The financial implications of changing your marriage contract

In South Africa, the default matrimonial property regime is in community of property, the effect of which is that the couple share a single, joint estate in equal, undivided shares. However, many couples enter into a community of property marriage unaware of the notable shortcomings of this type of marriage contract, particularly when it comes to debt and insolvency. In this article, we take a closer look at Section 21(1) of the Matrimonial Property Act which makes provision for couples to change their contract. Here’s what to know.

If you are currently married in community of property, you will know that you and your spouse did not sign any formal contract when entering into your marriage. This is because, in the absence of an ante-nuptial contract, you are deemed to automatically be married in community as at the date of marriage. While this type of marriage may seem innocuous at the outset, many couples come to appreciate the shortcomings of community of property marriage later on when issues arise. Marriage in community of property is a deeply flawed system especially when it comes to debt, insolvency or divorce, and some couples who recognise these shortcomings opt to change their marriage contract in accordance with the procedure set out in the Act. However, it should be noted that there are stringent criteria that must be met in order to bring about changes to the contract, which include:

  • In pursuing such an application, it is important to note that both spouses must bring the application and must consent to having their marriage contract amended. One spouse cannot bring such an application without the other spouse’s consent and participation as the Postnuptial Contract will need to be signed by both parties
  • When making an application to the courts, you and your spouse will need to set out sufficient reason for making the change and explain why no other person or entity will be prejudiced as a result of the change.
  • You will need to satisfy the court that neither of you is insolvent nor has any judgement against you. Further, the court must be satisfied that no other person will be prejudiced by the change. Remember, a change to your marriage contract affects the rights of creditors in respect of debt and/or insolvency, and the courts will need to ensure that your creditors’ rights are protected. In a community of property marriage, you and your spouse and jointly liable for each other’s debts, including the debt that you each incurred before marriage. Also, because you share a joint estate, bear in mind that your spouse has the capacity to bind the joint estate through his actions. While you are married in community of property, you and your spouse remain jointly and severally liable for all debts in the estate, and creditors can pursue the joint estate to recover what is owed to them. If you change your contract to an out of community marriage, this will no longer be the case.
  • In preparing for the High Court application, you and your spouse will need to prepare certified copies of your ID documents, marriage certificate, proof of address and income tax numbers. You will also need to provide information pertaining to your minor children, assets and liabilities, employment, as well as a full list of all existing creditors.
  • To ensure that your creditors are notified of your intention to amend your marriage contract, you will be required to publish a notice to creditors in two local newspapers (one English and one Afrikaans) as well as in a government gazette, and these notices must be published at least 14 days before your application is set to be heard. You will also need to send notices to your respective creditors via registered mail. Because of this requirement, the process can take up to three months to complete.
  • In terms of legislation, a couple is able to make an application to the High Court for leave to sign a Notarial Contract which, after the Postnuptial Contract has been registered at the Deeds Office, will have the effect of an ante-nuptial contract which will regulate your new matrimonial property regime. As this process requires an application to the High Court, be aware that it can cost between R15 000 and R30 000 in legal fees, depending on the complexity of the matter, keeping in mind that when drawing up your Postnuptial Contract, you and your spouse will need to agree on a division of assets. For instance, if you and your spouse own fixed property, you will need to have the title deeds of the property endorsed in terms of Section 45bis. Remember, your marriage contract is designed to set out the financial consequences of your union, meaning that you and your spouse should be intentional about clearly setting out the terms of your marriage and dividing the assets as you deem fit.

Importantly, it is critical that you and your spouse fully understand what it will mean to be married out of community of property, and how it will affect your finances going forward, especially if your marriage were to dissolve due to death or divorce. A few essential points to note are:

  • An out of community marriage means that you and your spouse will retain separate estates over which you will each have full autonomy. If you choose the accrual system, it is important to understand how the accrual calculation will operate in the event of divorce or death, as this will greatly impact your estate planning.
  • While married in community of property, 50% of the joint estate is yours to bequeath as you see fit. However, being married out of community of property means that you are free to distribute 100% of the assets in your name as you deem fit although, again, it is important to understand how the accrual calculation would affect your estate planning. Importantly, you will need to redraft your respective wills to account for your new matrimonial property regime.
  • If married out of community of property, note that you are fully responsible for all debt incurred in your name meaning that debt is no longer a shared responsibility. You will also be responsible for managing your credit record and credit score.

Although you will now have separate as opposed to joint estates, it is still possible to have a joint financial plan and, in fact, this is advisable. Your financial adviser should be in a position to amend your financial plan, including your estate plan, in line with your new marital contract.

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