Many people feel extremely uncomfortable having the “tough talk” before they walk down the aisle. It may feel as if seeing a lawyer to draw up a marriage contract in case of divorce will put a bad omen on the marriage. The reality is that a marriage contract is not only about divorce but can have consequences throughout married life.
In South Africa we default to “in community of property” (COP), which has serious legal consequences for both spouses. If one does not spend the approximately R1 500 to have a marriage contract drawn up, the state assumes that all assets and liabilities will be shared. This may sound ideal when two people get together to share their lives, but the critical point is liabilities. If one partner develops a gambling addiction and runs up stratospheric debt levels, the creditors can come after the other partner and attach their assets. Creditors have claim to the assets even after the marriage has dissolved by divorce or death.
Adding to this issue is the fact that the law no longer requires both spouses’ signatures when one of them opens an account or enters a hire purchase contract, so one may have no idea of one’s partner’s debt exposure.
It also has consequences for people who have their own business. Recently, Lindsay Davis of the trust division of FNB advised a couple buying their first home as to the best property ownership structure. The problem was that they were married in community of property and the husband had his own business. Putting the house in the wife’s name did not protect their home if his business got into trouble. “As they are married in community of property, all assets and liabilities are shared. Any bonds taken over the property will be registered in both names and both spouses will be liable for the debt,” says Davis.
“In the past five years, I have come across more and more young people who have chosen not to have an antenuptial agreement drawn up,” says Davis, who believes that this is in part a cultural issue where women do not feel comfortable discussing financial matters with their husbands. Davis says that some young couples do not have the funds to have a contract drawn up and there is a general lack of education about marriage contracts.
Davis recommends that couples draw up a marriage contract, known as an antenuptial contract (ANC), which means they are married “out of community of property”. There are two choices, namely ANC with accrual or ANC without accrual. With both contracts, assets and debts at the time of marriage are separate. Without accrual means that during the course of the marriage the assets and liabilities remain separate and if there is a divorce one walks away with what has been accrued during the marriage.
ANC with accrual means that, although the assets that were obtained prior to marriage remain separate, all assets accrued during the course of the marriage are shared 50/50. The real win with the accrual system is that, although assets are shared, you do not share any of the debts. Creditors can only go after the partner who ran up the debts and not the spouse.
There is a debate about which contract is best, especially for the primary caregiver in the family. While, traditionally it is the mother’s career that takes the back seat when it comes to raising children, more and more men are becoming primary caregivers. The accrual system is seen as a fair way for the caregiver to benefit from the non-monetised value they bring to the home. Davis says that some people have drawn up contracts without accrual but with a provision that the contract switches to the accrual system once a child is born.
However, financial guru Suze Orman takes a different view. She argues that, while traditionally women have looked to their husbands for financial support, women need to look at their financial well-being separately from their husband’s and should not be made to share the proceeds of wise investment decisions. She argues for ANC without accrual but that a financial arrangement is made whereby the spouse that remains at home is compensated financially during the marriage for taking a salary cut.