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Marriage in Community of Property

Advantages and Disadvantages of Marrying In Community of Property

One of the most important decisions to make before getting married is choosing a matrimonial property regime to be married under. Your marriage contract has future financial and legal implications. It is thus imperative to get appropriate advice before marrying. Each matrimonial property regime is more or less suited depending on the personal, financial and business profile of the individuals. Whatever Matrimonial Regime is chosen the parties must explore and discuss their options before getting married and decide which matrimonial property regime will suit their individual needs. Each choice comes with its own set of advantages and disadvantages.

Marriage In Community of Property

This form of marital property regime is referred to as the default option as no antenuptial contract needs to be signed. In the absence of an antenuptial contract, the couple will be deemed to be married in community of property which may not be the ideal system to be married under.

Advantages of Marriage In Community of Property

A negligible advantage of this system is that there are no legal costs for the registration of an Antenuptial contract. Under this system, all assets and more importantly liabilities and business risks of the spouses are shared and unified together into one joint or communal estate, subject to a couple of exclusions. Both parties share equally in any profit or accrual. The disadvantages are worthy of mention.

Disadvantages of a Marriage In Community of Property

One of the greatest disadvantages of this marital regime is that the couple remains jointly liable for each other’s debt and current business risk, including debt that was incurred before the marriage. In a community of property marriage, one spouse has the capacity to bind the joint estate through their actions which can have devastating effects especially in the case of insolvency. If one spouse is unable to pay their debts, their creditors have a claim to the joint estate which can lead to both spouses being declared insolvent.

The management of the joint estate can also be cumbersome as spousal consent is needed in certain circumstances, such as selling fixed property, withdrawing from a joint bank account, or selling assets from the joint estate. Having limited contractual capacity and impaired freedom to trade may not be ideal and can cause anger and frustration. Spouses married in community of property share a credit record. Careless financial behaviour on the part of one spouse can negatively impact the other spouse’s creditworthiness.

When it comes to freedom to make a will remember that any spouse may only will half of the joint estate and that the complete estate of the deceased and the remaining spouse is frozen pending finalisation of the estate, which process may take considerable time.

On dissolution of the marriage as a result of the death of either of the spouses or divorce, a 50/50 separation of the estate may not be a fair result, particularly where one spouse contributed considerably more to the growth of the joint estate.

Best Suited For

Marriage in Community of Property is best suited for younger couples where there is no business risk or creditor from either of the spouses. This is an outdated matrimonial property regime full of inherent legal and financial risks. Because of the inherent disadvantages is not advisable to marry In Community of Property.

 

 

Marriage in Community of Property Explained and Compared with other Matrimonial Property Regimes

Marriage in Community of Property Explained and Compared with other Matrimonial Property Regimes

When You Marry without entering into an Antenuptial Contract. In short, both parties share in assets and liabilities before and after marriage. The parties are thus exposed to their spouse's debts and business risk. We do not recommend parties to Marry In Community of Property.

If you do not enter into an Antenuptial Contract prior to your marriage, you will automatically be married in community of property in terms of South African Law. Both parties’ individual estates will be combined into one jointly owned estate by the marriage. This means that all pre-marital assets, debt and liabilities are all pooled into one estate once the marriage is concluded, from which point onwards, only one jointly owned estate will exist. Both parties will be jointly liable for debt-repayment towards their combined creditors, irrespective of who incurred the debt. This means that if one of the parties behaves in a financially irresponsible way, the other party will also suffer because of it. Also, the parties will be exposed to the business risks of the other party and will in practice not have the freedom to trade.

'In community of property means that everything each party had prior to the marriage, assets as well as liabilities, are pooled into one single jointly owned estate, once the parties marry. From this point onwards everything they earn or buy will also form part of this jointly owned estate. This also pertains to any debt or liabilities either one of them incur during the marriage. Should one spouse be reckless with his or her financial affairs, it will adversely affect the other spouse, as they are both totally liable for the debts of their jointly owned estate. As both parties are joint owners of all property in their jointly owned estate, both parties have equal rights of ownership and administration over all the assets.

Once married in community of property, there will be various transactions that require the consent of both parties. The most prejudicial consequence of marrying in community of property, is that assets in the joint estate will always be vulnerable to the claims of creditors of both spouses.

This marital regime is definitely not recommended for spouses running their own independent businesses as premarital and post-marital liabilities will become communal, thereby endangering the good standing of not just one, but both spouses.

The parties further do not have trade freedom as they need oral, written or tacit permission from their spouse to perform certain actions:

Transactions requiring the written consent of the other spouse

Section 15(2) of the Matrimonial Property Act provides that a spouse may not, without the written consent of the other spouse:

(a) Alienate, mortgage, burden with a servitude or confer any other real right in any immovable property forming part of the joint estate;1

(b) enter into any contract for the alienation, mortgaging, burdening with a servitude or conferring of any other real right in immovable property forming part of the joint estate;2

(c) alienate, cede or pledge any shares, stock, debentures, debenture bonds, insurance policies, mortgage bonds, fixed deposits or any other similar assets, or any investment by or on behalf of the other spouse in a financial institution, forming part of the joint estate;3

(d) alienate or pledge any jewellery, coins, stamps, paintings or any other assets forming part of the joint estate and held mainly as investments;4

(e) withdraw money held in the name of the other spouse in any account in a banking institution, a building society or at the Post Office Savings Bank of the Republic of South Africa;5

(f) as a credit receiver enter into a credit agreement as defined in the Credit Agreements Act, 1980 ( Act No. 75 of 1980), and to which the provisions of that Act apply in terms of section 2 thereof;6

(g) as a purchaser enter into a contract as defined in the Alienation of Land Act, 1981 (Act No. 68 of 1981), and to which the provisions of that Act apply;7

(h) bind himself as surety.

 

In addition hereto, where a spouse wishes to institute or defend legal proceedings that do not relate to a spouses profession, trade or business, written consent of the other spouse is required.

Transactions requiring informal consent

Informal consent does not need to be in writing or witnessed and it may be obtained by ratification after the act.1 Section 15(3) of the Act provides that a spouse may not without the consent of the other spouse enter into the following transactions although ratification by the other spouse is permitted in s 15(4):

(a) alienate, pledge or otherwise burden any furniture or other effects of the common household forming part of the joint estate;

(b) receive any money due or accruing to that other spouse or the joint estate by way of -

(i) remuneration, earnings, bonus, allowance, royalty, pension or gratuity, by virtue of his profession, trade, business, or services rendered by him;

(ii) damages for loss of income contemplated in subparagraph (i);

(iii) inheritance, legacy, donation, bursary or prize left, bequeathed, made or awarded to the other spouse;

(iv) income derived from the separate property of the other spouse;

(v) dividends or interest on or the proceeds of shares or investments in the name of the other spouse;

(vi) the proceeds of any insurance policy or annuity in favour of the other spouse;

(c) donate to another person any asset of the joint estate or alienate such an asset without value, excluding an asset of which the donation or alienation does not and probably will not unreasonably prejudice the interest of the other spouse in the joint estate, and which is not contrary to the provisions of subsection (2) or paragraph (a) of this subsection.

Consent unnecessary

Consent is unnecessary for a certain transaction, specifically those transactions that are performed by the spouse in the ordinary course of his or her profession, trade or business;1 transactions on the stock exchange of listed securities and deposits into a banking institution in the name of the spouse who wishes to deal with the deposit.

 

Comparison Table between Marriage in Community of property and other 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.