Is it best to marry in or to marry out?

Are you planning to get married in community of property or out of community of property? This is a conversation that every couple should have before even setting up the wedding date.

“I love you and want to be married to you, but can we play it safe because life can be unpredictable?” This is how I can describe marriage outside community of property.

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What I have noticed is that the partner who makes more income or has more assets, will prefer to be married out of community of property in order to protect their interests when they die or divorce.

The partner with lesser assets or income wants security and would rather be married in community of property. Imagine investing in a relationship only to come out with nothing when it is dissolved.

Out of community is still an unpopular topic

The conversation around the type of marriage contract easily sparks arguments amongst partners and their families, but it is a conversation that is bound to happen before the wedding day.

When I had this conversation with my fiancé who is now my husband, the atmosphere was very tense as we were not in agreement.

I know of instances where the weddings were almost stopped by the families because they could not agree on the same marriage contract.

Back in the days, especially if getting married the Christian way, it was taboo to get married out of community of property. The pastors interpreted it as marriage being doomed to fail because the parties are getting married with the intention of filing for a divorce. However when the successful daughters of these same pastors got married, they want their daughters to marry out.

What are the different types of marriage contracts

1. Marriage in community of property

This is a contract where the spouses share equally in the estate. It means that you inherit both the baggage and the treasures that your spouse has. If your spouse has debts when entering the marriage you also become liable for them. If your spouse has assets, it also means that you also have a share in those assets.

In simple terms, it means that my assets and debts are also yours and your assets and debts are also mine. If in future one of the spouses makes a bad investment decision, it means they will deal with the consequences together, and if there are future gains, they will both share in them.

How do you get married in community of property?

It is the simplest form of marriage contract as you automatically default to marriage inside community of property if you fail to provide an anti-nuptial contract. If you go and sign at home affairs without the anti-nuptial contract, you are automatically getting married inside community of property.

It becomes very costly to change to out of community of property once you have already been married in, and therefore it is better to weigh all options before signing.

Tax implications

Salaries are taxed separately, but passive income is taxed equally amongst the spouses regardless of who received it. Passive income includes rental income, dividends, interest income etc.

Advantages of marrying inside community of property

• No administration, it is free as you do not require the services of an attorney to formulate the anti-nuptial contract.
• Ideally, both spouses have to consent to the debt to be incurred, meaning that one spouse cannot incur new debt without their partner’s knowledge. However, in the real world creditors have a way of bypassing this.
• You share equally in the estate, even if you have only made a financial contribution of 5%

Disadvantages of marrying inside community of property

• You are penalized for your spouse’s credit behavior. If he or she is blacklisted it will affect your credit scoring.
• If one of the spouses fails to honour their debt, the creditors have the right to claim also from the spouse who did not make the debt because they are seen as one.

2. Marriage out of community of property

Marriage outside community of property is divided into two, namely with accrual or without accrual.

What is out of community of property with accrual

With accrual means that on the anti-nuptial contract you can specify which assets and/or liabilities are excluded from the marriage, but wealth or losses acquired in the marriage will be divided equally when the marriage is dissolved by either death or divorce.

During the life of your marriage, you are seen as separate persons, meaning that creditors can’t come after the other spouse’s assets. You are not liable for your partner’s past mistakes or their over-indebtedness. Also, you are not disadvantaged if you happen to lose your job or if you are a housewife or house-husband, because it is assumed that the wealth created in marriage is a joint effort.

In simple terms, it means what I acquired before the marriage is MINE, and what we will acquire in the marriage becomes OURS only if we divorce or one of us dies.

Advantages of out of community with accrual

• You are not penalized for your spouse’s credit behavior. If they are blacklisted it will not affect your credit scoring.
• When the marriage is dissolved you are still entitled to 50% of the net assets that were generated during the life of the marriage even if you could not contribute financially.
• You do not need the consent of your spouse to incur debt, which can be both an advantage and a disadvantage.
• Passive income is taxed on the hands of the spouse it belongs to.

Disadvantage of out of community with accrual

• The spouse can go and incur debts without your consent, and if the marriage is dissolved, these debts will form part of the estate which will have to be shared.

How do you get married out of community of property?

You will need to consult with an attorney who specializes in marriage contracts before getting married. The attorney will draft your anti-nuptial contract (ANC) or prenatal agreement, which you will then sign once you are both satisfied with its contents. The ANC will then be registered with the deeds office.

When you sign with your marriage officer, you will have to present your registered ANC so that you can be exempted from marriage inside community of property.

What is out of community without accrual

Out of community without accrual means what is mine is mine, including what I will acquire in the marriage. If we divorce or one of us dies, you will leave with what is yours and I leave with what is mine. However, you might be required to pay alimony to the spouse with less in order to maintain their lifestyle.

Advantages of out of community without accrual

• You are not penalized for your spouse’s credit behaviour. If they are blacklisted it will not affect your credit scoring.
• Divorce is easier as everyone takes what is theirs in the marriage.

Disadvantage of out of community without accrual

• The spouse that was unable to generate much income to purchase significant assets will leave the marriage with nothing significant although she was involved in the day to day running of the household.

Tax implications

Only the spouse who has received the income will be taxed.

Example of the marriage types

Example 1: If a spouse is unable to pay back the debt

Spouse A is an employee at a company earning a decent salary and has managed to pay off the cars and mortgage bond.

Spouse B is an entrepreneur, and has invested all the life savings in the business with the hope of making great returns. When business was booming, Spouse B has also made a major business loan in order to be able to meet the demand. Months later, Spouse B lost a major contract and is now struggling to make the loan repayments. Spouse B had signed a shareholder guarantee and guaranteed some of the assets as security for the loan.

Implications if married in community of property

If the couple is married in community of property, the lender can take all their assets to recover the debt, although some of the assets were purchased and paid for by spouse A. Also, spouse A will have to use the salary to pay back the loan and also suffers the risk of being blacklisted if the loan is not repaid.

Implications if married out of community of property

If the couple is married out of community of property, Spouse A will not be affected by Spouse B’s indebtedness. The lenders would have no right to touch the assets which are in Spouse A’s name and the family including the children would still be in a position to live a comfortable life.

Example 2: If Spouse A decides to file for a divorce

Spouse A got married in possession of assets worth R300 000 and pension of R200 000. In the marriage Spouse A acquired assets of a further R1 million and switched jobs and generated pension of R1 million. Spouse A has no debt. Her Net asset value is R2.5 million (R500 000 acquired before marriage)

Spouse B has no assets but a net debt of R1.5 million due to the failed business.

Implications if married in community of property

Spouse A has assets of R2.5 million while B has a liability of R1.5 million. The remainder after deducting the debt is R1 million. It therefore means that:

• Spouse A is entitled to R500 000
• Spouse B also R500 000

Implications if married out of community of property with accrual

• Spouse A: will retain the R500 000 that was accumulated before the marriage plus R250 000 (R2 million less R1.5 million = R500 000*50%)
• Spouse B will acquire R250 000

Implications if married out of community of property without accrual

• Spouse A will retain both the R500 000 acquired out of marriage plus R2 million acquired during the marriage.
• Spouse B will have a net debt of R1.5 million.