I am getting married. What should I know about tax and finance?
So you are getting married. Congratulations! What are the essential things you need to know relating to tax, estate planning and asset protection?
The first thing to consider is the nature of your marriage. There are a number of options –
1) A traditional marriage. In law this is a marriage in community of property.
2) Community of Property. The effect of this marriage is that the two separate estates (wealth) merge into one which is the shared property of both parties. On dissolution of the marriage, the two parties have equal claim to their joint estate and have to negotiate a mutually acceptable settlement (sharing of the wealth). All marriages are automatically in community of property unless they are governed by an ANC.
3) Antenuptial Contract (ANC). This is a contract which must be entered into before marriage (ante – before; nuptial – marriage). It sets out the total value of each of the parties’ assets and those values form the basis of subsequent calculations upon dissolution of the marriage or bankruptcy of one of the parties. The two estates remain separate, but either grow by equal amounts accruing after the marriage (a) or grow independently of each other (b).
a) ANC under the Accrual System. Let’s say spouse A enters the marriage with R1m and spouse B enters it with R2m. During the marriage, their joint wealth grows by R6m. That is R3m each, so that now spouse A’s estate is worth R4m and spouse B’s R5m. If either spouse is bankrupt then that spouse’s creditors are entitled to that spouse’s estate (R4m or R5m) but not that of the other spouse. Similarly in the event of a divorce, spouse A is entitled to R4m and spouse B to R5m of the total wealth.
b) ANC with no accrual. Each spouse enters the marriage with their assets as in (1) above. During the marriage, each of them adds wealth to their own estate independently of the other so that there is no need to calculate who shares in what at the end unless they opt for joint ownership of a particular asset (such as the family home) in which case they will each own one half of that asset.
Recommendation. Most marriages are under ANC with accrual 3(a) above, because the separate estates cannot both be attacked if one of the parties is bankrupt. The accrual system is what most couples consider to be fair treatment in that they both contribute in their own manner to the partnership that produces the wealth.
The second thing to consider is whether to form a family trust at the outset.
If it is expected that the parties to the marriage will build significant wealth and if they can afford the carrying cost of a trust (about R4 000 per year), then yes, form a trust and start donating to it annually see Trust Basics.
Thirdly, be aware that all transactions between spouses (and “spouses” includes same sex and opposite sex life partners whether married or not) are free of tax with one exception. Transfer Duty still applies if property is transferred between spouses.
Also of note is that if married under ANC and one spouse makes a (tax free) donation to the other, then that donation falls outside of the accrual and is the sole property of the recipient. I do not know whether this is the case under community of property, however, I suspect that it is not possible for one spouse to donate to the other under these circumstances because they only have one estate between them, so a donation would be from the estate to the same estate.
What else do you need to know? Marriage is a partnership and partnerships survive on giving to your partner, not taking. Focus always on the giving and you stand a good chance of enjoying a wonderful partnership. If that turns out not to be the case one day, don’t give up! The next partnership survives on the same thing. If you did your utmost to be a giver and the partnership went sour, it was not for lack of effort on your part, you just found a dud that’s all. Don’t let it affect your approach next time.