February brings Valentine’s Day – and romance and proposals are in the air. However, before you walk down the aisle, you need to know what type of marital contract you are signing and understand the financial consequences of each.

Taking care of the fine print in contracts can sometimes make for a huge financial saving later. In a society where blended families have become more commonplace, this could make a huge difference when a partner dies and assets need to be split between the current partner and children from a previous relationship.

David Thomson, senior legal adviser at Sanlam Trust, says a recent case highlights the importance of vigilance when it comes to your inheritance. In this case, the daughter was married in community of property and inherited a farm from her mother.

If the mother had not stipulated that her bequest should be excluded from her daughter’s joint estate, the daughter’s husband would be entitled to half the inheritance on death or divorce, and the farm would be at risk if he were to be declared bankrupt or have a court judgment against him.

“Inheritances are, however, automatically excluded if you have an antenuptial contract with accrual,” Thomson says. Continuing with the case study: the daughter sold the farm and took out a home loan to buy a townhouse – using the proceeds of the farm sale to partially fund the purchase.

“Her husband then died and his executor included the full value of the townhouse in the joint estate. She objected to this as it meant that potentially half of the townhouse would pass to his two children (from a previous marriage) in terms of his will.

“She argued that all (or at least part) of the value of the townhouse should be excluded from the estate as she used her inheritance monies to purchase it.

“In this example, the title deed to the townhouse makes no reference at all to her mother’s will and simply refers to the purchaser as married in community of property. Unlike other title deeds we have seen, the deed does not record that the property falls outside the joint estate by virtue of inherited funds and the provisions of a will,” Thomson explains.

In addition to this, the mother’s will did not say that the proceeds of the disposal of the farm, or a property purchased to “replace” the farm, should be excluded from the daughter’s in-community marriage.

“In hindsight, it might have been better to amplify the exclusion details in the mother’s will or leave the farm to a trust for the daughter,” Thomson says.

If you choose to live with your life partner without a marital contract, you may by law be regarded as a spouse for certain purposes (such as pension fund rights), but you each retain your own separate estate.

The different marital contracts

In South Africa, there are three different legal marriage contracts:

  1. Community of property: Your marriage is automatically considered to be in community of property if you do not sign a marital contract beforehand. Your assets are split 50:50 on divorce.
  2. Antenuptial contract (ANC): If you sign an antenuptial contract, this usually means that the spouses retain their own assets on divorce. You keep any assets you brought into the marriage as well as any assets you purchased with your money. Your savings are included, which means that your retirement fund benefits remain your own and are not split on divorce.
  3. ANC with accrual: This is essentially a compromise between the previous two contracts. You each retain ownership of the assets you brought into the marriage. Assets accumulated during the marriage are split on divorce. This will include your retirement fund benefits. Any bequests or inheritances are automatically excluded from your divorce settlement.

*A recent ruling means that even if you were married with an antenuptial contract, you may now (on divorce or death) be entitled to claim a redistribution of assets. This is not an automatic entitlement – you would have to go to court. 

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