By: David Thomson
SOUTH Africa is seeing a decline in ‘I do’s and a rise in ‘I don’ts’. Statistics South Africa’s 2022 report shows civil marriages decreased by nearly 30% between 2013 and 2022, while divorces increased by almost 11% just between 2021 and 2022.
Estate planning and keeping your will updated are pivotal in every life stage, whether you’re embarking on a journey together – or ending one. It’s also critical to know and understand your rights if you’re one of many couples choosing to commit without the ‘paper to prove it’.
It’s critical to have honest conversations with your partner. Financial independence is important; it can be beneficial for both partners to have their own financial adviser, estate planner, and will, so that each person’s wishes are known and respected.
In a divorce situation, it becomes even more crucial to consider having your own lawyer to advocate on your behalf.
Here, are some critical aspects of estate planning across various life stages:
I do:
If you want to say I do, here are some considerations:
The default: Whether you get married under customary law, the Civil Marriage Act, or the Civil Union Act, the default state is to be married in a community of property, which means all assets brought into the marriage and accumulated afterwards are split 50-50, in the event of death or divorce.
This is beneficial for the ‘poorer’ spouse especially, who now has a claim to half of the joint estate. It can also protect a more financially vulnerable spouse who ‘gives up’ his or her career to focus on raising children full-time, for example.
The pre-nup: Couples can also have an ante-nuptial contract in place. This gives them the option to be married out of community of property, which means all assets remain owned by the respective individuals – not shared.
The accrual system: If they choose the ante-nup, partners can then elect to include the accrual system or exclude it. Accrual means all assets acquired during the marriage are shared.
Once again, this can be beneficial for and protect a more financially vulnerable spouse. Partners can also choose to declare and exclude specific assets from being shared – for example, a business. A property a partner inherits from their parents, for example, is excluded as inheritances are automatically excluded from the calculations.
It’s crucial to consider factors such as whether a partner has been married before and has children from a previous relationship to provide for.
It’s usually best to consult with an estate planner and financial adviser to discuss which system works best for you.
Many people rush into a decision without really considering the repercussions. It can be difficult, but it’s hugely important to discuss how you want to be married upfront. Once there’s a pre-nup in place, it’s extremely difficult and costly to change.
The trust: Another consideration is whether to put one’s assets in a trust. A business owner, for example, may decide they’re exposed to risk, so a trust is a ‘safer’ option.
Moving assets to a trust has tax implications to consider. Partners may also have ‘trust issues’ with a trust, especially if they’re not a beneficiary – or even a discretionary beneficiary – of the trust, so have no vested rights.
If both partners are trustees, this also has big ramifications should a relationship deteriorate. It’s very difficult to remove a spouse as a trustee; you must prove their incompetence in the role.
Buying physical assets: Business owners also sometimes consider putting a physical asset like a house in their partner’s name to protect it from creditors in the event of insolvency. This is all very well, but in the event of a divorce, the house will then remain the property of the ex-spouse as it’s in his or her name.
The will: If you get married out of a community of property, without accrual, but you stipulate in your will that your partner will inherit everything upon your death, then that is what will happen, providing there are no children from a previous relationship who have a claim against the estate.
However, you might have been ordered to pay maintenance to an ex-spouse in terms of a divorce settlement agreement, an obligation that remains after your passing. Maintenance obligations are critical to consider as part of estate planning.
If you commit but don’t want to get married:
Many people live together, which is increasingly being regarded almost as a marriage. However, it’s not a marriage, so there is no joint estate. Individuals will retain their individual assets.
However, there are laws in the pipeline which will give the same rights to partners to claim from each other’s estate, in the event of death. Consider asking an attorney to draft a domestic partnership agreement.
Other considerations to protect loved ones in a relationship:
During a relationship, it’s also important to consider the following:
Having an up-to-date will and ensuring everyone in the family knows where this document is kept. Ideally, each partner should have their own will.
Remember, in the event a person passes away, the joint will goes to the Master Court, and it can be difficult to get it back. It’s much easier if each person has their own document outlining their individual wishes.
Having a professional expert to take on the executorship and smoothly wind up an estate could also be a key consideration to alleviate stress your family may feel.
Having a retirement annuity – these savings are protected from creditors.
Having a savings policy as an investment – this enjoys some protection from creditors and will pay out directly to loved ones (beneficiaries) should you pass away. It won’t go through the estate – provided your beneficiaries are still alive and accept it.
- Having life insurance to give your family a lump sum they can draw down from and live off.
- Planning for the sale of your business (or your shares in a business) should you pass away as a self-employed individual – often the sale of a business is the best way to gift your family a capital amount they can invest and live on.
- Self-employed individuals also need to stay on top of taxes, cash-flow and business operations. Being behind on taxes and financial statements can stall an estate from being wound up – sometimes for years.
- Planning to replace your salary – as an employed person, it’s worth engaging with a financial planner to consider how much cover you need to replace your salary should you pass away.
- Having a trust; this isn’t for everybody due to the tax rates involved, but it can be a powerful way to protect assets for future generations.
I Don’t
Stats SA reported that in 2022, four in 10 marriages didn’t make the 10-year mark and 55.8% of divorces were initiated by women. Additionally, 55.3% of the 20 196 divorce cases involved children under 18.
Things to consider in the event of a divorce:
Change your will if you want to: After a divorce, you have three months to change your will, otherwise it’s assumed that you want your ex-spouse to remain your heir. If you pass away within those three months, without changing your will, your ex-spouse will not be seen as your heir, aside from the maintenance claims they’re entitled to.
Update your beneficiaries for your retirement fund: Make sure the beneficiaries nominated on your pension fund, annual group risk and private insurance policies are up to date.
- Make sure you’ve made provision for maintenance.
Gather a team: Consider having your own lawyer, financial planner, and estate planner on your ‘side’ to get a plan in place and advocate on your behalf.
It’s a good idea to engage with an estate planner annually to ensure your documents and plans are up to date. It’s important to have conversations about how you want to commit to each other upfront. Don’t rush into decisions and try to consider what’s fair and feels right for both partners.
With the right planning with which Sanlam can assist, you can create a legacy that lasts. Legacy isn’t just about what we leave behind when we pass away; it’s about the decisions we make today and in every life phase.
* Thomson is a senior legal adviser at Sanlam Trust.
PERSONAL FINANCE