MORNÉ BEZUIDENHOUT: Do the sums before you say ‘I do’
Before getting married it is important to look at all the financial implications
Before fine-tuning your menu and making a note of who to thank in the bridegroom’s speech, the thing you should really be ticking off the list before tying the knot is that you’ve considered all the financial implications of your union.
With finances being cited as the leading cause of stress in relationships and the third-largest cause of divorce, being on the same page about your finances is critical.
Set joint financial goals together.
Knowing each other’s financial situation and money mindset before you take your vows is the first step. Then you need to answer some important questions: will you use separate bank accounts or manage your finances from one? How much are you going to save every month? Do you want children together? Where do you see yourself in five, 10, 20 years’ time? When would you like to retire? How do you envision retirement?
Once you’ve thought about these key issues, you’re ready to consider the immediate practicalities about the sort of marriage contract that will suit you both.
Put a marriage contract in place before you walk down the aisle.
There are three choices in SA — in community of property, out of community of property with accrual, and out of community of property without accrual.
You will automatically be married in community of property unless you put an antenuptial contract in place before your wedding. Being married in community of property means your assets and liabilities will become 50% owned by your spouse, and you will own 50% of theirs. Gifts and inheritances that are given on the condition that they are excluded from this common estat, can be excluded. Your spouse may need to give consent for you to enter into certain contracts, such as buying immovable property, shares or similar assets. Upon divorce, the common estate is shared equally between spouses, regardless of what each spouse contributed during the marriage.
These days, marriages out of community of property automatically take the accrual system, unless you exclude it or vary it in your contract. Spouses will declare a commencement value in their antenuptial contract (or it will be nil if none are given) and then each spouse will continue to conduct their own estate independently. Some assets are excluded from accrual, such as compensation for pain and suffering, inheritances, legacies or donations and assets specifically excluded in terms of the contract.
Upon divorce, the spouse showing the smaller accrual (growth) since the beginning of the marriage will have the right to claim half of the difference between the accrual of the respective estates of the spouses. The reasoning behind the accrual system is that each spouse should share in the growth that was achieved during the marriage.
To illustrate, if Mr and Ms Perfect were married in community of property and their estates were worth R1m and R2m respectively, their total assets would be equal to R3m at the start of the marriage. If at the end of the marriage the common estate is worth R6m, each spouse would be entitled to R3m.
If Mr and Ms Perfect were married out of community of property with accrual and their estates were worth R2m and R4m respectively, the total assets of their estates would be R6m at start of the marriage. Assume that Mr and Ms Perfect’s estate during the marriage grew to R5m and R6m, respectively. At the end of the marriage the total accrual is R5m. Both parties have the right to a half share of the accrual, which is R2.5m.
If there was no accrual system applicable to the marriage, Mr and Ms Perfect will be entitled to R5m and R6m, respectively.
Draw up a will or review your existing will.
Use an attorney to draft your will as it can become complicated. It may be appropriate to change the beneficiary nominations on existing investments and life assurance contracts. Assess your portfolio with your financial planner and make any relevant changes. Even if there are no children now, you might want to think about providing for any you may have later.
Draw up a budget.
Budgeting is critical to achieving long-term financial independence whether you’re married or not. With the routine of casting an eye over the monthly rands and cents, you’re more likely to stick to your financial plans. Regular check-ins and open, honest conversations with your spouse about spending and saving will help you keep your finances on an even keel.
So before you take the matrimonial plunge, take the time to speak to an independent financial planner with the CFP® accreditation.
• Bezuidenhout is a director and wealth manager at Netto Invest.