fbpx

Compare Options

Marriage Out of Community of Property with Application of the Accrual System

Marriage Out of Community of Property with Application of the Accrual System

Out community of property means that the parties involved entered into a contract, a written agreement Notarised by a Notary Public prior to the marriage in terms of which each spouse usually retains his or her separate property and have complete freedom to deal with that property as he or she chooses. If during the marriage, one spouse is declared insolvent, the other property is protected from the insolvent spouse's creditors, subject to Section 21 of the Insolvency Act.

Should you choose this option as your marital regime, you will have to decide whether the accrual system should be applied or not. Under both options of married out of community of property (with or without the accrual system), one spouse's creditors cannot hold the other spouse responsible for debt repayment, in direct contrast to the case where the parties are married in community of property.

The accrual system is applicable to all marriages out of community of property unless the prospective spouses specifically exclude the accrual system in their contract. 'Accrual' means increase and the accrual system is a form of sharing the assets that are built up during the marriage.

The underlying philosophy in respect of the accrual system is that each party is entitled to take out the asset value that he or she brought into the marriage, and then share what they have built up together. It is however possible to draft the Antenuptial Contract in such a way that the parties share both their pre-marital and post-marital assets on a 50/50 basis, just as if they were married in community of property, but without incurring liability for each other’s debt.

Best suited for younger couples. Especially where one of the spouses has his/her own business.


The Accrual System as contemplated in the Matrimonial Property Act Explained

How does the Accrual system as contemplated in Chapter 1 of the Matrimonial Property Act 88 of 1984 work?

During the marriage, the spouses are fully independent, and there is a complete separation of property. Only on the dissolution of the marriage, the parties' financial gains during the marriage are shared equally between them.

Property acquired by the parties before the marriage is not shared. The parties are thus married out of the community of property but share fairly in the gains of the other party during the subsistence of the marriage. This can be considered a hybrid marriage contract between marriage in community of property and marriage out of community of property without application of the accrual system.

What does the expression "accrual" mean in terms of the Act?

The "accrual" of a spouse's estate is the growth which the estate of such a spouse showed during the subsistence of the marriage, i.e. the difference between the net value of that estate at the commencement of the marriage and its net value upon dissolution of the marriage.

This calculation is subject to the provisions of the Act and the conditions of the antenuptial contract.

Calculation of the accrual

The value of each spouse's estate at the commencement of the marriage must be disclosed in the antenuptial contract or in a separate statement. If no value is recorded, the nett commencement value will be presumed to be nil.

On dissolution of the marriage, each spouse's estate will be valued again to calculate the growth/accrual of each estate. The commencement values are adjusted to make provision for inflation.

The following assets are however left out of account in the calculation of the accrual unless the antenuptial contract provides to the contrary:

Damages received for non-patrimonial loss

Inheritances, legacies and donations received from third parties

Automatic Inclusion of the Accrual System unless expressly excluded

If the parties enter into an antenuptial contract, the accrual system will automatically apply to their marriage out of community of property, unless it is expressly excluded in the contract. In order to prevent any uncertainty, it is advisable to nevertheless insert a clause in the contract in which it is stated that the marriage is subject to the accrual system.

Example:

"The accrual system referred to in Chapter I of Act No. 88 of 1984 shall apply to the said intended marriage."

If the parties do not wish for the marriage to be subject to the accrual system, a clause to this effect must be inserted accordingly.

Example:

"The said intended marriage will not be subject to the provisions of Chapter I of the Matrimonial Property Act 88 of 1984 and the accrual system is hereby expressly excluded."

Can the accrual system be modified in the antenuptial contract?

Always keep in mind that the parties can include anything in the antenuptial contract as long as it is not unlawful or against public policy.

Examples of possible modifications:

The accrual system can be made applicable on the condition that the marriage has "lasted" a specific time period or on the condition that a child has been born.

Example:

"The accrual system referred to in Chapter 1 of Act No. 88 of 1984, as amended to date ("the Act"), but excluding any future amendments thereof, shall apply to the intended marriage between the husband and the wife, save that no accrual claim shall arise at the instance of either spouse until the third anniversary of the solemnization of the intended marriage or until a child has been born of the intended marriage, whichever event shall first occur."

