Why are antenuptial contracts important?
Short aswer:
It is responsible financial planning.
Long answer:
Where there is no antenuptial contract you will automatically be married in community of property. This means that the property, assets and liabilities belonging to both spouses at the time of marriage or property, assets and liabilities acquired any time during the marriage become part of the joint estate. The spouses own the assets and liabilities in equal shares.
This firstly means that insolvency of one of the spouses affects both and secondly that where the marriage is dissolved by death of one of the spouses the joint estate is administered. It should be clear that marriage in community of property where one of the spouses owns a business or is exposed to financial risk is not recommended.
Where there is an antenuptial contract the parties can choose whether they want to be married out of community of property with or without the accrual system.
This means that each spouse keeps his or her own assets and is free to deal with his or her own estate as he or she likes. Spouses are not liable for each other's debts. Thus, if one spouse becomes insolvent, creditors cannot touch the assets of the other spouse.
The accrual system recognises that during a marriage the husband and wife keep on adding to their joint property. For example, they may add to their property by both working and bringing money into the marriage. Or one spouse may add indirectly by staying home and looking after the children. The accrual system is based on the idea of marriage as a partnership.
So how does it work? At the beginning of the marriage the estate of each spouse is given a net commencement value. The net value is arrived at by subtracting one's liabilities from one's assets. During the marriage each spouse controls his or her own estate. When the marriage ends each spouse's estate is valued again. The value of each spouse's estate at the start of the marriage gets compared with the value at the end of the marriage. This shows the accrual in each spouse's property. The difference between the spouses’ accruals is calculated and the spouse with the smaller accrual gets half of the difference between the two accruals. Inheritances, gifts and damages for non-financial loss are excluded from the accrual.
So the spouses share their gains made during the marriage but not their assets acquired before the marriage.
An antenuptial contract ensures that you can establish a solid foundation for estate and financial planning, transparency and fairness.
