Antenuptial Contracts – The most important contract in your lifetime

The Antenuptial or Prenuptial Contract is certainly one of the most important documents that any person will sign in his/her lifetime, well that is if you decide to tie the knot and get married.  Antenuptial agreements are often seen as a cold, harsh and unromantic sign that one’s partner is planning on the relationship ending in doom. Some people have no issues with them and see them as valuable protection for both parties while others might go as far as to call of their wedding if the idea surfaces.

A major problem however is that people somehow disregard the importance of the Antenuptial Contract and many embark on a marriage without due cognisance of the repercussions that might follow at a later stage, especially when the marriage end in the big D – divorce. Somehow many people merely see the Antenuptial Contract as a formality, something that needs to be signed prior to the wedding day, without realising the consequences of such an important legal instrument. The problem is that the Bride and Groom, concentrates more on the wedding ceremony, the dress, the honeymoon etc. and leaves the Antenuptial contract for that late minute meeting with an attorney just before the wedding day.

No one goes into a marriage contemplating a divorce but when you consider that the Antenuptial Contract governs what will happen to your assets and liabilities on divorce or death, it makes lots of sense that considerable thought should be given to concluding it and that its contents should be fully understood by all parties concerned. Unfortunately many people are more drawn into the eyes of their spouse prior to the marriage than to the importance of the wording of a proper Antenuptial Contract.

Marriage in Community of Property

Where you did not conclude an Ante nuptial Contract prior to your wedding day, you will automatically marry in community of property. ‘In community of property’ means that everything the couple own, and their debts, from before their marriage are put together in a joint estate. And everything they earn or buy after their marriage is also part of this joint estate. Any money or possessions belonging to either of the spouses at the time of the marriage, or acquired by them at any time thereafter, cease to be the private property of the one person and become part of a joint estate in which each of the partners has an equal, undivided share.

On termination of the marriage, the husband and wife are each entitled to a half-share of the joint estate and they are jointly liable for any liabilities. A major disadvantage is that if one partner becomes insolvent, the other is protected only if he or she owns property that does not form part of the joint estate. Everything in the joint estate will be attached and sold off to pay any creditors.

Marriage out of Community of Property

Each spouse retains his or her own assets and liabilities whether acquired before or during marriage. There is no sharing of profits and losses. Both spouses have full and independent contractual capacity. Upon death or divorce, each spouse keeps control over their own assets.

This clearly gives parties absolute independence of contractual capacity and protects the estates of each party against claims by the other party’s creditors. There is no provision for any sharing whatsoever.  A party who contributed to the other party’s estate whether in cash or otherwise would have a heavy onus to prove that he or she was entitled to anything from that party’s estate on dissolution of the marriage.

Where one party stays at home to raise children and does not contribute financially towards the marriage and the other spouse works and accumulates assets, the former may find herself with nothing and no claim to the assets of the latter.

The marriage is governed by a contract known as an ante nuptial contract which is concluded by the parties before the marriage. If the marriage occurred after 1 November 1984, the contract had to specifically exclude the system of accrual. In the absence of this exclusion the rules of accrual will automatically apply.

Marriage out of Community of Property with Inclusion of the Accrual System

In most cases the accrual system is, perhaps, the fairest marriage system for the majority of couples. Before the introduction of the accrual system in 1984, if prospective spouses chose to be married out of community of property, there was no form of sharing between them of what was built up during the marriage. The accrual system was introduced to remedy this.

The Matrimonial Property Act 88 of 1984 brought with it the “accrual” system which permits a form of sharing, consistent with a primary objective of marriage, but permitting retention of each party’s independence of contract and ability to retain their own unique separate estates.

“Accrual” means increase. The accrual system is a form of sharing of 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 they share what they have built up together. One spouse’s property cannot be sold to pay the other’s creditors if the other becomes insolvent – in contrast to the case where the parties are married in community of property.

It is of utmost importance that a party wishing to enter into an Ante Nuptial Contract must fully understand what it is they are signing. It is for this reason that a standard form contract cannot be used, that consultations cannot be held over the phone or by means of email and that, unfortunately.

