Living together, make sure you have a cohabitation agreement, otherwise you leave with nothing!
Personal finance: If you don’t say ‘I do”, get it in writing – Interview with Bertus Preller – Family Law Attorney
Gone are the days of “single” or “married”. You only have to look at Facebook’s relationship declaration options to know that today’s partnerships come in all shapes and sizes.
But what are the financial risks of being involved in a long-term relationship that is not formally recognised as a marriage?
We quizzed some experts to find out the best ways to protect yourself if you don’t fancy walking down the aisle with your life partner.
Family law attorney Bertus Preller said patterns of marriage, divorce and cohabiting without marriage had been changing for years.
“The incidences of domestic partnerships are growing throughout the world.”
Preller said that, according to the 1996 census, 1.3million people described themselves as living with a partner. When the 2001 census came around, this figure had almost doubled to nearly 2.4million.
Many people believe that, if they live together for some time, the relationship will be recognised by the state, and there will be legal rights, duties and protection.
But Preller said there was no such thing as common-law marriage – because the concept has been abolished worldwide.
“The time a couple spend living together does not translate into a default marriage. The consequence is that, at the dissolution of the relationship, the assets or any obligations are determined or distributed on a basis of the arrangement that parties used during their relationship,” he said.
Domestic partnerships were never prohibited in South African law – but neither did they enjoy any noteworthy recognition or protection, Preller said.
“In SA, marriage laws traditionally provided parties with a variety of legal protections. These laws governed what happened to the property of the parties during the marriage and on dissolution, either by divorce or death, and also meant that certain benefits were automatically acquired, such as membership of medical aid funds, pension funds, etc.
“Married spouses also had a reciprocal duty of support under the common law.”
Preller said South African courts had occasionally helped couples by deciding that an express or implied universal partnership existed, but this was usually difficult to prove.
“The only way to be protected in our law is to enter into a cohabitation agreement. Such an agreement clarifies the expectations of the partners and also serves as an early warning of future problems.
“A cohabitation agreement will determine what would happen to the property and assets of the couple if they should decide to separate. The agreement is, however, not enforceable in so far as third parties are concerned.”
However, in terms of the 2005 Children’s Act, the parents of children born out of wedlock had a duty to maintain their offspring, “irrespective of the living arrangements”, Preller said.
“Basically a cohabitation agreement regulates rights and duties between the partners.
“It could almost be compared to an antenuptial contract entered into prior to the conclusion of a civil marriage.
“The agreement can provide for the division and distribution of assets upon dissolution: for instance, the formal agreement may set out the rights and obligations towards each other; the respective financial contributions to the joint home; clarify arrangements regarding ownership of property that they may purchase jointly and the division of their jointly owned assets should they separate,” said Preller.
“An agreement such as this will be legally binding as long as it contains no provisions that are immoral or illegal.
“If there is no agreement on the dissolution of a domestic partnership agreement, a party would only be entitled to retain those assets which he or she has purchased and owns and further would be entitled to share in the assets proportionately in terms of the contribution which they have made to the partnership.”
Preller said, however, that problems arose if a partner tried to enforce a domestic partnership agreement if the partner being sued was married to someone else.
“It has been argued that in such cases domestic partnership agreements violate public policy to the extent that they impair the community of property rights (where applicable) of the lawful married spouse.”
He said the Domestic Partnerships Bill was still being formulated, and it wasn’t clear how it would be implemented.
“In the current constitutional dispensation it is unlikely that a partner will be left in despair, taking into account the Domestic Partnerships Bill,” Preller said.
Fiona Renton, head of the legal services department at financial and risk services provider Alexander Forbes, said: “My advice would be for cohabiting couples to enter into a contract – a written partnership agreement that states exactly what will happen in the event of death or a split, protecting their rights and outlining their obligations.
“For example, when it comes to the ownership of property, the contract should state what happens to ownership of the property (such as one spouse buying out the other) or payments in the event of death or a split.
“Putting any relationship into writing is always helpful, even if it’s just adding someone on your medical aid as a dependant.
“Having said that, in the event of death, having a will is always the best idea.
“Out of the bounds of a legally recognised marriage there is no intestate succession – meaning there is no automatic participation in the estate to make sure the other partner is looked after.”
Joint accounts never a good idea
Money is one of the most important matters a couple needs to resolve when contemplating living together or marriage, according to Sugendhree Reddy, director of banking products at Standard Bank.
“One issue that often comes up in these kinds of discussions is whether to have a joint bank account. In many ways, this can seem like an appealing option.
“However, most financial experts don’t recommend having a joint account at all. We never encourage a joint account because whether you are married or living together, you both need to grow your assets and get a good credit rating. Having a joint account invariably makes it difficult for one of the partners to do so. Besides, a joint bank account puts one partner at great risk in the event of a break-up, death or financial difficulties.”
Reddy said there was no joint bank account with two equal account holders. “A ‘joint’ account is actually an account in one person’s name, to which the other person is a signatory. This causes a number of complications for that signatory. The most important of these is that without a bank account in your name, you will have no credit record at the bank – which makes it difficult to get credit at shops, open a cellphone account or apply for a loan.”
In the event of a break-up, Reddy said, the joint account could be emptied by one partner or the person in whose name the bank account is held could remove the second signatory.
If one partner dies, “banks tend to freeze the account until the estate is resolved – leaving the signatory partner with no access to the funds for an extended time”, said Reddy.
Reddy advises couples to split responsibility for monthly expenses, or open an account for the household into which both pay a portion of their salaries for general expenses.
Who gets your pension?
There are typically two types of benefits payable to “spouses”, says Fiona Renton, head of legal services at Alexander Forbes.
“Firstly pensions, which are payable to those who qualify as spouses – and that would depend on how each fund defines an ‘eligible spouse’: people must check the fund rules to see if their partner/spouse would qualify.
“Fund rules may stipulate that you must be married to the same person at date of retirement and date of death for them to qualify for a spouse’s pension. This prevents so-called ‘death-bed marriages’ where a pensioner marries someone much younger than them after they have already retired – and on their death the fund realises that there is a much younger spouse to whom they have a liability to pay a pension for many years.”
The second benefit type is the typical fund benefit (fund credit or share of fund) plus an insured multiple of a salary (three times annual salary, for example).
“This is allocated by the trustees, to your dependants and nominees.
“A dependant includes a spouse; the Pension Funds Act defines a spouse as ‘a person who is the permanent life partner or spouse or civil union partner of a member in accordance with the Marriage Act, Recognition of Customary Marriages Act, Civil Union Act or the tenets of a religion. A very wide definition.”
To ensure that no partner is overlooked, the pension fund member should always nominate a beneficiary in the relevant form to help the trustees – although trustees are not absolutely bound to follow that nomination, said Renton.
“Unfortunately, when it comes to death and money such decisions by fund trustees are often contested.”