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AM I STILL LIABLE FOR MY SPOUSE’S DEBT AFTER DIVORCE?

AM I STILL LIABLE FOR MY SPOUSE’S DEBT AFTER DIVORCE?

A husband and wife buy a house together. Their marriage takes a tumble, along with their ­finances, and they have to sell their home and are left with an outstanding mortgage bond. They subsequently got divorced. The couple is concerned about what will happen to the debts and who will be ­responsible for paying them.

Who pays what after divorce?

If the couple was married in ­community of property, the debt on the property is a joint debt. They will be jointly and severally liable. This means that each partner is not just liable for half the debt now that they are divorced, in fact the bank can seek the full amount from either of them. The one spouse who is held liable by the bank would then have a claim of 50% of the debt against the other, but it would be his or her responsibility to collect that debt (not the bank’s). Alternatively, the bank may agree to accept 50% from one person and release them from the ­liability, but it does not have to.

Sometimes, the divorce settlement makes a special mention of the mortgage. But if there is no clause in the divorce, the joint liability principle applies. After a divorce, the husband and wife should present their bank with a copy of the divorce settlement. This will remove any uncertainty about ownership and liability for bond payments.

Getting divorced while under debt review

If you get divorced while you are under debt review and you have the debt review court order in place, then this will need to be rescinded and for new debt counselling applications to be started, as in order to follow on with the debt counselling process you will need to reapply, but will now need to be seen as two single applications. A new budget and new proposals will also have to be drawn up.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

“Debt And Divorce”. News24. N.p., 2017. Web. 12 June 2017.

“Debt Review After A Divorce Settlement – Debt Review”. Debtbusters. N.p., 2017. Web. 13 June 2017.

GETTING MARRIED – YOUR NETT VALUE CAN BE KEPT PRIVATE

GETTING MARRIED – YOUR NETT VALUE CAN BE KEPT PRIVATE

Angela Baker and Stanton du Doit are both wealthy individuals but they enjoy maintaining an ordinary lifestyle. They consulted with a MHI notary who explained that their ante nuptial contract will be registered at the Deeds Office and will in effect be a public document. They enquired with their notary about whether there is an alternative option to keep their current financial position private. There is a solution to their problem; they can declare their nett commencement values of their respective estates by executing a statement in terms of section 6 (1) of the Matrimonial Property Act 88 of 1984.

Herewith are the necessary stipulations to comply with section 6 (1):

  • Ante nuptial contract must be executed and registered at the Deeds Office
  • The statement declaring their respective estates must be executed before the marriage is entered into or within 6 (six) months of the commencement of their marriage
  • The statement must be signed by both parties
  • The statement must be attested by a notary
  • The statement can be executed before the same notary that executed their ante nuptial contract or it can be executed by a different notary

Angela and Stanton’s net commencement value remains private as the section 6 (1) statement is not lodged and registered at the Deeds Office but is filed in the protocol of their notary before whom their ante nuptial contract was executed.

It is best to consult with your MHI notary to ensure that your section 6 (1) statement is executed according to the provisions of our law as failure to properly execute same will mean that your nett commencement value is R 0 and can have grave consequences at dissolution of the marriage.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

 

DIFFERENT TYPES OF WILLS

DIFFERENT TYPES OF WILLS

A3_AWhere parties are married to each other in community of property, the legal effect of such a marriage is that all the assets and liabilities owned by each party prior to the marriage, or acquired by them during the course of the marriage, will form part of a communal or joint estate of the two spouses.  This means that all assets acquired during the course of the marriage, will be owned by them in equal, undivided shares.  In most instances spouses married in community of property to each other execute a joint Will, which is a single Will (a single legal document) prepared and signed by both the spouses in terms of which all their assets and property are bequeathed according to their wishes.

The fact that only one Will is executed does not necessarily mean that the Testator and the Testatrix are jointly deciding on how their assets should be divided upon their deaths, eventhough the parties are married to each other in community of property.  The law recognizes each Testator’s right to dispose of his/her assets as each party deems fit.  As such, each party will decide how his/her estate is to be divided upon their deaths separate from each other, although their wishes are contained in one single Will.

