Contract law, financial planning and talks about money: where romance goes to die. Nevertheless when getting ready to tie the knot it is important to drop the rose-tinted spectacles (briefly) and, together with your future spouse, decide which legally recognized marriage arrangement is the best fit for your future.
From a South African government point of view there are only 3 types of marital property regimes recognized in South Africa. While appearing complicated the differences all come down to the rights and responsibilities of each partner with regards to any current and future assets and liabilities. Let’s start with the default position: marriage in community of property.
Marriage in Community of Property
“Darling, what’s mine is yours and what’s yours is mine!”
Without the existence of a binding registered legal agreement (called an Ante Nuptial Contract) between the two parties, the default status of a marriage will be a marriage in Community of Property (COP). Therefore civil unions and customary marriages (as one might find in religious or tribal communities) are all considered to be COP without the existence of an Ante Nuptial Contract.
And in the case of home loan applications people married outside of South Africa will, without evidence of an acceptable Ante Nuptial Contract, be considered by the banks to be married in COP even if the default marriage type is different in the country where the marriage is registered.
Community of Property means that the assets and liabilities each partner brings into the marriage are pooled (for better or worse!). And so, each partner is responsible and has rights over a 50-50 split of this pool. This means that if your partner is heavily indebted you will share that burden and if they are wealthy you will share in that wealth.
While probably the most in line with the romantic spirit of why people get married (sharing a life etc.) this marriage contract can have implications for the future of both the couple and the individuals involved in it. These implications can run from the mundane and annoying to the truly devastating. Let’s start with the mundane and annoying and work our way up, shall we?
If you are married in COP your partner will have to be party to nearly every agreement which gives you access to credit or that allows you to acquire an asset. This includes things like bank accounts all the way up to home loan applications and home ownership. As such your partner will need to provide the same documents you do and sign the same forms. This might double the work that goes into an application.
A way around this would be the drawing up of a legal document called a Power of Attorney (POA). This can take the form of General POA which gives the person named far reaching rights over most aspects of life, or a Limited POA which gives signing power over a limited set of transactions (or even a single transaction). However this kind of document involves a great deal of trust and can lead to abuse, particularly as marriages head toward divorce.
Depending on the creditworthiness or wealth of your partner it can also jeopardize or improve the chances of the success of your application or purchase. It also means that if a partner were to suffer a significant financial loss, like failing to repay a loan or a business deal going bad, the other partner would share in this burden even if they were not truly involved in the transaction and creditors would be able to make claims against “their” estate.
Finally, in the event of a divorce each partner will have a claim over 50% of the assets in the pool. This can turn what is already probably quite a nasty situation even worse as partners lay claim to property that the other partner feels is actually solely their own. Often assets, like homes, must be sold in order to equally divide the value of the property. This liquidation of assets, often against the backdrop of deadlines imposed by divorce decrees or during inopportune economic climates, can negatively impact the sales price and return on investment.
Community of Property and buying a house (and applying for a loan)
- You cannot buy a home without your spouse’s involvement/permission
Without that Power of Attorney your spouse will need to sign all the papers you do. This includes the Offer to Purchase. There is no way to secretly purchase a home while in Community of Property as the attorney transferring the property into your name will search your background, determine that you are married and request your marriage certificate before completing the transfer.
If you attempt to purchase a property without your partner’s consent it can delay the sale and transfer or cause the deal to collapse entirely. This can open you up to law suits on the part of the estate agent and seller.
- When applying for a home loan your spouse must also be involved.
Even with a Power of Attorney allowing you to sign for the Offer to Purchase your partner will need to be part of the home loan application process. They will need to supply documents and, critically, together you must both be eligible for a home loan. If your partner has a bad credit record your application is likely to be declined even if yours is perfect.
There is no way around this. As soon as the bank notes that you are married (and they will check) they will request a marriage certificate proving the marriage type.
Marriage out of Community of Property with accrual
“Darling, what’s mine is yours and what’s yours is mine…but only after you put a ring on it.”
“Accrual” basically means increase. Any increase (or decrease) to wealth during the marriage will be shared by the partners. This type of marriage contract appears to be very similar to the COP contract but there are two key differences:
1) the pooling takes into account ALL assets and liabilities and the net value accrued after the start of the marriage unless specifically mentioned in the ANC.
2) each person can manage their estate separately. An Ante Nuptial Contract (ANC) must be put in place before marriage which clearly states these terms and that the marriage is not a COP agreement.
Additionally, at the point the contract is drawn up, both partners will declare their financial position as well as stipulate possessions that are not to be included in the agreement. This acts as a starting point for the calculations that come into play in the event of divorce.
