Determining whether a person is married for legal purposes and tax purposes is paramount in their financial or estate planning journey. Of further importance is whether a marriage is in or out of the community of property.
The proprietary ownership of assets in marriages in South Africa is governed by the Matrimonial Property Act 88 of 1984. The Act requires that people who wish to marry need to decide, before their marriage, whether they wish to enter into an ante-nuptial contract or not.
In financial planning and estate planning, there are certain benefits that come with being a spouse, and because of this, the definition of ‘spouse’ is important. These benefits include:
· Bequests (in terms of a will) to a spouse are free from estate duty in terms of the Estate Duty Act
· Transfers of assets between spouses are free of capital gains tax in terms of the Income Tax Act
· Donations to a spouse are free from donations tax in terms of the Income Tax Act.
· Transfers of property between spouses are free from Transfer Duty
With so many blurred areas on what exactly defines a spouse, let us have a look at what qualifies one as a spouse, specifically in the context of income tax, capital gains tax, estate duty, transfer duty, and donations tax.
The following people are considered to be spouses:
- A partner in a marriage or customary union recognised in terms of South African law.
- A partner in a union recognised as a marriage in accordance with the requirements or practices of any religion.
- A partner in a same-sex or heterosexual union, which the Commissioner is satisfied is intended to be permanent. Partners, therefore, do not have to be married to enjoy the tax benefits of married spouses. There are, however, certain instances where these partners will not automatically benefit from the same protection that a married spouse has, for example, on death if there is no will.
There are three marital regimes in the Matrimonial Property Act:
- Marriages without an antenuptial contract, called in community of property marriages
- Marriages with an ante-nuptial contract, with accrual
- Marriages with an antenuptial contract. without accrual
Marriage in community of property
A marriage is in community of property if no antenuptial contract is entered into by the spouses before marriage.
On the date of marriage, the spouses’ assets and liabilities are joined into one estate, with each spouse having an equal 50% claim to it. All assets and liabilities accumulated during the marriage will form part of the joint estate in the future and are shared equally between the spouses when the marriage ends, either at death or in divorce.
Each spouse owns half of the joint estate, irrespective of how much they had at the beginning of the marriage or how much they each added during the marriage. On the first death, only half of the joint estate will be subject to estate duty. Any amount bequeathed to (left to) the surviving spouse is not subject to estate duty, and that spouse benefits from any unused estate allowance when they pass away. The full estate is subject to the executor’s fees.
Gifts or inheritances that are specifically stipulated to be excluded from the community of property estate do not form part of the joint estate. This is for example, if a spouse inherits a property, the other spouse will not be able to benefit from it at divorce, as it does not form part of the joint estate.
The law also states that spouses married in community of property may not perform certain juristic acts without consent from both spouses. For example, one spouse cannot take on debt without the other’s consent, as it affects their joint estate.
Where this becomes important is when one spouse is sequestrated or becomes insolvent, the other immediately becomes sequestrated as well, and their joint estate becomes insolvent. If one spouse wants to set up a business when they get married, it might be prudent to set up an antenuptial contract when they get married to protect the other spouse’s assets if the business fails.
Marriage out of community of property
The accrual system automatically applies to a marriage out of community of property after 1 November 1984 with an Ante Nuptial Contract (ANC). It can be excluded in terms of the antenuptial contract signed before the marriage. It is a document drawn up and signed in front of a notary public (such as an attorney) and is registered at the Deeds Office.
A post-nuptial agreement can be entered into during the marriage, but there has to be a valid reason for this, and the application must be made to the High Court, showing that no creditors will be harmed or disadvantaged by this agreement. It is a costly application, and it is therefore easier to set it up from the start.
Where there is an out-of-community property accrual system, each spouse’s estate remains separate and will not require the other spouse’s consent for transactions. When the marriage ends through death or divorce, the wealth acquired by the two spouses during the marriage is shared equally between the spouses.
The additional value that each spouse brought into the marriage is considered, and the difference between the value gains is split so that each person’s estate after marriage becomes equal. This way, a spouse who did not work and whose investments didn’t grow as much will benefit from the other spouse’s assets as an equal partner and is not left destitute when the marriage ends. The accrual claim by the surviving spouse reduces the value of the deceased’s estate for Estate Duty purposes.
If the antenuptial contract excludes accrual, there is no accrual claim. However, this is far less clear-cut these days as there are fairness issues that have come before the Constitutional Court. Amendments to the law might shortly be made to provide a sharing regime to spouses who had uneven bargaining power in marriage.
Before getting married, it is essential to understand the legal and financial implications of the different marital regimes available in South Africa. The choice you make will significantly impact your future financial well-being, asset protection, and estate planning.
Always consult a qualified financial adviser before entering into marriage to ensure your financial plan is aligned with your personal circumstances and goals.
* Nxumalo is a financial planner at Alexforbes.
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