You have to give as much attention to your marriage contract as you give to your wedding arrangements, if not more. If you are already married, make sure you understand how your marriage contract affects your finances.
Unless you have signed an antenuptial contract (ANC), you will automatically be married in community of property (COP), as that is the default contract under South African law.
If you’re married in community of property, this means you and your spouse have a joint estate. Everything you have is owned by both of you equally. The same holds true if you divorce – you share the assets.
What comes as a shock to many couples is how debt is dealt with when you are married in community of property. As the spouse, you are 100% liable for any of your partner’s debts, even if you were not aware of them. If, however, you marry out of community of property then you are never liable for your partner’s debts.
Hidden loans: In terms of COP, while the Act may state that you have to obtain your spouse’s consent for certain transactions, this generally applies between the spouses and is not applicable to third parties. So, if your partner did not tell you about the debt, you cannot use that as an argument against the creditor. There are some exceptions, like the purchase of immovable property, which requires the spouse’s consent upfront.
Debt review is a joint affair: The implications of debt under COP are wide-ranging. Not only can creditors come after you for the full value of your spouse’s debt, but if your spouse is placed under debt review, you would be as well, as your estates are joined.
Even death does not part your money: When married in COP you are jointly and severally liable for all the debt incurred and that extends to death. You need to make sure that not only do you disclose all debt to each other, but also make sure that that debt can be settled should you die.
Make sure you have a will: If your partner dies without leaving a will, you will receive your 50% of the joint estate. However, the balance is divided in terms of the Intestate Succession Act. This means that you could lose some of your personal assets – such as money in your own bank account or business interests – to your children, which could have some serious financial consequences, as well as causing a rift in the family, depending on your family dynamics.
You have to get permission to spend your money: Marriage in community of property also limits your legal rights, as you cannot enter into certain forms of contract (including the purchase of a property) unless you have the consent of your spouse. That being said, it is concerning to see how many loans are issued without the awareness of the spouse.
In the early years of your marriage it is important to discuss your finances and to understand who pays for what and what contribution you both make to the family. It is paramount that you each have your own savings plans and that any debt is fully discussed and agreed to between both partners.
If one partner is taking on excessive debt to maintain the family’s lifestyle, this can only end in disaster. If you are married in COP you and your partner have an obligation to be open about each other’s finances – especially the debts and any other liabilities.
Bills matter, even if you are not married in COP
A final thought – while those of us who are not married in COP may be feeling fairly smug right now, the question of proof of ownership of assets can be a contentious one. If your spouse becomes insolvent, what proof do you have that you bought and paid for assets that creditors may wish to sell?
Also bear in mind that while creditors may have no claim against the surviving spouse when married with an ANC (with or without accrual), the reality is that assets which may be important to the financial well-being of the family may need to be sold to cover the deceased’s debt. This will inevitably cause both financial hardship and emotional distress.
The debt discussion is just as important to have even when not married in COP. Your estate needs to have enough cash to settle your debt and enough remaining capital to replace your lost income.
We need to run our financial lives like a business, regardless of the marital regime:
- Have a budget, which you adhere to and re-visit at least annually.
- Keep proof of ownership of material possessions, so that if necessary you can prove it.
- Restrict your use of credit to the absolute minimum and settle this credit as soon as possible.
- Pay yourself first.
- Ensure that if you should die there is enough cash to settle debt.
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