Getting married? Consider the accrual system

The wedding is round the corner, the dress is finally done, the suit decided on and the flower arrangements settled. Now for the last item on my list – make an appointment with a lawyer and find out about this ‘ANC’ and accrual system everyone keeps telling us about?

The wedding is round the corner, the dress is finally done, the suit decided on and the flower arrangements settled. Now for the last item on my list – make an appointment with a lawyer and find out about this ‘ANC’ and accrual system everyone keeps telling us about?

The “accrual system” or more correctly, when you are married out of community of property with the accrual system, became available as an option for couples getting married to deal with their individual estates following marriage (matrimonial property) from 1 November 1984. The position today is that every couple getting married is automatically married in community of property (their estates are joined) unless they exclude the ‘in community’ part through the conclusion of a specific contract called an antenuptial contract or ANC. This can only be concluded before an attorney that is also a notary public.

So you don’t want to make your separate estates one, but you also don’t want to have everything completely separate. Fair is fair and you recognise that during the course of the marriage each party may contribute differently for the good of the household. You want a system that recognises these contributions even if financially they may be different. This is where the accrual system provides an option for couples midway between totally in community or totally out of community of property.

The accrual system determines that at dissolution of the marriage (through divorce or death), each party shares in the accrual (growth in assets) accumulated by the other as a fair mechanism to compensate both parties. Importantly, parties only share in the accrual or “net profit” of the other’s estate and not in any losses incurred.

So how will this ‘accrual’ be calculated? Calculating the accrual (or net profit) can be tricky and one must understand the different components to this calculation. The accrual is determined by deducting the initial value of an estate from the end value thereof, after making allowance for permitted deductions. Permitted deductions can include assets such as an inheritance or donation which accrues to a specific spouse.

The initial value of an estate (total assets less total liabilities on the date of marriage) is established by including this in the ANC and thereby setting the initial value for both estates from which growth at dissolution of the marriage can be calculated. Importantly, if you do not include any initial values in an ANC, then it will be deemed that the value of your initial estates were nil. When calculating the accrual of an estate, the initial values are also adjusted to reflect the Rand values as on date of cacluation using the Consumer Price Index to assist.

To illustrate the above, the following practical example can be used. Joe and Sue marry after 1 November 1984 and choose the accrual system. Joe declares the initial value of his estate in their ANC to be R200 000.00 and Sue her’s to be R50 000.00. At the dissolution of the marriage (Joe’s death), the respective values of their estates assets are Joe R2 000 000.00 and Sue R200 000.00. At the date of conclusion of their marriage the Consumer Price Index was 150 and at dissolution it is 300.

Joe’s estate:

 

 

Net value (assets less liabilities) at dissolution

 

  2,000,000.00

Less: Initial value declared in ANC

  200,000.00

 

         Adjusted for Consumer Price Index:
         300 X R200,000 ÷ 150

 

 400,000.00  

Net value of accrual in Joe’s estate (A)

 

1.600,000.00

Sue’s estate:

 

 

Net value (assets less liabilities) at dissolution

 

 200,000.00

Less: Initial value declared in ANC

50,000.00

                     –  

Adjusted for Consumer Price Index: 300 X R50,000 ÷ 150

 

100,000.00

Net value of accrual in Sue’s estate (B)

 

  100,000.00

Difference between accruals: (A) 1,600,000.00 – (B) 100,000.00

1,500,000.00

 

Sue is entitled to claim one-half of the difference in accrual from the estate of Joe (1,500,000.00 ÷ 2)

 

  750,000.00

 

Through the above example it is clear that Sue, although her estate did not grow as substantially as that of Joe’s, was still able through the working of the accrual system to qualify for half of the net growth in their respective estates and thus illustrates how the accrual system provides a fair solution midway between sharing nothing or everything.

 
August 21, 2012
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