THE BASICS OF ‘TYING THE KNOT’

by | Sep 1, 2022

I have found that many young people arrive at my desk for their personal financial planning. Sometimes they have already tied an unwise KNOT.

Below is a quick summary of the various options available to young (and older) ones who fall in love and who plan to tie the KNOT.

The below article was written by Marchellane Litago and Surakasha Ramlall for SanlamConnect Legal Support.

Introduction:

Boy meets girl or girl meets boy, they fall in love and the rest as they say is ‘history’.

Only, we know that the reality of it far from being that simple.

In today’s society couples are often pressured or persuaded to conclude a marriage in community of property. The main reason for this, is that they often believe that this is the most effective way of proving their love to their significant other. However, this is far from reality as people are generally unaware of the different options of marital regimes afforded to them.

There are 3 different types of marriage regimes that are recognised under South African law:

Civil Marriages;

Customary Marriages (A union that is concluded in terms of Indigenous African customary law) and

Civil Unions (A union that is concluded in terms of the Civil Unions Act, which includes same-sex and opposite-sex couples).

This article aims to focus specifically on Civil Marriages in South Africa.

A civil marriage is a marriage that can only be entered into between a man and a woman. It is the most common type of marriage in South Africa. There are three types of civil marriages:

  1. marriage in community of property;
  2. marriage out of community of property with accrual and
  3. marriage out of community of property without accrual.

MARRIAGE IN COMMUNITY OF PROPERTY

It must be borne in mind that a civil marriage will automatically be in community of property, unless an ante-nuptial contract is entered into which indicates otherwise. On date of Marriage, both spouses’ estates join into one joint estate and each spouse is the owner of on undivided ½ share of the joint estate. However, during the marriage any increase or decrease in the assets of the spouses will benefit or prejudice the entire joint estate. Written consent of both spouses is required for certain important transactions such as those relating to fixed property, suretyship & credit agreements. Upon dissolution of the marriage either by Death or Divorce, the joint estate is halved and each spouse is entitled to an undivided ½ share.

The downfall of marriages in community of property are that couples remain jointly liable for each other’s debt, including debt which was incurred before the marriage. If one spouse is unable to pay their debts their creditors have a claim to the joint estate which can lead to both spouses being declared insolvent. Furthermore, the management of the joint estate can also become cumbersome as spousal consent is needed in certain circumstances e.g. selling fixed property, selling assets etc.

Taxes in respect of In Community of Property marriages:

Income tax: Income received by a taxpayer, is deemed to accrue to the spouses in equal portions. This includes rental from the letting of fixed property/assets that forms part of the joint estate.

Donations tax: Donations between spouses are exempt from donations tax.

Donations to third parties, made by spouses who are married in community of property are deemed to be made by both spouses in equal shares if an asset, which forms part of the joint estate, is donated.

Estate Duty: Assets bequeath to a surviving spouse is exempt from estate duty.

Capital Gains Tax: At death capital gains tax between spouses is exempt as there is roll over relief which applies to assets transferred to surviving spouse. Upon divorce, when a primary residence is jointly registered in the names of parties married in community of property, the R 2-million capital gains tax exclusion would be equally divided between the two parties, in that each spouse will receive a primary residence exclusion of R 1-million.

MARRIAGE OUT OF COMMUNITY OF PROPERTY

Individuals often believe that marriages out of community of property are reserved for the rich. This is a common misconception as they lack the adequate knowledge of what marriages out of community of property actually entail and are unaware of the protection it could afford them compared to a marriage in community of property.

Young professionals today, often lean toward the accrual system as it is viewed as the fairest way to maintain separate estates. The protection afforded by such a marital regime has greater advantages in terms of insolvency as each spouse’s estate remains separate and it also accounts for the needs of the respective spouses upon the dissolution of the marriage.

INCLUDING THE ACCRUAL SYSTEM

The initial value of both estates (before marriage} and the end value of both estates (end of marriage) is considered. The spouse with the larger estate will give the other spouse 1/2 the difference of the two estates (net accrual). There is equal sharing in the growth of each other’s estates at the end of the marriage.

During the marriage the competence of the spouses to deal with their property is not limited in any way, provided that the one does not or will not seriously prejudice the right of the other to share in the accrual. Each spouse retains control of his or her own property, builds up his or her own estate and each is responsible for his or her own debts.

EXCLUDING THE ACCRUAL SYSTEM

Marriages out of community of property excluding the accrual system are similar in nature to marriages out of community of property including the accrual system (as mentioned above). The only noticeable difference between the two marital regimes is that any increase or decrease in the respective separate estates benefits or prejudices the relevant spouse only. Each spouse retains his/her own assets and own accrual as there is no sharing of assets and liabilities.

Taxes in respect of Out of Community of Property marriages, including and excluding accrual:

Income tax: Income received by a taxpayer, is deemed to accrue to each respective spouse in their individual capacity. This excludes income from assets which were excluded from the marriage in terms of a valid ante nuptial contract.

Donations tax: Donations between spouses are exempt from donations tax. Where an asset is donated to a third party, it is deemed to be donated by the spouse who owns the asset.

Estate Duty: Assets bequeath to a surviving spouse is exempt from estate duty.

Capital Gains Tax: At death capital gains tax between each spouse is exempt as there is roll over relief which applies to assets transferred to surviving spouse in their own capacity. At divorce, if a person was married out of community of property, the R 2-million capital gains tax exclusion is applicable in full on the sale of that particular person’s primary residence provided that the individual involved is the sole owner of that property. This capital gains tax exclusion applies specifically to one’s primary residence (R 2-millon). It does not apply per individual.

Conclusion

Therefore, before you tie the knot and then realise that until death do you part is a really long time, give some serious thought to the marital regime that you are entering into, because as they say: ‘Love don’t pay the rent’ and many a young couple has had to learn the hard way.