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Benefits of an Antenuptial Contract

Benefits of an Antenuptial Contract

Tarryn Wright (CA (SA) RA) and Karen Botha (LLB. LLM. BA (HSS cum laude)

In community of property:
A couple getting married without an antenuptial contract is automatically married in community of property. This is the quickest and easiest route to marriage. However, while it may be the most straightforward regime, it comes with certain consequences that couples need to be aware of.
Once married, the assets of each party to the marriage are included in the joint estate, whether they were acquired pre- or post-marriage.
There are very few exclusions to this, such as inheritances or distributions from trusts where the will or Deed of Trust expressly excludes the inheritance or distribution from a community of property marriage, or patrimonial damages, e.g. a claim from the Road Accident Fund.
The liabilities of each party also form part of the joint estate, and this is where things can become murky. You become liable for the debts of your spouse. Should your spouse be declared insolvent, you could lose all your assets paying off your spouse's debts.
For this reason, we would recommend an antenuptial contract, especially if one or both spouses own their own businesses.

The only advantage to being married in community of property is in a debtless marriage where one party is financially weaker than the other.
Antenuptial contract without accrual:
An antenuptial contract without accrual means that all the assets and liabilities of each party belong to that party, whether acquired pre- or post- marriage. There is no sharing in the growth of each other’s estate. The antenuptial contract must expressly state that there will be no accrual.
Prior to 1984, all marriages where an antenuptial contract was concluded excluded the accrual (the with accrual regime only came into operation in 1984) and, therefore, parties married pre-1984 who get divorced now will have a judge decide on the redistribution of assets in terms of section 7(3) of the Divorce Act. This may not always be a 50/50 split and is at the court's discretion, taking into account the circumstances of the marriage and each spouse.
Antenuptial contract with accrual:
In an antenuptial contract with accrual, each party sets out their commencement value and any assets and liabilities they wish to expressly exclude. The parties then share in the accrual of each estate should they get divorced. We believe that this is the ideal marital regime, but there are pitfalls to a poorly drafted antenuptial contract.
In MGB vs DEB the Judge included all assets based on a poorly drafted antenuptial contract where he could not distinguish between the assets that existed at the date of marriage and which formed part of the commencement value and the assets that were being expressly excluded. The Court held that they were one and the same assets and
that none of the originally excluded assets remained at the date of divorce, and no tracing could be done to exclude any of the current assets as resulting from proceeds of the excluded ones.
A proper consultation must be held with a notary public with experience in both drawing up antenuptial contracts and family law. Assets that should not be expressly excluded but rather valued and be included in the commencement value include:

  • Vehicles
  • Furniture and fittings
  • Property
  • Cash
  • Sports, camera and hobby equipment
  • Listed investments (unless in a managed portfolio)

These assets are easily disposable and would usually increase in line with the Consumer Price Index. A detailed list with valuations must be drawn up for these assets to prove your commencement value. Most people do not have the same property at the date of divorce/death (the two logical endings to marriage) they had at the date of marriage. It is also challenging to prove that no mingling of funds took place on the disposal of these assets and the acquisition of new ones. This will be discussed in a future article.
Assets that should be expressly excluded include:

  • Retirement annuity funds
  • Managed share portfolios
  • Shares in a private business
  • Loan accounts in private businesses
  • Jewellery
  • Sentimental items (such as paintings done by family members or friends or family heirlooms - not everything has to have monetary value!)
  • Antiques

These assets usually remain throughout the marriage and do not always increase in line with the Consumer Price Index.
It is critical that the antenuptial contract specifies that the excluded assets are separate and distinct from the assets making up the commencement value.
A well-drafted antenuptial contract dated and notarised pre-marriage and lodged with the Deeds Office
within three months of executing the contract can protect you in the following ways during your marriage:

  • If either party is declared insolvent, the other spouse is protected from the insolvent spouse’s creditors
  • The contract can be drafted in such a way as to cater for your individual circumstances
  • The spouses will not be liable for any debts incurred by the other spouse before or during the marriage
  • Sentimental assets can remain separate
  • Financial assets can remain separate
  • Antenuptial contracts remove the risk regarding spouses’ combined assets should one of the spouses undertake a business venture, allowing for protection of assets from creditors
  • Each spouse retains their separate financial identity and does not require permission from the other spouse to enter into financial agreements or to purchase property or other assets.

In the next article, we will discuss antenuptial contracts, divorce, and the records that would need to be kept in order to protect your excluded assets or new assets purchased with the proceeds of excluded assets that have been disposed of.