Personal-Finance

Before the wedding, choose which contract suits you

2019-05-03 12:09

Last week, I did a radio interview on how to deal with financially abusive relationships, and I realised that the majority of people in relationships hardly ever talk about how they will manage their finances as a unit.

From the time you say ‘Yes’, the next question should be what marriage contract will you enter into. Unfortunately, many couples don’t discuss all the options available to them.

I think it’s difficult to have this type of conversation because, essentially, it means you need to talk about money and the dissolution of marriage, and no one wants to talk about the possibility of a marriage ending even before it starts.

I remember going for premarital counselling at our church and my priest telling us that we ought to get married in community of property. To speed up the process, we lied and said we would be getting married in community of property!

Bless his soul, but my husband and I had talked through all the options and the best one for us was out of community of property. Priests are not financial experts so rather get good advice about the most important contract you will ever sign.

Before you walk down the aisle, you have to discuss which option suits both of you best. Here are the types of contracts you can choose from:

TYPES OF MATRIMONIAL PROPERTY SYSTEMS

In community of property: This is a default matrimonial property system in South Africa, which applies when a couple getting married does not choose to conclude an antenuptial contract. In this system, all assets and liabilities of either spouse, acquired before and after the marriage, fall completely in the joint estate and the spouses own assets in equal undivided shares and are equally liable for all their debts and liabilities.

Therefore, each spouse has equal management of the joint estate, although consent might be needed by a spouse to enter into certain transactions.

Out of community of property: Firstly, to be married in terms of this system one needs to conclude an antenuptial contract (known as an ANC) in the presence of a notary public prior to entering into the marriage.

The ANC will then have to be registered in the office of the registrar of deeds within three months of conclusion thereof. This system offers two options, namely, with or without the accrual system.

Note that if you do not conclude an ANC, bringing it up on the day when you sign with home affairs is too late.

Out of community of property without the accrual system: In terms of this system, the spouses retain all their assets and liabilities acquired before the marriage and will also remain the sole owners of any assets acquired after the conclusion of the marriage and remain liable for all debts acquired after the conclusion of the marriage.

Out of community of property with accrual system: This system is essentially similar to a marriage in community of property without the accrual system. The difference becomes noticeable only on death or divorce.

In this system the parties must elect an initial value of their assets at commencement of their marriage, which value will be recorded in the ANC as such.

The value can be the actual value of assets/estimated or the spouses can elect to commence with a nil balance of their assets. On the dissolution of the marriage a new calculation of the value of the assets will be made and the commencement value will then be subtracted from this value. The estate with the higher accrual must then pay over half the difference of the net accrual of each estate to the estate with the lesser accrual, unless otherwise provided for in the ANC.

EXAMPLE:

Mpho’s estate has a commencement value of R200 000 and Jabu’s estate has a commencement value of R100 000. At the dissolution of the marriage, Mpho’s estate has increased in value to R300 000 and Jabu’s estate is R400 000.

Mpho’s estate has accrued by R100 000 and Jabu’s estate by R300 000. The difference between the two accruals is R200 000. The estate with the higher accrual, Jabu’s, must then pay half the difference, R100 000, to the estate with the lesser accrual, Mpho’s. The net effect will then be that both Mpho and Jabu’s estates will have increased by R200 000.

The options are available; look at both the advantages and disadvantages of each, and choose what works for you.

Makhu is a personal finance coach

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June 16 2019