Marriage Out of Community of Property with Application of the Accrual System
Engaged couples, while excitedly planning their big day, very often don’t take the time to discuss their long-term expectations, and most importantly, how their estates would be divided if the marriage were to end. These starry-eyed couples very often regard a discussion about drafting an Ante-Nuptial Agreement (‘ANC’) as ‘selling out’, or a sign that one of the parties does not believe the marriage (and love) will last forever.
A recent Statistics South Africa report, however, shows that there has been a constant increase in the divorce rate from 2012 to 2017, with 51% of divorces initiated by women. The average age for divorce among South African males is 44, and 40 among females. The largest number (27.2%) of divorces were for marriages that lasted between five and nine years.
Can you therefore really afford not to have ‘the discussion’ and obtain professional and independent legal advice regarding the right matrimonial property regime before tying the knot? The marriage regime you choose can have far-reaching financial consequences and it is important to understand the options available to you, which are either a marriage In Community of Property or a marriage Out of Community of Property. Marriage Out of Community of Property can then also be divided into With- or Without the Accrual system.The ANC
Once you and your partner have agreed that your matrimonial property regime will be Out of Community of Property, your attorney can assist you to draft an ANC. An ANC is a contract that is concluded by the parties before the marriage, and which sets out the terms and conditions of the proprietary consequences of the intended marriage. The ANC shall be attested by a Notary Public and registered at the Deeds Office within three months from execution thereof.
However, once that ANC contract is lodged at the Deeds Office, the Parties don’t need to wait until it returns from the Deeds Office and can indeed be married immediately the documents have been lodged in that Office.
Parties, entering into an ANC (after 1984) that excludes community of property and community of profit and loss are automatically married under the accrual system. Spouses may, however, exclude the accrual system in their ANC, but if they do not do so expressly, the accrual system will apply. When the accrual is included, a spouse may be entitled to share in the growth of the other Party’s estate at the time of divorce or death of the last mentioned.The Accrual
The accrual system, which came into operation on 1 November 1984, with the enactment of the Matrimonial Property Act 88 of 1984, and more specifically Section 3(1) of the Act, that provides that:
“[a]t the dissolution of a marriage subject to the accrual system, by divorce or by the death of one or both of the spouses, the spouse whose estate shows no accrual or a smaller accrual than the estate of the other spouse, or his estate if he is deceased, acquires a claim against the other spouse or his estate for an amount equal to half of the difference”
The accrual system, which was mainly designed to protect a spouse whose estate, during the marriage did not grow substantially the same, as compared to that of his or her spouse, allows a spouse with a smaller estate to claim a share in his or her spouse’s estate, which showed greater or substantial growth.
The term ‘accrual’ is therefore used to denote the net increase in value of a spouse’s estate since the date of marriage. In other words, what was yours before the marriage remains yours, and what you have earned during the marriage belongs to both of you. Because the right to share in accrual is exercisable only upon dissolution of the marriage, such a right is not transferable and cannot be attached by creditors during the subsistence of the marriage.
Looking at the system in more detail, it can be said that the system also functions as a deferred community of gains,
meaning that ‘During the subsistence of the marriage, it is out of community of property and community of profit and loss. Each spouse retains and controls his or her estate, but on the dissolution of the marriage the spouses share equally in the accrual or growth their estates have shown during the subsistence of the marriage’
When therefore looking at Section 3(1), and as held in Reeder v Softline Ltd and Another
, “a spouse who alleges that her estate has shown no accrual or a smaller accrual than the estate of the other spouse, and who … claims half the difference of the accrual between the two estates has a contingent right and not a vested right.” This simply means that no spouse has a claim to a specific asset in the estate of the other spouse, but just a future claim that could arise when the parties get divorced, one spouse passes away or should the court see it necessary to order an immediate division of the Accrual in terms of section 8 of the Act.The Exclusion of Assets and the Starting values
All assets owned by the parties prior to the marriage can either be excluded or included in the accrual. Assets that the parties wish to exclude, should be excluded expressly in the ANC. Should the parties elect to exclude no assets, the value of each party’s estate at the commencement of the marriage is deemed to be nil unless otherwise indicated.
The following assets will not be considered when determining the accrual (are not included in the net value of the estate):
- Any asset excluded from the accrual system under the ANC, as well as any other asset that the spouse acquired by virtue of his/her possession or former possession of such asset;
- Any inheritance, legacy, trust or donation received by a spouse during the marriage from any third party, as well as any other asset that the spouse has acquired by virtue of his/her possession or former possession of the inheritance, legacy, trust or donation unless the spouses have agreed otherwise in their ANC or the testator/trix or donor, has stipulated otherwise;
- Any donation between the spouses;
- Any amount that accrued to a spouse by way of damages (e.g. slander), other than damages for patrimonial loss or the proceeds of an insurance policy in respect of a dread disease.
Except for excluding certain assets, the parties must also make sure that the commencement values of their respective estates (i.e. how much their estates are worth at the time of marriage) have been agreed upon. It often happens in divorce matters that one party will allege that the other’s commencement value was inflated or completely inaccurate.
