Alexander Forbes Life Insolvency implications in terms of a Marriage under the Accrual System Where a couple are married in terms of an ANC contract with accrual a claim arises, upon death or divorce, for the spouse with the smallest accrual during the marriage duration. The accrual is deemed to be the amount by which one of the spouse's net value of the estate at dissolution of the marriage exceeds the net value of the other spouses estate, taking into consideration the net value of both estate's at the commencement date of the marriage. In many cases, an estate's commencement value will be deemed to be zero, if the liabilities exceeded the assets at the commencement date of the marriage. A spouse whose liabilities exceed his assets (a potential insolvent) at any later stage cannot at that later stage show an accrual. A spouse whose liabilities exceed his assets can thus never have an accrual claim against them. However, on the dissolution of the marriage they can have an accrual claim against the solvent spouse. This is the only circumstance where the possibility exists that assets can be attached in relation to an accrual claim due to insolvency. The Matrimonial Property Act provides that the right of a spouse to share in the accrual of the estate of the other spouse is, during the existence of the marriage, not transferable or liable for attachment, and does not form part of the insolvent estate of the spouse. As an accrual claim arises only on dissolution of the marriage, there is nothing that may be attached or transferred during the existence of the marriage. Therefore, there is no claim that can be part of an insolvent estate during the existence of the marriage. The problem arises on the dissolution of the marriage where the insolvent spouse has an accrual claim against the solvent spouse or their estate. Can an insolvent spouse repudiate the accrual claim on the dissolution of the marriage? There is legal opinion that this can be done, however, in repudiating the claim the insolvent spouse will infringe the rights of his debtor's in terms of the Insolvency Act. If the insolvent spouse repudiates the accrual claim at the dissolution of the marriage, it will be deemed to be a donation which, in terms of the Insolvency Act, will be a disposition of assets without a value and may be set aside. The result is that the accrual claim will settle in the hands of the trustee of the insolvent estate. When providing financial planning advice, we often encounter the situation where the solvent spouse would buy a property in their name after their spouse was declared insolvent. This creates a problem as the solvent spouse's accrual increases in value, thus increasing the insolvent spouse's accrual claim against the solvent spouse at the same time. It would be good advice for the client to rather purchase the asset/property in a family trust. If the trust does not have the necessary funds to buy the asset, the solvent spouse can finance the purchase, which will create an outstanding loan account, which forms part of the solvent spouse's estate. The trust can own a life policy on the life of the solvent spouse, to ensure that there is enough money available to settle the loan account on the death of the solvent spouse. The accrual claim will then be calculated on the outstanding loan account and not the value of the asset. The solvent spouse should also take a policy on the life of the insolvent spouse for an amount equal to the loan account, should the insolvent spouse die, the policy proceeds can then settle the accrual claim (with no effect to the assets in the trust). In conclusion, during the estate planning process the negative aspects regarding a marriage subject to the accrual system should be considered. Due consideration needs to be given to the implications surrounding the purchase of assets where one party is insolvent or owns a business or farm where the potential for insolvency exists. During the existence of the marriage the assets will be protected against the creditors of the insolvent estate, but on dissolution of the marriage, half the value of the property/asset will be included in the accrual claim of the insolvent spouse. For further information or advice relating to individual circumstances please contact your Financial Planner. Alexander Forbes Life FAIS License: 1178 The information is protected by applicable intellectual property laws and cannot be copied, distributed or modified for commercial purposes. Whilst every effort has been made to ensure that the information contained herein is current, fair and accurate, this cannot be guaranteed. The use of this information by any third party shall be entirely at the third party's discretion and is of a factual nature only. The information contained herein does not constitute advice as contemplated in terms of the Financial Advisory and Intermediary Services Act 2002. Alexander Forbes Group (Pty) Lid does not expressly or by implication represent, recommend or propose that products or services referred to herein are appropriate to the particular needs of any third party. Alexander Forbes Group (Pty) Ltd does not accept any liability due to any loss, damage, costs or expenses which may be sustained or incurred directly or indirectly as a result of any error or omission contained herein. In the event of any discrepancy, the provisions within the underlying legislation will apply.
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