This marriage regime may be a good fit for couples getting remarried later in life.
In an out of community of property marriage, there is no joining of the spouses’ estates into one joint estate, meaning that each spouse retains full control and contractual capacity of their estate which includes all assets and liabilities acquired both before and during the marriage. All out of community marriages involve the signing of an antenuptial contract which sets out the financial consequences of the marriage, and couples are free to tailor-make their contracts as they see fit. In order to be married out of community without the accrual system, a couple must expressly exclude the accrual in the ANC. But what does this mean, and what are the implications of excluding the accrual from your marriage contract?
If you’re married out of community excluding the accrual after November 1 1984, you and your spouse are essentially married according to a ‘what’s mine is mine and what’s yours is yours’ agreement. You and your spouse will retain your own assets and liabilities and, if and when the marriage is dissolved, each of you will keep your own estate plus all growth that accrued in your estate during the marriage. From a financial perspective, joint financial planning for a couple married under this marital regime can be somewhat complicated especially when it comes to joint goal setting.
When it comes to owning fixed property, such as the family home, it is often advisable for a couple to register joint ownership over the property to ensure that one spouse is not prejudiced financially at a later stage if the marriage is dissolved. For instance, if a husband and wife purchase a family home but register it only in the name of the husband, the property will be deemed to belong to the husband in the event of a divorce, even if the wife contributed in some way or form towards the property. If the couple gets divorced, the wife may find herself without a home to live in and may find it difficult to prove the financial contribution she made towards the house. Before purchasing a property, give careful thought as to whose name it is registered in and what the implications are for each of you should the marriage come to an end.
Further, this type of marital regime can be particularly prejudicial towards a spouse who chooses to stay at home to raise children. Even though a stay-at-home mother contributed to the running of the household and thus enabled her husband to pursue his career and create his wealth, upon dissolution through a divorce, the courts will not consider a re-distribution of assets.
Remember, those out of community marriages that pre-date November 1, 1984, still have the option to bring an application to the high court for a re-distribution of assets in terms of the Divorce Act where it finds that one spouse is financially prejudiced. However, no such remedy is available to those married after this date and the courts will not adjust a division of assets based on what is perceived to be ‘fair and equitable’. From a financial planning perspective, it is therefore important for a would-be stay-at-home parent to consider the longer-term financial implications of doing so.
Retirement planning for those married out of community excluding the accrual is of the utmost importance, bearing in mind that a spouse who is not a member of a pension fund will have no claim against their spouse’s pension interest in the event of divorce. It is therefore advisable for each spouse to contribute to their own retirement fund and to ensure that they are in a financial position to retire on their own. This can be particularly challenging for a stay-at-home spouse who has no source of income, or for a working spouse who earns significantly less than their partner.
Planning household expenditure can be somewhat difficult to navigate especially where a couple has disparate earnings. While splitting costs 50/50 may appear equitable, it leaves the lower-earning spouse with less disposable income with which to build wealth over time, while significantly benefiting the wealth creation opportunities of the higher-earning spouse. Who pays for what and how expenses should be split is something that couples should discuss and agree upon before getting married as this can cause major tensions later on.
A significant advantage of this marital regime is that each spouse is protected from the other spouse’s creditors. This means that any debt that a spouse incurs either before or during the subsistence of the marriage remains their full responsibility. If they are declared insolvent, their creditors cannot touch the assets belonging to their spouse. Further, each spouse keeps their own credit record, and the poor credit record of one spouse cannot negatively impact on the other. When it comes to loans made between spouses, it is advisable to keep written records of these loans. If one spouse fails to repay a loan, the other spouse can institute a claim against the other for repayment of the loan.
Although freedom of testation is a founding principle of our law of succession, being married out of community of property does not relieve a spouse of their duty of support. This means that where a person chooses not to make provision for their spouse in terms of their will, the surviving spouse may bring a claim against the deceased estate in terms of the Maintenance of Surviving Spouses Act.
Similarly, if minor children are left unprovided for, those children may have a common law claim against their estate for maintenance. Complications can arise where a spouse bequeaths their share of the joint property to a third party. While no joint holder can be forced against their will to sell their half share, the other party may bring an application to the court for a directive as to how the joint ownership should be terminated. From an estate planning perspective, it is therefore advisable for spouses to share openly with each other regarding their wills and how they intend their assets to be distributed.
As is evident from the above, this type of marriage contract is fundamentally flawed and is not ideal for many couples. However, for those couples getting remarried later in life, who have financially independent children, and who have each accumulated their own wealth, this property regime may be a good fit.
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