Money and marriage might not be the most romantic discussion for anyone planning to tie the knot, but it is a conversation worth having if you want to secure your financial future. Divorce and debt should be something couples discuss prior to signing any marriage contract because the consequences flowing from your marriage contract affect your estate structuring, tax obligations, duty of support, maintenance obligation, spousal support, the division of assets should your relationship come to an end through death or divorce and most importantly debt.
South African law makes provision for a number of different forms of marriages: civil marriages, civil unions and customary marriages. As legally recognised marriages in South Africa, parties married in terms of a civil marriage, civil union and customary marriage can choose whether to marry in or out of community of property, with in community of property being the default matrimonial property regime for all three types of marriages. In other words, if you did not expressly state that you would prefer a different contract, your contract will automatically be an in community of property contract.
Debt in a community of property marriage
In the absence of an ante-nuptial contract, a marriage will be deemed to be in community of property, and this can have important financial consequences for both parties. Under this system, all assets and liabilities belonging to each spouse are merged together into one joint estate. A major disadvantage of this form of marriage contract is that the couple is jointly liable for each other’s debts, including those debts which were incurred before the marriage. For example; if your current or estranged spouse defaults on paying his/her car loan, you are automatically liable for that debt. Further, you are also included in any legal ramifications of said spouse defaulting on any payments. If your spouse becomes insolvent, you (as part of the joint estate) will also be declared insolvent.
Debt in an out of community of property marriage, without the accrual
When signing the ante-nuptial contract, couples choosing this form of matrimonial contract must expressly indicate that they opt out of the accrual system. Under this type of contract, each spouse retains their own separate estate, including all assets and liabilities. Each spouse has full autonomy over their financial affairs and their debts are kept separate. In other words, you alone are responsible for paying your car loan and any legal ramifications of not paying your car loan. The benefit of this type of marriage contract is that each spouse’s estate is protected from the other spouse’s creditors, so if you current or estranged spouse defaults on payments or is declared insolvent, you remain untouched by any creditors taking action.
Debt in an out of community of property, with the accrual
The accrual system is a much fairer matrimonial regime as it provides each spouse with the right to share equitably in the value of the two estates to the extent that they grew during the course of the marriage. For example; if you decide to have children and your spouse opts to stay at home and focus on raising the family, the income earned my the working spouse will be shared and any assets purchased with that income is still considered shared even though one spouse is not working. So in the event of a divorce these assets will be fairly split. In terms of the accrual system, each spouse exercises full control over their own estate and has full contractual capacity. In addition, each spouse is responsible for their own debt and their estates are protected from their spouse’s creditors.
At DebtCare we receive daily emails from distraught consumers who are being held liable for their spouse’s debt because of the terms of their marriage contract. To find out more about debt and how it is affected by the type of marriage contract you have, speak to one of our qualified Debt Counsellors. It is vitally important to establish which type of marriage contract is going to be most beneficial for both parties before entering into the union. Though debt and divorce may not be the most pleasant of discussions, it is in your own best interest to look at all three types of marriage contracts and how debt is handled in each.