Marital Contracts or Agreements

Introduction

It behoves to state that any married couple emigrating into Australia with a Marital Contract/Agreement in place would need the same to be verified by a professional i.e., Lawyers specialising in Family or Contract Law. Contractual Law differs from country to country as demonstrated below .

Australian Law

Research conducted by Canstar found that only 6% of married couples in Australia currently have a prenuptial agreement. While over 91% admitted they do not have a prenup with their partner, a further 3% were unsure if they have the legal document in place. A binding financial agreement (BFA) would allow parties to essentially opt out of the jurisdiction of the Family Law Act. However, the potential significance of the amendment has not been realised as the Australian courts have shown a trend in refusing to uphold these. financial agreements and setting them aside. Consequently, the legal profession has generally become reluctant in acting in matters involving the drafting of such agreements. The legal costs of preparing such an agreement have also unfortunately reached extremely high amounts because the practitioners liability escalates.

What is a prenup?

A prenuptial agreement or ‘prenup’ is a legal agreement between the partners in a couple which outlines how their property and assets will be dealt with in the event of their relationship ending in separation or divorce. It is also known as a ‘Binding Financial Agreement’ (or BFA for short), which is the official name for this kind of arrangement under Australian family law.

While the term ‘prenup’ suggests they are most made before a marriage starts, BFAs can also be made during a marriage, after a divorce or separation, or indeed between de facto partners. Without a prenuptial agreement, divorce and separation arrangements are generally settled in court using Family Law Act principles to divide assets and reach a settlement. If a valid prenup is in place, it overrides this.

 A typical starting point for a prenup is to consider what assets both parties have when entering the relationship. Agreements will say ‘What’s yours is yours and what’s mine is mine in the event of separation, but anything we acquire jointly during the relationship will be shared, either by dividing the assets or selling them and splitting the proceeds.

Some prenups have fallen because one of the parties did not know English very well. The consequence of this is that any prenup that was not created properly can be overturned in the Family Court.

South African Law

Being an accountant and tax practitioner in South Africa; the calculation of the accrual should a marriage dissolve was critical for the submission of the individual’s income i.e., what was considered an asset, it’s value after allowing for indexed growth and the origin of ownership in the marriage.

The legal definition of an asset in a divorce is anything that has a real value. Assets can include tangible items that can be bought and sold such as cars, properties, furniture, or jewellery. Collectables, art, and memorabilia are frequently overlooked assets because their value is often hard to ascertain as well as the said assets use of life. It is important to note that an accrual claim does not necessarily have to be settled in cash; it can also be settled with assets or with a combination of assets and cash.

Generally, inheritances are not subject to equitable distribution because, by law, inheritances are not considered marital property. Instead, inheritances are treated as separate property belonging to the person who received the inheritance, and therefore may not be divided between the parties in a divorce.

Most commonly in South Africa parties elect to marry with the chosen regime of out of community of property but with the application of the accrual system. This in essence entails parties retaining their assets prior to marriage however during their marriage accumulating assets into what is termed an “accrued estate”. This accrued estate at the time of divorce is determined and one or the other party will make payment to the other party to ensure that the parties have received an equal distribution of the accrued estate. This regime however encapsulates issues such as starting values and the consumer price index being attributed to it to calculate what the final amount shall be of the division of the accrual to the respective parties.

Marriage out of community of property with accrual means that both spouses have separate estates when they get married and do not share profits or losses for the duration of the marriage.

The term 'accrual' is used to denote the net increase in value of a spouse's estate since the date of marriage. In other words, what was yours before the marriage remains yours, and what you have earned during the marriage belongs to both of you.

What is the difference between with accrual and without accrual?

Only property acquired during the marriage can be considered when calculating the accrual. If there is no accrual system, then the spouses have their own estates which contain property and debts acquired prior to and during the marriage – nothing is shared.