For calculation of the commencement value of the respective estates, the commencement value will have to be subtracted from the current value of the estate, and adjusted with the consumer price index (CPI). This adjustment will make provision for any change in the value of money. To calculate this adjustment, go to www.statssa.gov.za and click on ‘Historical CPI’ and then on ‘Key indicators’. The factor by which the commencement value must be multiplied to get to the adapted value is calculated by dividing the value for the month of the dissolution of the marriage by the value for the month in which the parties were married.
Mr. and Mrs. A were married in May 1990 and divorced in March 2012. In May 1990, Mr. A had a commencement value of R10 000. According to the CPI table:
May 1990 = 26.1
March 2012 = 120.9
Thus: 120.9 ÷ 26.1 = 4.6321
R10 000 x 4.6321 = R46 321 (adapted value)
This adapted commencement value will be deducted from Mr. A’s assets.
Once the commencement values are determined, how will the value of each party’s accrual be determined at the time of the dissolution of the marriage?
- Draft a list of all the assets, such as immovable property, furniture, vehicles, pension interest, annuities, policies, investments, bank accounts and interests such as shares and loan accounts in companies/partnerships/trusts or any other form of business, etc. obtained during the marriage at the present-day values;
- Deduct the assets that were excluded in the ANC, as well as any other assets acquired by virtue of the possession, or former possession, of the excluded assets;
- Deduct inheritances, legacies or donations, as well as any other asset acquired by virtue of the possession, or former possession, of the inheritances, legacies or donations;
- Deduct any debts and liabilities;
- Deduct the commencement value, as stated in the ANC and adjusted by CPI;
- The net result will be the accrual in the estate.
Initial net asset value: R10,000.00
Net asset value at the dissolution of the marriage: R100,000.00
Initial net asset value: R20,000.00
Net asset value at the dissolution of the marriage: R200,000.00
Nett accrual: R180,000.00 – R90,000.00 = R90,000.00
Divided by two: R45,000.00
Calculated by subtracting the "smaller" accrual from the ‘larger’ accrual. The spouse with the smaller accrual acquires a claim against the spouse with the larger accrual for one half of the difference between the two respective accruals, i.e. R45,000.00
Accrual and the death of a Spouse
As mentioned before, the parties might not want to consider their marriage ending in divorce, but unfortunately, the end of a marriage could also be as a result of one of the spouses passing away. An accrual claim in favour of the surviving spouse is a claim against the estate of the deceased spouse and ranks as a liability that has to be paid before the estate devolves on the beneficiaries in terms of the will.
This claim should therefore, be taken into account when calculating the liquidity of the estate, and should specifically be provided for. In the absence of provision for this amount being made, estate assets may even have to be liquidated, possibly to the detriment of heirs and beneficiaries, in order to settle the accrual claim.
A possible solution could be for life insurance to be affected on the life of the spouse with the smaller estate so that the survivor has the liquidity to pay the accrual claim into that estate.
These types of factors should be considered when drawing up your ANC and possible solutions discussed with your attorney at the time.
What are the Advantages of a marriage Out of Community of Property with the Accrual System?
- The spouses share the increase in their assets accumulated during the marriage and the economically weaker spouse benefits;
- The spouses do not share their assets acquired before their marriage (but only if excluded in the ANC or included in the commencement values of the parties’ estates);
- During the course of the marriage, each spouse manages his/her estate at will. There is no complex joint or equal administration;
- The spouses are not liable for each other’s debts. All that they share is their net assets. Thus, if one spouse becomes insolvent, the other spouse is protected against creditors.
Disadvantages of marriage out of community of property with the accrual
- The economically stronger spouse has to share the profits that he/she made during the marriage.
- One has to enter into an ANC in order for the accrual system to apply.
- The calculation of the accrual at the end of the marriage can become complex (a liquidator can be appointed to assist herewith)
What if you got married Out of Community of Property before 1 November 1984?
As the accrual system only came into operation on 1 November 1984, marriages out of community of property concluded before then, were just regarded as such.
The Divorce Act, however, came to the aid of such spouses with a ‘redistribution of assets’ section prior to the enactment of the Matrimonial Property Act 88 of 1984. Although this section may only apply to a relatively small number of marriages, it is important to a particularly vulnerable class of spouses, mostly older women who are less likely to find employment upon divorce and who do not qualify for either child-support grants (as their children would be older) or state pensions.
This section will also apply to black people married out of community of property in terms of the old Black Administration Act 38 of 1927, prior to the commencement of the Marriage and Matrimonial Property Law Amendment Act 3 of 1988.
The Act does set out two requirements in order for the court to consider granting a redistribution order:
- the spouse seeking the order must have contributed directly or indirectly to the maintenance or the increase of the other spouse’s estate during the marriage; and
- the court must be satisfied that by reason of such a contribution, it would be equitable and just to make a redistribution order.
In his book The Meaning of Money in Marriage, the author, Davis Augsburger said: “The handling of finances is one of the major emotional battlegrounds of any marriage. Lack of finances is very seldom the issue. The root problem seems to be an unrealistic immature view of money”. Therefore, as previously mentioned, discuss your expectations before the wedding and whether you elect to get married with or without the accrual, make sure that you and your partner are on the same page.