Distrust of ante-nuptial contracts is unfounded, says lawyer

Recent advice from a Cape Town Lawyer, Ulrik Strandvik of Grant Gunston Attorneys, is particularly relevant to those with investments in the property sector.

When couples get married, said Strandvik, there is often a strong feeling that to draw up an ante-nuptial contract reflects a lack of trust and commitment.

“This,” he says, is understandable because the ante-nuptial contract is specifically designed to cope with possible negative outcomes down the line, such as death or divorce.”

This perception, says Strandvik, should be put aside because in reality an ante-nuptial contract is in most ways more equitable and preferable to being married in community of property – and it facilitates estate planning.

“In SA law,” said Strandvik, “where an ante-nuptial contract is not entered into the total assets of both parties automatically become jointly held – and this includes any fixed property owned by one of the parties. This is called a marriage in community of property.

“Under the community of property arrangement in theory no one party can transact directly in such a way as to affect the couple’s assets without the permission of the other party – but if one party enters into business deals which result in unpaid debt, the creditors can lawfully seize the jointly held assets.”

The effects of this, said Strandvik, have on occasions been disastrous for the “innocent” spouse.

This being the case, why does not everyone use the ante-nuptial contract?

According to Strandvik, apart from the misconception that it implies an unwelcome distrust at the outset of the marriage, the ante-nuptial system previously (before 1984) had the big disadvantage that one partner could increase his or her assets by large sums – and then exit the marriage taking them all with him.

“Typically,” said Strandvik, “a businessman could build up a small empire in his own name and then leave the wife with nothing except what she brought to the marriage. In many of these cases, the home would also be in the name of the husband. Long, expensive divorce proceedings would then have to get a more equitable settlement and all too often one party was able to hide certain assets.”

That situation, said Strandvik, was totally remedied by the introduction in 1984 of what is known as the accrual system.

“Under this system, in the event of a divorce each party holds onto the assets they brought to the marriage but any assets, including properties acquired after the marriage, go into a joint pool and are divided equally between the two parties or their heirs.

“If, for example, the spouse A has built up assets of R2 million and spouse B has only R1 million, the difference between them would be split 50/50 – so that each could would end up with R1,5 million, i.e. half the assets accrued since marriage.”

Describing this as a “brilliant” arrangement, Strandvik said that it eliminates the previous major objection to ante-nuptial contracts.

“It has proved highly effective in SA,” said Strandvik, “and strengthens the factors in favour of ante-nuptial contracts.”

In good estate planning, he added, it makes excellent sense to put some income earning assets such as rental producing properties in the name of the spouse who earns nothing or little, thereby reducing the income tax paid by the spouse earning the larger sums.

“It is surprising,” he said, “how often this logical step is not taken.”

Article by: www.grantgunston.co.za