If parties are married out of community of property and also decide to execute a joint Will, the drafter of the Will needs to ensure that the Will reflects whether it is two separate Wills contained in one document, or whether the massing of the separate estates of the parties (as referred to below), will take place.  Said joint Will also needs to prescribe what will happen if the husband and wife should die simultaneously, or within a short period of time (ie. 30 days) from each other.

Each party retains the right to amend the joint Will without the consent of the other Testator.  Each party also has the right to draft a new Will at any given point in time, without having the obligation of informing the other Testator thereof.  Should the joint Will be the last Will of the deceased, said Will will be valid in respect of that deceased irrespective of the fact that the surviving spouse executed another Will subsequent to the signature of the joint Will.

Although a joint Will is a common phenomenon amongst married couples, caution must be taken when drafting same as the parties’ assets, liabilities and their separate needs for the division of their assets upon death needs to be taken into account when one considers whether a joint Will is the answer to the parties’ needs.   Lastmentioned is critical, especially in light of the fact that a joint Will might result in negative financial and tax implications for one or both of the parties.

Parties can also execute one Will in terms of which it is decided that the massing of their separate estates, or the massing of the joint estate needs to take place.  Massing of estates takes place when the estate of two persons is massed into one estate upon the death of the first of them, for the purpose of dealing with a communal asset of both the parties.  Even if massing took place, the surviving spouse has the right to either accept or to refuse the joint Will and the massing of the estate assets upon the death of the first of the Testators.  This leaves the door open for the surviving spouse to walk away from the joint Will if he/she refuses to accept the terms of the joint Will upon death of the first Testator.  Even the acceptance or refusal of a Will in which a massed estate is created, can have a variety of tax implications and as such, caution is advised when the execution of such a Will is being considered.

Nothing however prevents married couples to each execute a Will in their own names in terms of which their exact wishes as to the division of their respective estates are stipulated.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Dealing with marriage and estate planning

Dealing with marriage and estate planning

A1blIt is important to understand the legal implications of the marital property regime, especially when drafting a Last Will and Testament and also when entering into a marriage, as the regime chosen by the estate planner is going to affect his/her assets.

The most important forms of marriage are: marriage in community of property, marriage out of community of property (without accrual), and marriage out of community of property (with accrual). 

Marriage in community of property

  1. There is no prior contractual arrangement, apart from getting married;
  2. Spouses do not have two distinct estates;
  3. There is a joint estate, with each spouse having a 50% share in each and every asset in the estate (no matter in whose name it is registered);
  4. Applies to assets acquired before the marriage and during the marriage;
  5. Should one spouse incur debts in his own name it will automatically bind his/her spouse, who will also become liable for the debt;
  6. If a sequestration takes place (in the case of insolvency), the joint estate is sequestrated.

Marriage out of community of property without the accrual system

  1. An antenuptial contract (ANC) is drawn up by an attorney (who is registered as a notary), before the marriage;
  2. Where there is no contract, the marriage is automatically in community of property;
  3. The values of each spouse’s estate on going into the marriage are stipulated in the contract;
  4. A marriage by ANC means that all property owned by spouses before the date of the marriage will remain the sole property of each spouse;
  5. Each spouse controls his/her own estate exclusively without interference from the other spouse, although each has a duty to contribute to the household expenses according to his/her means;
  6. To allow for assets acquired by spouses during the marriage to remain the sole property of each spouse, the accrual system must be specifically excluded in the ANC. 

Marriage out of community of property with the accrual system

  1. The accrual system automatically applies unless expressly excluded in the antenuptial contract;
  2. The accrual system addresses the question of the growth of each spouse’s estate after the date of marriage.

ESTATE PLANNING

Donations between spouses are exempt from donations tax and estate duty. 

