In South Africa, the law makes provision for three different types of marital regimes, and each of these have their own requirements and consequences. Business men and women can expose themselves, or worse their marriage partners, to potential business risks, depending on which marital regime they decide to enter into. It is therefore of paramount importance to make an informed decision regarding the marital regime one wishes to enter into, before “tying the knot” so to speak.

The Matrimonial Property Act 88 of 1984 (hereinafter “the Act”) makes provision for three types of marital regimes, namely a marriage which is concluded in community of property; a marriage which is concluded out of community of property with inclusion of the accrual system and a marriage which is concluded out of community of property which excludes the accrual system.[1]

Position #1:

Marriage in community of property

A marriage in community of property, is a marriage which is concluded in the absence of a duly executed Antenuptial contract. Such a marriage, which is deemed or alternatively intended to be concluded in community of property, has the following effects on any business individual.

Firstly, the Act provides that persons who conclude a marriage in community of property, will have both their respective estates joined into one joint estate. All assets acquired before and after entering into the marriage, by either of the spouses form part of the joint estate (unless specifically excluded by the Act. Each spouse is deemed entitled to a 50% (Fifty Percent) share of such an asset, together with any fruits that it may bear. Therefore, any business bought by one spouse, will form a part of the joint estate, and the other spouse will be entitled to a 50% (Fifty Percent) share thereof.

Secondly, any liability incurred by a spouse, becomes the liability of the other spouse as well. The spouses are said to be jointly and severally liable towards any of the debts incurred by the other spouse, or that of his or her business, in the event of a sole-proprietor or partnership setup. This means that such a creditor can claim the debt from either of the spouses. It should be borne in mind that registered companies comprise of their own separate legal entities and does not fall within the ambit of exposure contained in a marriage which is concluded in community of property. However, should your business be run a sole proprietorship or partnership, the risk is imminent.

Thirdly, the Act sometimes requires a spouse who is married in community of property, to obtain the consent, or in some cases, the written consent of the other spouse, before entering into certain types of agreements. This requirement can for obvious reasons complicate the business atmosphere and delay decision making, which delays may be unwanted in the modern era.

Fourthly, for obvious reasons, a person who owns a business runs the risk of the business failing, which may affect their personal financial position. In such an event, it could have a serious effect on the joint estate. Thus when one spouse is declared insolvent, the joint estate becomes insolvent, which subsequently renders the status of the other spouse insolvent as well.

Lastly, when a marriage in community of property dissolves by means of divorce or by death of a spouse, the entire joint estate winds-up, which could have the possible effect of serious cash-flow problems, should the joint estate contain a business which is being run in the name of an individual, or should a business be exposed in the form of loans and the like towards such joint estate.

Position #2:

Marriage out of community, with inclusion of the accrual system

When a marriage is concluded out of community with the inclusion of the accrual system, i.e. if an Antenuptial contract is duly executed and registered in the deeds office, which indicates that the accrual system is applicable, such a marriage will have the following effects on any business individual.

Firstly, each of the spouses has their own separate estate in lieu of a marriage which is concluded in community of property (the joint estate). All assets which either of the spouses respectively acquire, forms part of the estate of the spouse which acquired the said asset and does not form part of a joint estate.

Secondly, the same principle applies to all liabilities incurred by the respective spouses. In this marital regime the respective spouses are protected against the claims that creditors might have against the other spouse. In simple language, it means that you as a business-individual will only be liable towards the debts incurred by yourself and not that of your spouse, as opposed to a marriage which is concluded in community of property.

Lastly, when such a marriage is dissolved due to divorce or death, the accrual claim is calculated, and the estate of the spouse which after being calculated, accrued lesser between the spouses, becomes entitled to an accrual claim against the other spouses’ estate. In this instance there is little to no effect on the business operations of the business person/owner.

However risks towards creditors may still exist in other forms such as, sureties, long- and short-term agreements, pledges and other forms of security. One should still take care in managing one’s business affairs to protect the marital assets.

Position #3:

Out of community of property, without the accrual system

A marriage which is concluded out of community of property and which specifically excludes the accrual system has the effect of each spouse having their own separate estate, which acquires its own assets and liabilities, and which are independent from one another. When this type of marriage dissolves, no accrual is calculated (as in the case of a marriage concluded out of community of property with inclusion of the accrual system), and a clean separation is drawn between the two estates.

It is important to note that the latter two regimes pose less possible business risks, in not being jointly liable towards possible business related creditors; not having to obtain consent of the other spouse to enter into agreements; the solvency-status of one spouse not having an effect on the solvency-status of the other spouse, and avoiding the inevitable protraction of business cash-flow should the marriage dissolve. One must however still take care where other risk aggravating factors are produced that may expose the other spouse such as suretyships, long- and short-term agreements, pledges and other forms of securities.

Be sure to contact your trusted attorney to ensure your business interests are safeguarded at all times.

 

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[1] The Matrimonial Property Act 88 of 1984.