Antenuptial contracts

A written contract between two people who are about to marry, setting out the terms of possession of assets, treatment of future earnings, control of the property of each, and potential division if the marriage is later dissolved. These are fairly common if either or both parties have substantial assets, children from a previous marriage, potential large inheritances, high incomes, or have been “taken” by a prior spouse.

Your Ante Nuptial Contract (“ANC”) is one of the most important documents you will sign in your lifetime. Most people don’t understand its importance and expect it to be a standard, pre-printed form which they pop in and sign just before the wedding (at nominal cost). This can be an expensive misunderstanding.

Your ANC governs what will happen to all your assets and liabilities on death or divorce.

Starry eyed “pre-weds” struggle to conclude a contract which deals with possible divorce. But the ANC applies also on death. A Will determines how an estate devolves, but what comprises that estate is determined by the ANC.

MARRIAGE IN COMMUNITY OF PROPERTY

This applies automatically where parties do not conclude an ANC, either by choice, by omission, or by ignorance of the law.

All assets and liabilities of spouses married in community, whether acquired before or during the marriage, fall within one joint estate.

Although this is the truest form of sharing, it is commercially seldom viable as the entire joint estate is at risk of attachment by creditors, and the parties’ individual contractual capacity is usually limited. Individual ownership of assets and individual liability for debts is not possible.

MARRIAGE OUT OF COMMUNITY OF PROPERTY

This is achieved by concluding an ANC.

Each party has, and maintains, a completely separate estate.

Each spouse has and retains absolute independence of contractual capacity, and each party’s assets are protected against claims by the other party’s creditors. Each is liable for his or her own debt. There is no provision for sharing.
Where total separation would result in inequity on divorce, in marriages out of community of property concluded prior to 1984, the aggrieved party may apply to court for a redistribution of the assets of the “richer” party in terms of section 7(3) of the Divorce Act 70 or 1979. This remedy is not available to a spouse married out of community after 1984.

MARRIAGE OUT OF COMMUNITY OF PROPERTY WITH INCLUSION OF THE ACCRUAL SYSTEM

The Matrimonial Property Act 88 of 1984 introduced the accrual system, devised to facilitate a form of sharing whilst each party retains their own separate estates and their contractual independence.

Each spouse retains their own estate and may accumulate assets and incur liabilities without interference from or assistance of the other. The estate of each party is determinable separately from that of the other party.

At dissolution of the marriage, each party’s estate is calculated by determining all assets, determining all liabilities, subtracting liabilities from assets and arriving at a nett asset value.

In simplistic terms the value of the smaller estate is subtracted from the value of the larger estate, the difference is split, and the party having the larger estate pays half of the difference between the two estates to the party with the smaller estate.
It is possible to provide for exclusions from this sharing :

In the ANC the parties may exclude certain assets from the sharing. For an asset to be excluded it must be properly described.
Parties not wishing to specifically exclude assets (often wise if the assets may not still be in existence at dissolution of the marriage) may exclude a certain sum of money which is the agreed equivalent of assets which they do not wish to share (the “commencement value”). This sum will be updated to its equivalent value at the date of dissolution.

Excluding either a specific asset, or a commencement value, or both (which must be separate and not derived from the same asset), ensures that spouses share only what they choose to share.

Anything not excluded, and which is in the estate of either party at date of dissolution, whenever it was acquired, is included in the calculation of the estate of the party who owns or owes it.

Practical application of the accrual system shows that it has not always been properly understood by spouses or attorneys. Parties concluding an ANC must fully understand how the contract will operate on death or divorce. A standard form contract cannot be used and consultations should not be held over the phone or by email. Prospective spouses should work through various examples and should express their exact intention, with reference to specific assets, to ensure that the ANC is drafted in accordance with their exact wishes.

If you intend to marry it is well worth your while to consult a reputable attorney, discuss your own particular requirements and ensure that you fully understand the choices available to you. If you select accrual, ensure you understand its application to your own particular situation. Have the attorney work through the draft ANC as if you were at dissolution of the marriage and try to anticipate any problems which may arise. The contract should be drafted to eliminate any such problems or cater for them as best possible in the circumstances. The contract should state the intention of the parties in the clearest and most simple terms (using examples if necessary).

An ANC must be signed before the marriage is concluded and in the presence of a notary and two competent witnesses. The notary will register the contract in the local registry of deeds.