By Anna Rich
When you legally formalise your relationship with your partner, whether as a civil union or as a civil or customary marriage, the financial considerations are often focused on the few hours of celebration that day.
However, the legal contract that dictates the financial terms of the marriage has far-reaching consequences, which could affect you and your spouse’s financial wellbeing for all the days of your lives, even if you divorce.
If you do not make an active decision to marry out of community of property, you will automatically be married in community of property under South African law.
For some couples, marriage in community of property is a conscious choice. “I have met people who simply state ‘We have no intention of divorcing,’” says Ann-Suhet Kamffer, an attorney at Van Deventer and Van Deventer Incorporated. “This is their reason for not entering into an antenuptial contract.”
But Kamffer says the financial implications extend beyond whether or not the marriage ends in divorce. “Being married in community of property not only plays a massive role in divorce, but also in sequestration.” This is if you declare bankruptcy, either voluntarily or forced to by your creditors, which may result in the division of your assets among your creditors.
“Marriage in community of property entails that you are liable, in full, for all debts and liabilities incurred by your spouse before and during the marriage.”
There may be a benefit to marrying in community of property if one partner attends to the household or provides care for children, rather than pursuing paid work, says Kamffer. “While you are ‘in charge’ of the household, you cannot build your estate. If you divorce, you will be entitled to half the joint estate (all your shared assets less all your shared liabilities).”
Disadvantages
On the other hand, there is a catalogue of disadvantages to marrying in community of property, besides being liable for your spouse’s debts. Kamffer says: “Without your spouse’s written consent, you cannot enter into any agreement related to the sale of land or property, or any credit or loan agreement, or sue or defend a legal action.”
Although you are entitled to manage a business or act as a director or a managing director of a company without spousal consent, or to act as a trustee of a trust, the limitations listed above apply to your business too. ”If you want to sell any land, building or property, you need your spouse’s consent, as marriage in community of property automatically makes your spouse the co-owner, even if his/her name does not appear on the title deed,” says Kamffer.
Even if you or your spouse registers a business as a private company (proprietary limited), creditors can claim the company’s debts and liabilities from the spouse who is not involved in the company, she cautions. And this works both ways: if you own a business, and your spouse has run up debts, it is possible for creditors to claim from the business you own to settle your spouse’s outstanding debts.
If a marriage in community of property ends in divorce, the equal division of assets (and liabilities) of the joint estate includes any business assets – unless the other spouse is ordered to forfeit his or her claim on the business or any other assets. An order for forfeiture is unusual.
Solution for entrepreneurs
Even in an apparently sound marriage in community of property, if one of the spouses starts a business, it might be mutually beneficial for that business and for the marital property outside the business to be protected, given the high failure rates of entrepreneurs. And there is a possible solution.
“If both parties agree, they can apply to the High Court to change the status of their marital regime, in terms of Section 21 of the Matrimonial Property Act,” says Kamffer. “However, you cannot change your marital regime just because ‘you feel like it’,” she notes. “A change in marital regime involves other persons besides the two spouses. The court must be satisfied that no one else – including creditors – is prejudiced by the amendment of the marital regime.”
If, however, with a view to a divorce, you tried to change your marital regime to prevent your spouse from laying claim to half the business assets on divorce, you could see your attempt thwarted. Kamffer says: “If one party is able to prove, on a balance of probabilities, that the purpose of the change of marital regime was to deprive the other spouse out of his or her assets, the party can approach the High Court to overturn the amendment and declare the change in regime invalid.”
Costs
Changing your marital regime comes at a cost. “There are numerous disbursements that need to be settled, such as Sheriff’s fees, and the cost of placing advertisements and obtaining reports from the Master’s office,” says Kamffer. “The costs amount to at least R30 000.”
If you’re getting married, there is no legal cost to marrying in community of property. Drawing up an antenuptial contract, on the other hand, involves a fee. “The fee (of around R3 000) for drafting and registering an antenuptial contract is definitely worthwhile when you compare it to the amount of money you will spend in disputes over assets in a divorce or the financial risk if you or your spouse is declared insolvent,” Kamffer says.
Beverley Clark, a family lawyer at Clarks Attorneys, cautions about skimping when drawing up an antenuptial contract. “One of the biggest problems we face in South Africa is that people do antenuptial contracts ’on the cheap’ and the attorney does not properly explain what it is all about and what its ramifications are. People only understand their contracts when they consult their divorce lawyers!” she says.
PERSONAL FINANCE