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ANTENUPTIAL CONTRACTS AND THE CIVIL UNIONS ACT

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Article by listed attorney: LUISE OSTLER

 

Introduction

In terms of The Civil Unions Act 17 of 2006, a civil union is defined as a voluntary union between two persons of the same sex or of opposite sexes, older than the age of 18, solemnised and registered either by way of marriage or civil partnership. A civil union will have the same matrimonial and patrimonial consequences as a marriage concluded in terms of The Marriage Act 25 of 1961. This means that if the parties to a civil union do not enter into an antenuptial contract, the civil union will be one in community of property and the provisions of the Matrimonial Property Act 88 of 1984 will apply. The fact that same-sex couples can now enter into a marriage or civil partnership that may be registered means these couples are afforded protection in the context of succession and financial planning.

As South Africa does not recognise any form of ‘common-law marriage’, unmarried parties − whether they are of the same or opposite sex − receive no protection upon the dissolution of their relationship either by death or separation. Where parties have contributed financially to a joint estate but have never solemnised their union, one party may be left out-of-pocket should the other die intestate or should they part ways. Of course, this applies unless they have entered into a universal partnership.

The consequences of a civil union in community of property

Where an antenuptial contract has not been entered into by the parties before they solemnise their union, then the matrimonial property regime that automatically applies is in community of property and profit and loss. In terms of this regime, all the property owned by each party before the union and obtained by each party during the union will fall into the joint estate. In other words: the parties automatically become joint owners, in undivided shares, of all assets. One party to the union will not be able to dispose of the joint assets, bind the joint estate as a debtor, perform certain juristic acts or litigate against third parties without the consent of the other. Significantly, should one party be declared insolvent, the other party will automatically be declared insolvent as well.

Unions in community of property and profit and loss are only advisable in specific circumstances. Parties should be aware that choosing a union under this regime will result in major complications upon death or divorce. Upon the death of one spouse, the survivor will find that his or her half-share in the joint assets, particularly cash and investments, will not be accessible until the estate has been wound-up. In the case of divorce where the separation is not amicable, the parties may struggle to divide the joint estate and may be forced to engage the services of a receiver and liquidator to assist in selling assets and dividing the proceeds.

The consequences of a civil union out of community of property

Where a couple choose to enter into a union out of community of property, they can choose between a union out of community of property with the application of the accrual system or without the application of the accrual system. It is essential that the parties are aware that an antenuptial contract has to be executed before a Notary Public before the solemnisation of their union. The Notary will then ensure that the contract is registered in the Deeds Registry within three months of the union.

Whether or not the accrual system is chosen, a union out of community of property means that the parties have separate estates and can act, in most cases, without the consent of the other. One party can incur debts and even be declared insolvent without any serious effect on their partner.

Where parties elect to enter into an antenuptial contract with the accrual system, it is necessary for the contract to set out each party’s starting value. For example: one party may own immoveable property valued at R500 000 while the other owns a motor vehicle valued at R50 000. Where these are the only assets owned, their values will constitute the starting values. Where parties have no assets of real value, their starting values will be nil.

Upon separation or death, the value of each party’s estate will be calculated. The party whose estate has shown the least amount of growth during the union will be entitled to half the value of the growth in the other party’s estate. A calculation of this entitlement will be made, taking into account the respective starting values. The parties can also choose to exclude certain assets from the application of the accrual system by specifying them in the contract.

Where parties elect not to incorporate the accrual system, their estates will be kept entirely separate and they will not, unless in exceptional circumstances, benefit or have to pay out any amount upon the dissolution of the union.

Conclusion

Couples intending to enter into a civil union need to be aware of the consequences of failing to enter into an antenuptial contract, namely that their union will be one in community of property. If they do not want to be subject to such a regime, they should enter into an antenuptial contract and decide whether or not the accrual system should be applied.

If they plan on having children and/or one spouse may not earn an income, the accrual system will result in a fair division of any growth upon the dissolution of the marriage by death or divorce. Where the parties do not plan on having children and each have careers and substantial assets, electing not to apply the accrual system may be the best option.

If people are planning to enter a civil union, it is advisable to consult an attorney in good time before the event to establish which regime best suits their circumstances. They should take time to discuss the implications of their choice with each other and then ensure that if they choose to enter into an antenuptial contract, they execute it before solemnising their union.