With Accrual - Marriage out of community of property with the accrual system included explained


Out community of property' means that the parties involved entered into a contract, a written agreement Notarised by a Notary Public prior to the marriage in terms of which each spouse usually retains his or her separate property and have complete freedom to deal with that property as he or she chooses. If during the marriage, one spouse is declared insolvent, the others property is protected from the insolvent spouse's creditors, subject to Section 21 of the Insolvency Act. 

Should you choose this option as your marital regime, you will have to decide whether the accrual system should be applied or not. Under both options of married out of community of property (with or without the accrual system), one spouse's creditors cannot hold the other spouse responsible for debt repayment, in direct contrast to the case where the parties are married in community of property. The accrual system is applicable to all marriages out of community of property, unless the prospective spouses specifically exclude the accrual system in their contract. 'Accrual' means increase and the accrual system is a form of sharing 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 share what they have built up together. It is however possible to draft the Antenuptial Contract in such a way that the parties share both their pre-marital and post-marital assets on a 50/50 basis, just as if they were married in community of property, but without incurring liability for each other’s debt. Best suited for younger couples. Especially where one of the spouses has his/her own business.


What is the accrual system? 

The accrual system is a formula that is used to calculate how much the spouse with the larger estate must pay the smaller estate if the marriage comes to an end through death or divorce. Only property acquired during the marriage can be considered when calculating the accrual.     

Comparison Table - Antenuptial Contract 


Marriage in community of property Marriage out of community of property with the accrual system Marriage out of community of property without the accrual system
Before Marriage No Antenuptial ContractAntenuptial Contract entered into before marriage is solemnisedAntenuptial Contract entered into before marriage is solemnised
On date of Marriage Both spouses estates join into one joint estate which belongs to both spouse in equal undivided sharesTwo separate estates. Each spouse may deal with his/her estate as he/she wishes.Two separate estates. Each spouse may deal with his/her estate as he/she wishes.
During the Marriage Joint estate comprises assets and liabilities that belonged to either spouse at the date of and during the marriage, excluding the following: •Property donated or bequeathed subject to the condition that it shall be excluded from a community of property marriage; •Certain life insurance policies;
  • Delictual liabilities.
-Husband and wife have equal powers with regard to disposal of assets, contracting of debts and management of the joint estate. Can perform any juristic act with regard to joint estate without consent of the other spouse, except acts set out in Sections 15{2) and 15(3) of the Matrimonial Property Act.
ASSETS EXCLUDED:
  • Assets excluded in terms of the antenuptial contract;
• Delictual damages for non-patrimonial loss; • Inheritances, legacies and donations; • Donations between spouses • Certain life policies.
Two separate estates. Each spouse may deal with his/her estate as he/she wishes. Any increase or decrease benefits or prejudices the relevant spouse only. Accrual system expressly excluded in the antenuptial contract.
End of marriage on death or divorce The estate is halved and each spouse is entitled to an undivided half share.Accrual = Difference between the net value at commencement (escalated) and the net value at dissolution of the marriage. -The net value at commencement is declared in the antenuptial contract / separate statement. If no net value stated in contract it shall be deemed to be NIL.Each spouse retains his/her own assets and own accrual – no sharing unless Antenuptial contract compels donations or court orders transfer of assets. An financially dependant party can still claim maintenance.
Advantages Promotes legal and economic equality.Both parties share in the wealth accumulated during marriage Each party is free to conduct his/her own independent financial affairs. • If party goes into debt, it cannot be claimed from the estate of the other party. • In the case of divorce, any assets made whilst married are shared – it doesn’t matter who acquired them; each partner’s current net asset value is calculated by subtracting all liabilities from assets • The antenuptial contract can be tailored to suit the parties needs • It protects the partner who remains at home to care for the familyIf one of the parties becomes insolvent, creditors may not attach the assets of the other • Each of the parties is still legally obliged to offer financial support to one another should one of the parties are unable to support himself/herself. • Full contractual freedom • In second marriages, marriages where the parties already have children , where both parties have already amassed a sizeable estate or in so called marriages of convenience it simplifies matters drastically.
Disadvantages If one of the parties goes into debt, creditors have claim to all of both parties assets • If one of the parties has his/her own business and becomes insolvent, both parties assets becomes fodder for debt collectors • There is no financial or even contractual independence, certain transactions need the written or oral consent of both parties • If one partner should die, the estate of both the deceased and surviving partner will be wound up jointly – not great for the surviving partner who will find themselves in legal limbo possibly without access to funds in addition to the trauma of losing a loved one.Need to keep accurate accounting records.In the case of death or divorce, a spouse is entitled only to those assets accrued in his/her name.
 Should one of the spouses stay at home to raise children, that partner would not be entitled to the assets accumulated by the other partner.
Best suited forYounger couples where there is no business risk from either of the spouses. Outdated. Not advisable.Younger couples. Especially where one of the spouses has his/her own business.Second marriages, marriages where the parties already have children, where both parties have already amassed a sizeable estate or in so called marriages of convenience.

