 000 less R300 000).


This difference will then be divided equally where the spouse whose estate accrued by the smaller amount will have a claim against the other spouse’s estate for half of the difference of R 100 000.

So the division will fork as follow:

  • Spouse 1 will get R 500 000 less R100 000 = R400 000
  • Spouse 2 will get R 300.000 plus R100 000 = R400 000

 

This type of agreement is ideal for spouses whose estates are more or less the same size before marriage and it is estimated that one of the spouse’s estates will grow and the other spouse’s estate will remain roughly the same during the marriage.

Advantages:

  • You both share in the wealth accumulated during marriage
  • If each of you owned property before the marriage, it remains in your respective names
  • You each conduct your own independent financial affairs.
  • If one of you goes into debt, it cannot be claimed from the estate of the other
  • The anti-nuptial contract can be tailored to suit your needs
  • It protects the partner who remains at home to care for the family

 

The disadvantage, however, in the case of one spouse being a stay-at-home care giver is that the spouses do not share in each other’s credit worthiness; this can have the result that the spouse can end up having a bad credit record. Yes this spouse will benefit from his/her share of the wealth accumulated during marriage but it is not ideal should he/she need to apply for credit to try and get on his/her feet after the fact.

You can also exclude certain assets like inheritances, legacies or donations - as well as any assets explicitly excluded in terms of the conditions of the contract - from the accrual in terms of the Matrimonial Property Act. These assets will not be taken into account when the growth of the estates is determined.

 

       2. Out of community of property without the accrual system

As mentioned earlier if you want to exclude the accrual system you have to specify it in the Anti-nuptial Contract.

In laymen terms excluding the accrual system means what is yours, stays yours - before, during and after marriage. The property owned by a person prior to the marriage, as well as all property accumulated during the marriage, belongs only to that person. This also applies to their liabilities which remain their own respective responsibility - thus the debts of each party remains their own and their responsibility to pay.

Should one of the parties wish to get a divorce, then neither spouse would be entitled to make a claim on any of the assets belonging to the other and no profits or losses will be shared from either party. Furthermore, the court is not entitled to make adjustments to this to create equality and fairness. In the case of either spouse dying, the estates of each respective spouse are then normally dealt with through a will.

This is a good option for spouses with large estates and /or where it is estimated that both of the spouses’ estates will experience growth during the marriage or stay more or less the same.

Advantages:

  • If one of the parties becomes insolvent, creditors may not attach the assets of the other
  • Both parties are still legally obliged to offer financial support to one another, should one of them be unable to support himself/herself.
  • Full contractual freedom.

 

The disadvantage is that in the case of death or divorce, each spouse is only entitled to those assets accrued in their own name. So should one spouse choose to stay at home to raise the children, that spouse would not be entitled to the assets accumulated by the other spouse - along with this he/she will most likely not have a very good credit record which can leave him/her in serious financial difficulty.