Marriage in community of property

  1. In the event of the death of one spouse, the surviving spouse will have a claim for 50% of the value of the combined estate, thus reducing the actual value of the estate by 50%. The estate is divided after all the debts have been settled in a deceased estate (not including burial costs and estate duty, as these are the sole obligations of the deceased and not the joint estate).
  2. When drafting a Last Will and Testament, spouses married in community of property need to be aware that it is only half of any asset that he or she is able to bequeath.
  3. Upon the death of one spouse, all banking accounts are frozen (even if they are in the name of one of the spouses), which could affect liquidity.
  4. Donations or bequests to someone married in community of property can be made to exclude the community of property; in other words, if the donor stipulates that the donation must not fall into the joint estate, then the donee can build up a separate estate. However, returns on such separate assets will go back to the joint estate.

Marriage out of community of property without the accrual system

Each estate planner (spouse) retains possession of assets owned prior to the marriage. 

Marriage out of community of property with the accrual system

A donation from one spouse to the other spouse is excluded from the calculation of each spouse’s accrual; in other words, the recipient does not include it in his growth and the donor’s accrual is automatically reduced by the donation amount.

DIVORCE

In the event of divorce, the marriage will be dissolved by court decree, which will address such aspects as child maintenance, access, guardianship and custody, spousal maintenance, the division of assets, division of pension interests and so on.

COHABITATION AND DEFINITION OF “SPOUSE”

Cohabitation is defined as a stable, monogamous relationship where a couple who do not wish to or cannot get married, live together as spouses. The Taxation Laws Amendment Act has extended the definition of “spouses” to include “a same sex or heterosexual union which the Commissioner is satisfied is intended to be permanent”.

Many pieces of legislation, including the Pension Funds Amendment Act and the Taxation Laws Amendment Act, now define spouse to include a partner in a cohabitative relationship, the effects of which are that cohabitees will benefit from the Section 4(q) estate duty deduction in the Estate Duty Act, and the donations tax exemptions of the Income Tax Act.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

COMMON LAW MARRIAGE IN SOUTH AFRICA

COMMON LAW MARRIAGE IN SOUTH AFRICA

A3bIn South African law there is no such thing as a common law marriage. People simply believe that living together with another person for a continuous period of time establishes legal rights and duties between them. This is a common misunderstanding especially with young adults.

The only way to be protected in our law is to enter into a universal partnership agreement. Such an agreement clarifies the rights and duties of the partners. The agreement will determine what would happen to 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. Only a valid marriage is enforceable against third parties. It is important to note that partners can sometimes be jointly and severally liable if they acted within the scope of the partnership. 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 universal 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.

To prove the existence of such a partnership it must be shown that:

  • The aim of the partnership was to make profit.
  • Both parties must have contributed to the enterprise.
  • The partnership must operate to benefit both parties.
  • The contract between the parties must be legitimate.
  • There must be valid consent.
  • There is an intention to create a legally binding agreement.

Where there is no express agreement, a tacit agreement may be proved if it is found that it is more probable than not that such an agreement had been reached between the parties at the time of cohabitation.

Because the existence of a universal partnership is somewhat difficult to prove, and it may not be a claim that you wish to have to make or defend, it is advisable to consider entering into a contract that spells out how property should be dealt with on termination of the relationship by death or otherwise. Such a contract would provide some certainty for cohabitees regarding the division of assets and settlements of liability on termination of the relationship.

Some of the consequences of the absence of a legal ground between parties in such relationships are:

  • No exemption from donations tax in respect of donations between them.
  • Cohabitees do not benefit from the laws relating to the exemption from estate duty of bequests to spouses.
  • There is no reciprocal obligation of maintenance.
  • Cohabitee is not a recognised claimant if his/her partner dies intestate.
  • There is no right to property or assets that belong to cohabitee.
  • There is no reciprocal duty to contribute to household necessities.

The Domestic Partnerships Bill of 2008 is still in its formulation stage and it remains to be seen how it is to 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.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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