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Protecting Your Excluded Assets Throughout Your Marriage (And in The Case of Divorce)

Protecting Your Excluded Assets Throughout Your Marriage (And in The Case of Divorce)

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

Before you get married: your antenuptial contract
 
The starting point is always a well-drafted antenuptial contract. There must be a clear distinction between excluded assets, which must be clearly defined (e.g., Y Retirement Annuity Policy Number XXXX) and those which make up any general starting value, the value of which will increase by Table B of the consumer price index each month. Expressly excluded assets must not be included in the general assets as this is considered “double-dipping”. In cases where antenuptial contracts do not clearly distinguish between excluded assets and starting values Judges have either ruled the antenuptial contract invalid and treated the marriage as one in community of property or that there are no excluded assets and that the spouse’s commencement values were NIL. In order to properly protect your assets, the antenuptial contract must specifically state that the excluded assets are separate from the assets making up the commencement value of the spouse’s estates.
 
The antenuptial contract also needs to state that any proceeds from the disposal of an excluded asset and/or any subsequent assets purchased from these proceeds are also excluded assets.
 
You’re married…now what?
 
Meticulous accounting records! As completely unromantic as that may sound, you need to keep records. You need to show that these assets are separate and distinct from the assets accumulated during the marriage and that no “mingling” of funds has taken place. This is not as easy as it seems.
 
Example 1
 
In your antenuptial contract you excluded a property that you owned pre-marriage. However, this property may not be suitable for family life and you sell it to purchase a new property with the proceeds. The proceeds are insufficient and, therefore, you take out a bond on the property. The bond is paid from your earnings. Funds have now “mingled” and you have lost your exclusion.
 
It is for this reason that we suggest that property, or rather the value thereof at the time of marriage, be included in the general commencement value. If this had been done, on divorce, the general commencement value would be adjusted by the CPI and be excluded. Done this way, you will not lose the entire exclusion of the property.
 
Example 2
 
In your antenuptial contract you excluded your retirement annuity. You later want to change to a different provider. You transfer your original retirement annuity into a preservation fund with the new provider. You further take out a new retirement annuity with the new provider. Your original retirement annuity can be traced to the preservation fund and remains an excluded asset.
 
It is for this reason that we suggest that retirement funds and investment portfolios that can easily be traced are specifically excluded in the antenuptial contract and are not included in the general commencement values.
 
Example 3
 
Pre-marriage you owned a company or close corporation in your own hands, not via a trust. You excluded your shares and any loan interests in the company or close corporation in your antenuptial contract. Twenty years down the line you sell the shares and get paid out your loan account. Naturally you have paid the tax on the capital gain. What do you do with money to ensure that it remains excluded?
 
Firstly, open a separate bank account before the sale, into which no other funds flow. Do not let these funds mingle with your personal bank account.
 
Secondly, every investment or purchase made from this separate bank account must be meticulously recorded and supporting documentation must be kept.
 
This will assist your expert witness in proving to the court that these new assets or bank accounts are excluded from the accrual.
 
Most people do not enter a marriage believing they will get divorced. However, the reality is that over 50% of marriages end in divorce and it is better to be prepared, no matter how unromantic or cynical that sounds. Before you draw up an antenuptial contact, consult with a specialist family law attorney to guide you on the legal requirements of an antenuptial contract and your accountant to provide you with the most accurate values of your assets. If you are not admin orientated, ask your accountant to assist you with the record keeping mentioned above. Also, consult with your family law attorney and commercial attorney before selling or moving excluded assets.