The effect of marriage on your estate

The legal consequences of marriage extend farther than a simple study of the matrimonial property regime applicable in South Africa. It is just as important to take the legal consequences of the matrimonial law applicable in your domicile country into account.

This article takes a look at the basics of what law is applicable to your estate on marriage, as well as the different consequences of each matrimonial property regime on your estate, considering either creditors’ claims or death of a spouse.

Appliable Law?

South African law follows the domicile of the husband. Therefore, if you are a South African woman and married in South Africa to a US domiciled man, the law governing the marriage will be that of the US.

On the other hand, if South African citizens decide to get married abroad, South African Law will apply. In South Africa, the parties are required to enter into an ante-nuptial contract prior to the marriage. This contract is registered at the Deeds office to ensure that the marriage is registered as out of community of property (failing which the marriage is automatically in community of property). Another option in South Africa is to register the ante-nuptial contract with the inclusion of the accrual system.

Effect of community of property

If you are married in community of property, your estate is essentially split 50/50 with your spouse and all assets are owned equally. This also means any debt is shared jointly between spouses and creditors’ claims can be effected jointly against their estate. Furthermore, all assets are considered to be owned jointly by spouses, whether they were acquired before or after marriage. Spouses are also required to deal with all assets with the express consent of the other spouse.

Effect of marriage out of community of property and consequences of inclusion of accrual

On the contrary, marriage out of community of property explicitly determines that the property regimes of the spouses are separate. This is done by means of an ante-nuptial contract, a written agreement between the parties confirming that it is their intention for their respective estates to be separated.

The accrual system is automatically incorporated into marriages out of community of property, unless specifically excluded in the ante-nuptial contract. Under the accrual system each spouse is entitled to share in the growth of other spouse’s estate, at the time of death or divorce. Either party, however, is entitled to exclude certain assets in an ante-nuptial contract which includes accrual. These assets are usually assets acquired prior to marriage or bequeathed to a spouse by a family member prior to marriage.

The accrual calculation is specific and essentially allows the spouse with lower accrual to claim against the estate of the spouse with higher accrual in an amount equal to half the difference of the accrual between the two estates.

Why this is important for estate planning

Each matrimonial property regime will have an effect on your estate.

Marriage in community of property gives free reign to creditors across two estates. It provides no security and creates a more challenging situation regarding the management of assets in a divorce, and additionally joins assets in a deceased estate on death.

Marriage out of community of property excludes any growth which could potentially be attributed to spouses jointly, when considering their support and sacrifices made by spouses when building their respective estates. It does, however, provide the benefit that assets in the estate are separated and creditors cannot lay claim to an innocent spouse’s assets. The estates can also be wound up independently and without interference in the surviving spouse’s estate.

Marriage out of community of property with accrual essentially combines the best aspects of marriage in community of property and marriage out of community of property. It provides the benefit of a separation of estates for purposes of creditors and estate planning, with the mechanism that a spouse is still able to benefit in the growth of a spouse’s estate with higher accrual.

Problems with accrual and estate planning

A problem arises in an estate where a spouse with a smaller accrual predeceases a spouse with a higher accrual. In this instance the predeceased spouse’s estate has a liquidity risk and their intentions may not be properly carried out should this issue not be planned for in advance.

The main consequence of the above, is that beneficiaries do not receive their bequests in a will as intended, as the accrual claim must be settled prior to benefits being distributed.

While an accrual can be abandoned, careful consideration should be paid to estates where the accrual system is applicable as this act gives rise to donations tax.

Special consideration to your estate should always be applied when considering your matrimonial property regime. These issues can affect accessibility to finances, as well as liquidity in your estate and cause unforeseen consequences.

While the above are serious issues which should be planned for in advance, this should not undermine the value of the accrual system as a mechanism in estate planning in marriage. It is simply important to understand the consequences and to consult a professional to assist you in planning ahead when dealing with your estate.