Article by listed Attorney: Nanika Prinsloo
When a person is sequestrated (insolvent), the effect of sequestration on his/her spouse will depend on what regime the parties are married under. For the purposes of insolvency, “marriage” also includes unions under customary law, and even where the parties are living together as husband and wife even though they are not married.
In this article we will briefly discuss the effect on the spouse of the insolvent person.
Read Also: Achieving Stability through Insolvency
Where there is a marriage in community of property, both the assets of the spouses form one estate and consequently the estate is declared insolvent. In other words, both spouses are sequestrated/declared insolvent as if it is one person.
In some cases persons who are married in community of property manage their finance separately and sometimes only the one spouse experience financial problems or incurs too much debt and the other not.
Unfortunately, in instances like this, it is irrelevant for legal purposes that each spouse managed his/her affairs separately from the other, spouse, because as mentioned above, the parties’ assets and debts form one estate.
There will therefore only be one sequestration application. The spouses will either be the First and Second Applicants (if it is a voluntary surrender application) or they will be listed as First and Second Respondents (if it is a forced or friendly sequestration). Follow this link to read more about the difference between voluntary surrender and forced/friendly sequestration.
Where the parties are married out of community of property, each spouse’s assets belongs to that spouse alone and the sequestration or insolvency of the other spouse does not affect the spouse who is not insolvent (or, to use another word – who is solvent).
Both spouses are insolvent
Where both the spouses are insolvent in a marriage out of community of property, both can (and should) be sequestrated. Since each spouse owns his/her own separate estate, two separate sequestration application will be brought, although they can be brought simultaneously. From a cost and practical perspective it will be better if the two applications are lodged simultaneously.
One spouse is insolvent and the other not
In a marriage out of community of property where the one spouse is involvent and the other spouse solvent, one must first ascertain whether the solvent spouse signed surety for the insolvent spouse.
-The solvent spouse did not sign surety for the insolvent spouse
Where the spouse who is solvent did not sign surety for the insolvent spouse, it is not necessary for this spouse to sequestrate.
However, what will happen is that the solvent spouse will have to prove which of the assets belong to the solvent spouse and which to the insolvent spouse. The reason for this is because it is very possible for spouses to collude about hiding the insolvent’s assets from being attached by pretending his/her assets belongs to the solvent spouse. Legally the ownership of the solvent spouse will also vest in the insolvent estate – until the solvent spouse can prove that the assets belong to him/her.
-The solvent spouse signed surety for the insolvent spouse
Where the spouse who is solvent (not insolvent) has signed surety surety for the insolvent spouse, the creditors of the insolvent spouse will call up the surety and look at the solvent spouse to pay any shortfalls that occurred in the estate of the insolvent spouse.
-Serving of documents by the Sheriff on the solvent spouse
The sequestration documentation will also be served on the solvent spouse. The solvent spouse will be listed as Second Respondent, even though the solvent spouse is not involved in the application of the insolvent spouse.
The accrual system has no consequences to the outside world: it is purely an internal arrangement between the spouses.
This means that where parties are married out of community with the accrual system, the accrual system will only be relevant when the relationship comes to an end – either by divorce or death. If the parties elected to apply the accrual system, the accrual will only be calculated when the marriage comes to an end.
No creditor can make any demand of the accrual of the other spouse.
This article is a general discussion and does not purport to be full legal advice. Each situation is unique and advice must be received on the merits of each case. Contact writer for further advice.
This article written by Nanika Prinsloo of Prinsloo and Associates.