Marriage contracts: what’s best for you?

MONEY BASICS with MARTIN HESSE

MARRIAGE CONTRACTS: WHAT’S BEST FOR YOU?

TYING the knot is a big deal, and it's not just about choosing a partner who loves you and will complement you and bring out the best in you. Financially it's one of the most important decisions of your life.

You know what they say about important decisions, right? The more information you have, the more considered and balanced a judgement you will be able to make. If things turn out badly, you will not be able to say you weren't aware of the possible consequences.

For example, if the man you are marrying physically abused his previous girlfriend, it's better you know that upfront. Having that knowledge, you may still decide to marry him, but at least you will have factored possible negative outcomes into your decision.

And so it is with the type of marriage option you commit to, of which there are three:

1. IN COMMUNITY OF PROPERTY

This is the default option – it doesn't require you to go to a lawyer and have anything drawn up. Under this option, you and your partner combine what each of you own into what is known as a "joint estate", of which you each have a 50% share. Everything either of you acquires during marriage also goes into this joint estate. Like each of the three options, this has its pros and cons.

It's equitable if you both start off with relatively nothing. But it's not so equitable if one partner is much wealthier than the other. Another thing: you don't only share in what you own, you share in you owe! If your partner has big debts before getting married, you get to share them once you become a couple.

2. OUT OF COMMUNITY OF PROPERTY WITHOUT ACCRUAL

This requires a legal contract, known as an antenuptial contract, to be drawn up by a lawyer and signed by each of you prior to your wedding. This option is essentially the exact opposite of being married in community of property. You own your things and your partner owns his things and it stays that way throughout your marriage. On the negative side, if you have little to begin with and don't accumulate much of your own during your marriage, you will be left with very little in the case of a divorce. This could happen if, for example, you gave up a career to raise children –the time and effort you spent raising the children has no monetary value. On the plus side, you are protected from your partner's debts.

3. OUT OF COMMUNITY OF PROPERTY WITH ACCRUAL

This is the "middle road" option, which combines aspects of the above two options and which is favoured by most couples nowadays. It also requires you and your partner to sign an antenuptial contract, and if the contract does not specifically state "without accrual" (option 2), it is the default contract. You draw up a list of things you own, including any savings or investments you have (known as your assets) and your debts (your liabilities). You retain in your estate the value of those assets, but any assets that accrue to either of you during your marriage will be split 50-50 on divorce.

Say your pre-marital assets come to the value of R80 000, and his come to R160 000, and during your marriage you acquire assets to the value of R1 million.

On divorce you will get your R80 000 + R500 000 (half of the R1 million you both acquired) = R580 000. He will get R160 000 + R500 000 = R660 000. (This is a simplification, because inflation is also taken into account.) However, like option two, the accrual system does not apply to debt. If your partner notches up personal debts, they are his alone.

For more on the financial implications of different types of partnerships, including living together unmarried, read “Head over Heart” by Roz Wrottesley in the 3rd-quarter edition of Personal Finance quarterly magazine, on the shelves at selected retailers from mid-August.