The parties can agree that the accrual system shall not operate on termination of the marriage if either party's estate is insolvent.

"The accrual system referred to in Chapter 1 of Act No. 88 of 1984, as amended to date, but excluding any future amendments thereof, shall apply to the intended marriage between the husband and the wife, save that:

1. no accrual claim shall lie at the instance of a spouse (or the estate of such spouse)-

1.1 whose estate is at the dissolution of the marriage de facto insolvent, in the sense that the liabilities of such a spouse exceed such spouse's assets; or

1.2 who at the dissolution of the marriage is an unrehabilitated insolvent;

2. provided that the provisions of this sub-clause shall only come into operation if the claim or the proceeds in terms of the accrual system is capable of attachment by the creditors of such insolvent spouse ."

The accrual system can be excluded in whole or in part and may be made applicable to only certain assets or income sources (for example, income earned from employment, services and business conducted). Other assets and income sources will thereby be excluded from the accrual system.

Example:

"The parties agree that their marriage shall be subject to the accrual system in accordance with Chapter 1 of Act 88 of 1984, but only in respect of the assets that they acquire jointly or individually after the date of the said intended marriage -

1. from income received, by the parties or any one of them:

1.1 as remuneration for work done or services rendered;

1.2 from profits derived from any business conducted, whether personally, in a partnership or through a company or close corporation; and

1.3 from interest, rental or income benefits received from any trust created by the parties hereto or either of them with the assets acquired by the utilisation of the income from the sources in 1.2 and 1.3 above, but excluding income received from any other sources and, in particular, by reason of possession of assets which exist at the date of their intended marriage and income benefits received by either one of them from any other trust; and

2. from the proceeds of the sale and re-investment of any assets which form part of the accrual according to paragraph 1 above, provided that if any asset is acquired partly out of funds forming part of the accrual in terms of the above provision and partly our of other funds, the accreditation in value of that asset which forms part of the accrual and which will on the realisation of the asset and re-investment of the proceeds be deemed to be accrual funds, shall be limited to the proportion of the accreditation which the accrual funds bear to such other funds."

The contract can also provide that the parties will share in the accrual differently as the prescribed 50/50.

Inheritances, legacies and donations from third parties are not considered when calculating the accrual of a spouse's estate, unless the parties agree otherwise in the contract.

Example:

"In determining the accrual of the estate of either of the parties at the dissolution of the intended marriage, whether by death or divorce, there shall be specifically included therein all the right, title, interest and benefits to which either of the parties is or will become entitled, whether by way of income or capital received or to be received by or accrued to him or her from a third party as a beneficiary in terms of any inheritance, legacy or donation in terms of any will, inter vivos trust or mortis causa trust created or that may be created for his or her benefit, as well as any other asset or assets which either party may acquire by virtue of his or her possession or former possession of such inheritance, legacy, donation or benefits from such trust."

The parties can even agree that donations between them as spouses shall be taken into account when calculating the accrual of the estate of the donee spouse.

"Notwithstanding the provisions of Section 5(2) of the Act, the parties agree that, in the event of the dissolution of the intended marriage by divorce, a donation between spouses, other than a donation mortis causa, shall be taken into account as part of the estate of the donee in the calculation of the accrual of the estate of the donee."

The parties may wish to be married out of community of property only to be secured against the claims of each other's creditors, but still, with the de facto effect of the antenuptial contract to be as close as possible to a marriage in community of property.

The nett commencement value of the respective estates

If the marriage is to be subject to the accrual system, the parties may, within 6 months of the conclusion of the wedding, declare the nett values of their respective estates either in the contract or in a separate statement certified by a notary and kept in his protocol.

Keep in mind that because an antenuptial contract is registered at a deeds office, it is inevitably a public document. If the parties do not wish that the value of their respective estates be set out in a form to which the public has access, it will be advisable to rather make use of the statement referred to in section 6(1), as this statement is not registered at the deeds office but kept in the notary's protocol.

