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 / must be spent. A consideration as important as the decision to get married, is how to get married, i.e., how will the marriage be registered for financial and tax purposes.
South Africa law provides two main options: Getting married ‘in community of property’ or getting married ‘out of community of property’. The default, if no decision is made, is being married ‘in community of property’. However, if you entered into an ante-nuptial 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 carries consequences for income tax and estate duty, both during the marriage and upon the passing away 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 belonging to both spouses acquired 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 dividends and REIT income), capital gains and rental income received by the other spouse. Income from employment is taxed individually (and entirely) in each spouses’ personal capacity.
When a spouse in this marital regime passes away, the surviving spouse is automatically entitled to 50% of the deceased’s assets and liabilities. Thus decreasing the value of the estate by 50%, but also 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 ante-nuptial contract that expressly excludes accrual are deemed to have married ‘out of community of property’. Marriages ‘out of community of property’ without accrual require an ante-nuptial 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 remain 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 are 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 form of income earned during the lifetime of the marriage.
What is yours is yours and what is ours is ours
Couples that marry with an ante-nuptial 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 dying spouse has a smaller accrual, a claim will be against the surviving spouse, unless the spouse inherits more than the claim amount.
Should the entire estate be 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 donation reduces the donor’s accrual. 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 form of income earned during the lifetime of the marriage.
Given the various intended and often unintended consequences arising from the chosen (or default) marital regime, we advise that you consult with a lawyer for the legal consequences and with us for the tax consequences prior to entering into your marriage.