The number of divorces granted each year in South Africa is on the increase. The causes are numerous and the emotional effect can be overwhelming. As a result of the unpleasant nature of this event many people allow it just to “happen” to them, instead of taking control and planning it as meticulously as they have planned the wedding. The financial consequences resulting from this attitude can be devastating.
Since the dissolution of an estate at divorce involves application of a number of technical points, the discussion will be delivered over two instalments. The current discussion will deal with the different marital regimes, to be followed by a look at the division of retirement funds in the next instalment.
In South Africa marriages are governed by the Matrimonial Property Act according to which the following three matrimonial regimes are provided for:
- Marriages in community of property
This is the default regime, meaning that if you got married without registering an ante nuptial contract (ANC) prior to the marriage, you are married in community of property. In this case there is one joint estate, with each spouse owning 50% thereof.
It is important to remember that assets such as business interests will be included in the communal estate and measures should be put in place to accommodate this when a marriage is dissolved.
Upon dissolution of the marriage each spouse will be entitled to 50% of the joint estate. In practice this may pose a challenge and it is important to involve your financial advisor to ensure the best possible outcome for both parties. The cost of realising any property as well as Capital Gains Tax must be taken into account when determining which assets should be allocated to whom.
- Marriages out of community of property (excluding the accrual system)
In this instance we have two entirely separate estates.
A common issue in these cases is jointly owned property. A joint owner of a property cannot be forced to retain this share after a divorce. It may, however, require a court order (which will add to the financial burden) to dispose of the property before the proceeds can be distributed.
In practice it also often happens that one spouse contributes to the other’s estate (directly or indirectly by enabling one person to focus on building a career while the other is more involved with the household). At divorce it can be very difficult to succeed with a claim against the larger estate. The Court may apply discretion, justice and equity to assist the spouse with the smaller estate.
- Marriages out of community of property (including the accrual system)
In an attempt to alleviate the possible injustice of situations described in the previous paragraph, the accrual system was introduced in 1984 and is since the default for marriages out of community of property. This means that the accrual applies to all out of community of property marriages entered into after 1984, unless expressly excluded in the ANC.
Under this regime there will be two separate estates as long as the marriage lasts. The accrual only comes into play at dissolution of the marriage (either through divorce or death).
This regime also provide for marriages concluded when the partners have already amassed separate estates and only wish to share the portion of their estates that accumulates during the marriage. In this instance the ANC lists each partner’s assets at the time of marriage and these will be excluded from the accrual.
A simple example will be used to illustrate the regime (the effect of inflation has been ignored for purposes of the example):
Once again the distribution of assets should be discussed with your financial advisor.
The above summarises the effect of the matrimonial property regimes at divorce. It is important to note that is possible to arrange alternative outcomes by way of a divorce settlement that must be made a court order.