For further information regarding your matrimonial property regime options before getting married, do not hesitate to contact us. Louwrens Koen Attorneys have assisted thousands of couples with their antenuptial contract registration.

 

Comparison Table Marriage Out of Community of Property with other Matrimonial Property Regimes. Compare Matrimonial Property Regimes

 

 

Marriage in community of property

Marriage out of community of property with the accrual system

Marriage out of community of property without the accrual system

Before Marriage

No Antenuptial Contract

Antenuptial Contract entered into before marriage is solemnised

Antenuptial Contract entered into before marriage is solemnised

On date of Marriage

Both spouses estates join into one joint estate which belongs to both spouse in equal undivided shares

Two separate estates. Each spouse may deal with his/her estate as he/she wishes.

Two separate estates. Each spouse may deal with his/her estate as he/she wishes.

During the Marriage

Joint estate comprises assets and liabilities that belonged to either spouse at the date of and during the marriage, excluding the following:

•Property donated or bequeathed subject to the condition that it shall be excluded from a community of property marriage;

•Certain life insurance policies;

  • Delictual liabilities.

-Husband and wife have equal powers with regard to disposal of assets, contracting of debts and management of the joint estate. Can perform any juristic act with regard to joint estate without consent of the other spouse, except acts set out in Sections 15{2) and 15(3) of the Matrimonial Property Act.

ASSETS EXCLUDED:

  • Assets excluded in terms of the antenuptial contract;

• Delictual damages for non-patrimonial loss;

• Inheritances, legacies and donations;

• Donations between spouses

• Certain life policies.

Two separate estates. Each spouse may deal with his/her estate as he/she wishes. Any increase or decrease benefits or prejudices the relevant spouse only.

 

Accrual system expressly excluded in the antenuptial contract.

 

End of marriage on death or divorce

The estate is halved and each spouse is entitled to an undivided half share.

Accrual = Difference between the net value at commencement (escalated) and the net value at dissolution of the marriage.

-The net value at commencement is declared in the antenuptial contract / separate statement. If no net value stated in contract it shall be deemed to be NIL.

 

Each spouse retains his/her own assets and own accrual – no sharing unless Antenuptial contract compels donations or court orders transfer of assets.

An financially dependant party can still claim maintenance.

Advantages

Promotes legal and economic equality.

Both parties share in the wealth accumulated during marriage

Each party is free to conduct his/her own independent financial affairs.

• If party goes into debt, it cannot be claimed from the estate of the other party.

• In the case of divorce, any assets made whilst married are

shared – it doesn’t matter who acquired them; each

partner’s current net asset value is calculated by

subtracting all liabilities from assets

• The antenuptial contract can be tailored to suit the parties needs

• It protects the partner who remains at home to care for the

family

If one of the parties becomes insolvent, creditors

may not attach the assets of the other

• Each of the parties is still legally obliged to offer financial support to one another should one of the parties are unable to support himself/herself.

• Full contractual freedom

• In second marriages, marriages where the parties already have children , where both parties have already amassed a sizeable estate or in so called marriages of convenience it simplifies matters drastically.

Disadvantages

If one of the parties goes into debt, creditors have claim to all of both parties assets

• If one of the parties has his/her own business and becomes insolvent, both parties assets becomes fodder for debt collectors

• There is no financial or even contractual independence,

certain transactions need the

written or oral consent of both parties

• If one partner should die, the estate of both the deceased and surviving partner will be wound up jointly – not great for the surviving partner who will find themselves in legal limbo possibly without access to funds in addition to the trauma of losing a loved one.

 

 

Need to keep accurate accounting records.

In the case of death or divorce, a spouse is entitled only to those assets accrued in his/her name.
Should one of the spouses stay at home to raise children, that partner would not be entitled to the assets accumulated by the other partner.

Best suited for

Younger couples where there is no business risk from either of the spouses. Outdated. Not advisable.

Younger couples. Especially where one of the spouses has his/her own business.

Second marriages, marriages where the parties already have children, where both parties have already amassed a sizeable estate or in so called marriages of convenience.