Marriage and Tax: Why choosing how you get married is as important as choosing your wedding ring

Once the “big” question has been asked and met with a resounding “Yes!”, the planning for your dream wedding commences. A big part of the planning focuses on the budget for the wedding and how it should be spent, who to invite, seating arrangements, etc. But just as important as the decision to get married itself, is the decision of how to get married (i.e., how the marriage will be registered for financial and tax purposes).

South African law provides two main options: getting married in community of property or getting married out of community of property. The default, if no position is taken, is being married in community of property. However, if you entered into an antenuptial contract prior to your marriage, you are then married out of community of property. Married out of community of property is further divided into two groups: with accrual or without accrual.

Each marriage regime has consequences for income tax and estate duty, both during the marriage and upon the passing of either of the spouses in the marriage.

What is yours is ours and what is ours is ours

Couples that marry without an antenuptial contract will by default be deemed to have married in community of property. This means that all assets and liabilities acquired by the individual spouses prior to the marriage and all assets and liabilities accumulated subsequently during the marriage, will fall into a joint or communal estate.

During the lifetime of the marriage, each spouse will be liable for income tax on 50% of the investment income (local/foreign interest, local/foreign/REIT dividends), capital gains, and rental income received by the other spouse. Income from employment is taxed individually (and fully) in each spouse’s personal capacity.

When a spouse passes away when married in community of property, the surviving spouse is automatically entitled to 50% of the deceased’s assets and liabilities, decreasing the value of the estate by 50% but limiting the power of the deceased to bequeath assets to heirs and legatees outside of the marital regime.

What is yours is yours and what is mine is mine

Couples that marry with an antenuptial contract that expressly excludes accrual are deemed to have married out of community of property. Marriages out of community of property without accrual requires an antenuptial contract drawn up before the marriage which discloses the values of each spouse’s estate on the date of marriage.

The contract stipulates that property owned by spouses before marriage remains the property of that spouse. Spouses control their own estates, although spouses must contribute to household expenses according to their means. Estates relating to marriages out of community of property without accrual is the easiest to administer, as there is no accrual.

This marital regime deems each spouse liable for his/her own income tax liability on any type of income earned during the lifetime of the marriage.

What is yours is yours, what is mine is mine, and what is ours is ours

Couples that marry with an antenuptial contract are deemed to have married out of community of property subject to accrual unless expressly excluded by the contract. Accrual regulates the growth of each spouse’s estate from the date of marriage. If the first spouse that passes away has a smaller accrual, a claim will be against the surviving spouse, unless the spouse inherits more than the amount of the claim.

If the entire estate is bequeathed to heirs and legatees outside of the marital regime, the administration of the deceased estate is complicated if the surviving spouse cannot settle the claim. Marriages out of community of property with accrual exclude inheritances or donations received during the marriage from accrual.

Donations from one spouse to the other are excluded from the calculation of each spouse’s accrual, and are not included in the recipient’s growth, whilst the donor’s accrual is reduced by the donation. Spouses married out of community of property can create a joint Will, bequeathing their estates separately to their beneficiaries. The surviving spouse may have an accrual claim against the estate, which will be a liability against the estate that must be deducted before distributing the estate to the beneficiaries.

This marital regime deems each spouse liable for his/her own income tax liability on any type of income earned during the lifetime of the marriage.

Choosing how you get married is not something that should be left as an afterthought. Just as important as the choice of ring and where to seat your uncle that never stops telling tales from the “good ol’ days”, is what marital regime will provide you with the most financial security and freedom.