The important features of an accrual marriage are in essence the following:

• Each party retains his or her own estate. Each party may accumulate assets and incur liabilities without interference from or assistance of the other spouse.  The estate of each party is determinable separately.
• The monetary value of the smaller estate is subtracted from the monetary 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.
• At dissolution of the marriage, the estate of each party is calculated by listing all assets, listing all liabilities, subtracting liabilities from assets and arriving at a net asset value.
• In practical terms this amounts to a similar division to a marriage in community of property.  However there are certain crucial factors of an accrual marriage which add complexity and much more freedom of choice. When drafting the Ante Nuptial Contract, the parties can each decide to exclude certain assets.  The effect of excluding an asset will be that it does not feature on the asset statement at dissolution of the marriage and is completely excluded from the calculation. Assets which are not properly described can cause huge problems when the executor or the divorce attorney tries to decide what to do with it in calculating the net accrual value.
• To exclude either a specific asset, or a commencement value, or both (which must be separate and not derived from the same asset), can effectively ensure that couples share only what they choose to share and keep separate any item or items, or values, which they do not believe it fair to share (for example something acquired before the relationship commenced).Parties not wishing to exclude specific assets may exclude a certain sum of money which is the agreed equivalent of assets which they do not wish to share, and which is termed a “commencement value”.

Excluded from the Accrual

Certain property belonging to either the husband or the wife may not be taken into account when the accruals are worked out:

• Any damages awarded to either spouse for defamation or for pain and suffering;Any inheritances, legacies or gifts that either spouse has received during the marriage, unless the parties have agreed in their antenuptial contract to include these or the donor has stipulated their inclusion;
• A donation made by one spouse to the other. This is not taken into account as part of either the giver’s or the receiver’s estate, with the result that the giver cannot recover part of what he or she gave and the receiver need not return any of it.

Calculating the Accrual

The accrual is calculated by subtracting the net asset value of his/her estate at the commencement of marriage from the net asset value of his/her estate at dissolution of the marriage.

Example:

If spouse C had a net asset value of R10 000.00 at the commencement of the marriage (his/her “initial value”) and a net asset value of R100 000.00 at dissolution of marriage (his/her “end value”) then the accrual to his/her estate is R90 000.00. If the initial value of the other spouse B was R20 000.00 and hi/her end value R200 000.00, it follows that the accrual to his/her estate is R180 000.00.

Net accrual is calculated by subtracting the “smaller” accrual from the “larger” accrual. In the above example: R180 000-00 – R90 000-00 = R90 000-00. In accordance with the Act, C (the spouse with the smaller accrual) acquires a claim against B (the spouse with the larger accrual) for one half of the net accrual, namely – R45 000.00.

If you do intend to get married, it is well worth your while to consult a reputable attorney, to discuss your particular requirements and ensure that you fully understand the application of the accrual system to your particular situation.

Conclusion

An Ante Nuptial Contract must be signed before the marriage and must be signed in the presence of a notary and two competent witnesses. The notary will then register the contract in the local registry of deeds.  If parties wish to conclude an Ante Nuptial Contract after their marriage it is necessary to launch an application to the High Court.

About the Author

Bertus Preller is a Divorce Attorney in Cape Town and has more than 20 years experience in most sectors of the law and 13 years as a practicing attorney. He specializes in Family law and Divorce Law at Abrahams and Gross Attorneys Inc. in Cape Town. Bertus is also the Family Law expert on Health24.com and on the expert panel of Law24.com and is frequently quoted on Family Law issues in newspapers such as the Sunday Times and Business Times and magazines such as Noseweek, You and Huisgenoot. His clients include artists, celebrities, sports people and high networth individuals. His areas of expertise are Divorce Law, Family Law, Divorce Mediation, Parenting Plans, Parental Responsibilities and Rights, Custody (care and contact) of children, same sex marriages, unmarried fathers rights, domestic violence matters, international divorce law, digital rights, media law and criminal law.