ANCs protect your finances within marriage

Antenuptial contracts are not just for divorce

Are you considering marriage? If so, you may have been advised to think about an antenuptial contract (ANC). Historically, marriages in South Africa were entered into in community of property, meaning the marital estate was a jointly held collection of assets. As long as the couple remained married, this matrimonial property regime, as it is called, was of little significance. However, it became relevant on the dissolution of the marriage…on divorce. At that point, marriage in community of property meant that each spouse was entitled to an equal share of the joint estate. The other matrimonial regimes – out of community of property, with or without accrual – allow more agency over how assets are owned and distributed and require an antenuptial contract. ANCs are often seen as preparation for an eventual divorce and the very suggestion of drafting one before the wedding is construed as a sign of mistrust. For that reason, couples often skirt around the issue and may avoid drawing up an ANC when it would benefit them both.

In fact, the matrimonial property regime affects every aspect of married life. For example, if you are married in community of property, you will need your spouse’s signature before making certain transactions. If you have debts, they can be claimed from your spouse. An ANC allows you to opt out of this regime and choose an alternative arrangement that protects your financial interests.

Understanding antenuptial contracts

An antenuptial contract is a legally binding agreement entered into by spouses before marriage, lodged at the local Deeds Office, which allows them to determine the most suitable matrimonial property regime for them. Without an ANC, the marriage is automatically in community of property – the default regime in South Africa. An ANC allows the couple to choose marriage out of community of property either without accrual or with accrual.

• Out of community of property without accrual: each spouse retains their own property after marriage. No assets or liabilities are shared either before or during the marriage.
• Out of community of property with accrual: each spouse owns their own property but, upon death or divorce, any growth in asset value since marriage is shared equally between the spouses.

An ANC must be signed before a notary public and registered before the date of marriage to be valid and enforceable.

Why is an ANC a useful way of protecting joint finances, even in a long and successful marriage?

Protection against insolvency

Insolvency is the inability to pay debts, as a result of insufficient assets to cover liabilities. In a marriage in community of property, the joint estate is liable for the debts incurred by either spouse. Therefore, if one spouse becomes insolvent, creditors can claim recompense from both spouses and potentially force the sale of shared assets, which may include the family home. This leaves both spouses financially vulnerable as all their assets are at risk.

An ANC protects families by keeping the estates legally separate, even if finances are informally shared. If one spouse runs up a series of debts, creditors can only claim assets from the debtor, leaving their spouse’s assets untouched. This separation is particularly important for business owners or anyone who signs a suretyship agreement. This ensures that one spouse’s financial troubles do not affect the other.

Suretyship and guarantee risks

Suretyship is the guarantee of another’s debt. For example, university fees, a home loan or a business venture could be the subject of a guarantee. In a marriage in community of property,  suretyship binds the joint estate, allowing the creditor to claim the debt from the couple’s shared assets.

An ANC provides mitigation by confining any guarantees to the signatory spouse’s estate. Thereafter, if that spouse defaults, only their estate is at risk, protecting the other spouse’s assets (and potentially ensuring the marital home remains intact).

Financial benefits at divorce

Of course, the perception of the purpose of an ANC – designated distribution of assets on divorce – comes into effect in the event of relationship breakdown. The benefits of a separation of spousal estates include asset protection, debt isolation and protection of entrepreneurial undertakings. In more detail, asset protection means premarital assets or assets owned by one spouse, such as an inheritance or personal savings, are excluded from division in a divorce. Debt isolation ensures that debts incurred by one spouse, before or during the marriage, are not transferred to the other’s name. Entrepreneurs can safeguard their business by setting up a sole proprietorship without the risk of a bad investment ruining the family’s fortunes.

Unfortunately, insolvency and unpaid sureties are common. Over 2,000 individuals are sequestrated annually, according to Stats SA. The Small Enterprise Development Agency estimates that 70% of small businesses fail within the first seven years, heightening the risk of insolvency and debts for entrepreneurs (and their spouses if they are married in community of property).

In the current economic climate, banks and creditors often require sureties for loans and universities demand surety for fees. Without an ANC, the joint estate could be at risk of unpaid debts, if one spouse has, for example, provided a guarantee for a family member’s home loan or university tuition.

If you are thinking about an ANC

ANCs must comply with the Deeds Registries Act 47 of 1937 and be signed and registered at the Deeds Office before the conclusion of the marriage. Any errors in drafting or registration can result in an invalid contract, rendering the marriage in community of property by default. A good family lawyer can customise the ANC to address specific demands and circumstances, such as the exclusion of specific assets from accrual. An attorney will also avoid any ambiguous clauses which can result in major disputes down the line. They will ensure the ANC is clear and legally enforceable. Drafting and registering an ANC typically takes under two hours.

Cape Town family lawyer can help

An ANC will protect your finances during your marriage, as well as after, should your marriage end. This peace of mind not only helps couples build a financially secure future together, it can even help couples stay together, by removing a source of friction that can lead to relationship breakdown.

SD Law is a firm of attorneys based in Cape Town, with offices in Johannesburg and Durban, who are experienced in family law. If you are planning a wedding and considering an ANC, or just want to discuss your options, call family lawyer Simon Dippenaar on 086 0995146 or email sdippenaar@sdlaw.co.za for a confidential discussion.

Further reading:

• Benefits of antenuptial contracts
• The importance of an antenuptial contract
• Antenuptial contracts – the accrual system
• The financial consequences of your marriage contract

Divorce Attorney Cape Town

http://divorceattorneycapetown.co.za/

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