     

What is Accual as contemplated in the Matrimonial Property Act

Accrual is a way to ensure that both spouses in a marriage gain a fair share of the estate once the marriage comes to an end. The accrual system apply automatically to all marriages out of community of property.  For the accrual system to apply, the  Antenuptial Contract must be drafted in a certain way. The accrual system incorporates a calculation that is applied when the marriage is dissolved by divorce. The spouses will share the assets during the course of their marriage based on a particular calculation when the marriage is terminated.


The term ‘accrual’ is 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 enforceable only upon dissolution of the marriage, such a right is not transferable and cannot be attached by creditors during the subsistence of the marriage.


The following assets are not taken into account when determining the accrual (are not included in the net value of the estate):


  • Any asset excluded from the accrual system under the  Antenuptial Contract, 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  Antenuptial Contract 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.

 

The mere fact that the assets of a trust are vested in the trustee does not per se exclude them from consideration when determining what must be taken into account when making a redistribution order or considering an accrual claim. Where a spouse has transferred assets in his/her name into a trust, in order for the court to take such assets into account, there must be evidence first that the party in question controlled the trust, and second that, but for the trust, he/she would have acquired and owned the assets in his/her own name.


Commencement values and accruals

Where parties wish to enter into an  Antenuptial Contract with the accrual system, they must 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 verified and accepted by both parties. It often happens in divorce matters that one party will allege that the other’s commencement value was inflated or completely inaccurate.


Upon the dissolution of the marriage by divorce, the net estate value (assets less liabilities less excluded assets and/or commencement values) of each estate is determined separately. The larger estate must then transfer half of the difference to the smaller estate. Putting it another way, the smaller estate must claim for an amount equal to half of the difference between the accruals of the respective estates. The right to share in the accrual only commences upon dissolution of the marriage by divorce.


The commencement value to be subtracted from the current value of the estate must be adjusted with the consumer price index (CPI) to make provision for any change in the value of money. To calculate the 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.

How to determine each estate’s accrual:

  1. 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.
  2. Deduct the assets that were excluded in the Antenuptial Contract as well as any other assets acquired by virtue of the possession, or former possession, of the excluded assets.
  3. 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.
  4. Deduct any debts and liabilities.
  5. Deduct the commencement value, as stated in the  Antenuptial Contract and adjusted by Consumer Price Index.
  6. The net result will be the accrual in the estate.

 The initial value of a spouse’s estate must be declared either in the  Antenuptial Contract or a separate statement made not later than six months after the marriage, failing which the initial value will be deemed to be nil.

Advantages of marriage out of community of property with the accrual

  • 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  Antenuptial Contract or included in the commencement values of the parties’ estates). The accrual system appeals to people who are already wealthy at the time of marriage.
  • 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  Antenuptial Contract in order for the accrual system to apply.
  • The calculation of accrual at the end of the marriage can be a bit complex.

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