Your marriage regime may affect your claims in a divorce where a trust is involved

The reality is that almost half of all marriages end in divorce. It is also a reality that future-to-be-ex-spouses usually attack trust structures set up by their spouses in an attempt to maximise their claims. Aside from being an emotionally traumatic life event, divorce can often have a severe impact on a person’s financial security and quality of life. Divorce generally goes hand in hand with a great deal of distress over the manner in which the assets, that have been built up during the marriage, are to be divided.

A significant change in marriage regimes was introduced in 1984. Up until 31 October 1984, divorcing parties were forced to rely on the Divorce Act, which did not make provision for the accrual of property. You were either married in community of property (sharing assets equally) or out of community of property, with no accrual (keeping assets completely separate). The Accrual System was introduced on 1 November 1984, through the introduction of the Matrimonial Property Act. All out of community of property marriages concluded since this date are subject to the accrual system, unless expressly excluded in the spouses' pre-nuptial contracts.

The Divorce Act was amended in November 1984, with the aim of restoring the financial imbalance often suffered by the wife during divorce. It made provision for the ability of the Court to redistribute assets between spouses where the parties are married out of community of property, taking into account that they did not have the opportunity to make accrual of property applicable when they married. It was required that the claiming party should demonstrate that he/she contributed directly or indirectly to the maintenance or increase of the estate of the other party, whose assets were held completely separate. The Court will take into account the means of both parties and should be satisfied that the redistribution order is just and equitable, taking into consideration the contribution of the claiming party to the estate of the other party.

Marriage in community of property

In terms of such a marital contract, both parties are the owners of the joint estate. From the onset of the marriage, all assets and liabilities accumulated by one or both parties prior to the marriage are incorporated into a single, joint estate, with certain assets being excluded, such as those assets inherited by one of the parties, under the strict understanding that they will not form part of the joint estate. The consequence is that the assets in the estate are owned jointly regardless of who purchased such assets, with all property in the joint estate belonging to the husband and wife as an equal, indivisible portion, and both parties sharing in the profits or losses of the estate. Both spouses are also jointly liable for the debts in this estate. Should you create a trust, you, as the estate planner, require the consent of your spouse to sell or encumber any assets, that are not excluded from your joint estate as indicated above, to a trust. Assuming that your spouse grants consent to sell the joint assets on loan account to a trust, upon such sale, the value of the loan account will be an asset in the joint estate and be subject to division upon divorce.

Marriage out of community of property, without accrual

This type of marriage takes effect when the marrying parties enter into an antenuptial contract. An antenuptial contract is a contract entered into by both parties, which sets out the rules and conditions in respect of the division of assets during the marriage. In this type of marital contract, the property owned by a person prior to the marriage, as well as all property accumulated during the marriage belongs only to that person, and the spouse has no claim to it. The same rule applies to liabilities. Each party's debt remains his/her own responsibility. Consequently, each party may deal with his/her estate in a will, as he/she wishes, subject to a claim for maintenance by a surviving spouse (Maintenance of Surviving Spouses Act). Each spouse retains assets in his/her own estate, and the transfer of assets into a trust by one spouse, will not affect the estate of the other spouse. Consequently no spouse should have a claim against assets held in trust by the other spouse upon divorce.

Marriage out of community of property, with accrual

In terms of such a marriage contract, the difference between the net increases in the respective estates during the marriage (the accrual) is divided equally between the two parties when the marriage is terminated. Any assets brought into the marriage will be excluded.

The calculation of the accrual can briefly be summarised as follows: 

Assume the value of the estate of one party at the time the marriage is contracted is R 1m, and the value of the estate upon the termination of the marriage is R 5m. The value by which the estate has increased (in this case R 4m) is then deemed the accrual. The same calculation must be done for the other party to the marriage. Should the value of the accrual (as calculated above in the other party's estate) be R 1m, the difference in accrual between the estates of the two parties is therefore R 3m (R 4m - R 1m). The party whose estate accrued by the lesser amount will then have a claim against the other party's estate for half of the difference in accrual. In this case the claim would be R 1.5m. The accrual (excluding the values upon marriage) will therefore be divided equally (R 4m - R 1.5m = R 2.5m for the one party and R 1m plus R 1.5m = R 2.5m for the other party in the marriage).

Certain assets are however excluded from the accrual in terms of the Matrimonial Property Act. These are:

• An inheritance received during the duration of the marriage
• Donations made or gifts between the parties during the duration of the marriage
• Assets explicitly excluded in terms of the marriage contract

Although the individual marriage partners may bequeath their separate estates at their discretion, it is important to note that, upon death, in terms of the accrual system, the other party may have a claim that would have to be finalised before the testamentary distribution can take place. The testator could be prevented from bequeathing his/her estate as he/she wishes if, after settlement of all claims, there are insufficient assets or funds in his/her estate to carry out his/her wishes. 

A spouse in this type of marriage may also transfer assets to a trust. Usually, assets are sold by the estate planner to the trust on loan account. The trust is unlikely to have the means to pay for such assets transferred. Either way, the loan or the cash, including the growth thereon, will be included in the estate of the spouse who sold his/her assets to a trust. The spouse with the smaller estate may then share in the growth of the estate of the spouse with the larger estate, upon divorce.

It is advisable to plan your life in such a way that you do not suffer financial ruin should your marriage break down. In order to do this, it is important to understand how you are married from a legal perspective, and what the implications will be upon divorce, in the event that any of the spouses created a trust before or during the marriage.