This marriage agreement is far more efficient than the COP marriage in that partners can act independently of one another; the other partner does not necessarily have to be party to financial activities. It also offers security – if one partner runs into significant debt their creditors have no claim over their partner’s estate.
It is important to note that the ANC with accrual also does not automatically entitle your partner to any inheritance you receive. Similarly, gifts you receive are exempt from claims in the event of divorce.
If an ANC with accrual marriage ends in divorce a calculation is made to determine how much wealth has been amassed by each individual since the start of the marriage. In the event that one partner has accrued more wealth, the other partner is entitled to half the difference. In this way both (ex-)partners share the wealth accrued during the marriage regardless of who accrued it. The same applies upon death of one of the spouses – the surviving spouse either receives something from, or must pay into, the estate of the deceased, depending upon who ended up with the most “profit”.
At the time of the divorce Mrs X is worth R500 000 and Mr X is worth R400 000 (after excluding their starting positions and assets specifically listed). The difference is R100 000 and Mr X is entitled, under the terms of the agreement, to R50 000 from Mrs X.
The ANC with accrual is particularly equitable in instances where a partner will be expected to or is forced to remain at home with the children instead of being economically active and amassing wealth. The other partner cannot simply leave the other person in poverty as they are both seen to have contributed to the marriage.
ANC with accrual and buying a house (and applying for a home loan)
- You do not have to include your partner in the purchase or the loan
If you have the cash or can qualify for the home loan on your own you can purchase the property without involving your partner at all.
- But remember they will still have a claim on the net value of the home.
While they have no say in the purchase or sale of the property, they are entitled to (likely a portion) of the value accrued in the event of divorce (and death). If you want to exclude the property you have purchased you and your partner must agree to this exclusion in writing and add it, via a notary, to your ANC.
- If you buy together you have a 50% share in the debt and value of the property no matter the difference in contribution to the acquisition of that property, unless you have an agreement that states otherwise.
If you sign together the bank will look at your combined incomes and credit-worthiness. This means you might be able to afford a bigger loan and receive a better interest rate. But the bank considers the debt, payments and ownership equally split between you and your spouse, regardless of who actually pays the home loan.
Marriage out of Community of Property without accrual
“Darling, I love you but don’t touch my stamp collection.”
In this this marriage form each estate remains completely independent. No partner has a claim on any of the other’s assets based only on the fact that the marriage exists, though they might have other legal claims (like having provided financial support allowing for the acquisition of an asset or paid for their partner to acquire an education etc).
This agreement will similarly require the drafting of an ANC that clearly states the nature of the marriage agreement. It will also clearly state the terms of the marriage and an agreement in the event of divorce.
The ANC without accrual, while maintaining the total independence of both partners’ estates can lead to drawn out legal battles between partners during the divorce process. While major assets (like property) will likely have clear documentation as to ownership many assets might be acquired and the evidence of who purchased them lost during the course of the marriage.
Consider this: You and your partner go to a flea market together one day and purchased a statue, perhaps as a joke or to memorialize your day together. You pay in cash and there is no receipt. Later your marriage falls apart. During the course of the marriage it turned out that the statue has a significant cash value. Who has claim over it? You might say that you do for purchasing it but what evidence exists for this purchase?
Any evidence of ownership that does exist (e.g. a name on a title deed or a vehicle registration) might also not reflect the contributions made by the partner to acquire or maintain that asset. If there is no evidence of this contribution it might prove difficult to receive compensation in the event of an acrimonious divorce.
In a way the ANC without accrual can require a certain degree of “planning for failure” whereby you and your partner keep records of purchases in the event of a divorce. Pragmatic? Maybe, but probably not practical and certainly not romantic.
ANC without accrual and buying a property (and applying for a home loan)
- No inclusion of your partner necessary
There is no legal requirement to include your partner but it might be necessary to actually make the purchase or successfully apply for the home loan amount you want.
- They have no claim on any property you acquire based on the fact that you are married
But, as mentioned before, they may have a claim based on any support or contributions they make that facilitate the acquisition of the property unless an agreement exists in which they give up any claims.
If you’ve heard the song “Gold Digger” or watched American TV shows like Suits you are familiar with the term “Pre-Nupt”. A Pre-Nuptial agreement is a synonym for Ante Nuptial Contracts.
The Ante Nuptial Contract is signed before the marriage takes place and must be notarized by a notary public and registered in the Deeds Office to be deemed valid. It is good advice to approach an attorney for assistance in drafting the agreement and even better for both partners to have attorneys advise them to ensure both their interests are both being protected by the contract.
To read more on Ante Nuptial Contracts click here.