The author deals with cohabitation, marriage, divorce and the painful process of winding up an estate after death. Wherever your relationship is going, take this information with you and you’ll be better prepared for the future.
Contract for love
Source: The Saturday Star’s Personal Finance published on October 16, 2004.
By Charlene Clayton
Romance and finance … it’s an explosive combination. The precedents for disaster are all around in the bitter aftermath of separation, divorce and loss of a partner, yet still couples unite their lives and their households without thinking ahead to the unknown and unpredictable. In this special section of four articles, we deal with cohabitation, marriage, divorce and the painful process of winding up an estate after death. Wherever your relationship is going, take this information with you and you’ll be better prepared for the future.
Trust is an essential part of any relationship, but it should not be an excuse for ignoring the financial implications of living together. If you do not plan to marry and enjoy the protections and obligations a marriage contract provides, you need to plan your financial partnership all the more carefully.
When you and your partner live together, your financial lives become as intertwined as your personal lives, whether you like it or not. If you are living together but have not formalised your relationship legally, you are in a particularly vulnerable position, Bonny Feldman, the media liaison officer at First National Bank, says. So-called common-law relationships are not recognised in South African law, despite perceptions to the contrary.
But the situation is changing. There is a growing acceptance that unmarried partnerships – whether same-sex or heterosexual – should be recognised, because increasing numbers of people are not getting married, some by choice and some because South African law does not yet allow gay couples to marry.
Over the years, cohabiting couples have challenged existing laws and been successful in setting new precedents – and even in getting certain laws amended which now give cohabiting partners some rights.
Amanda Catto, a family law expert and a director at Bowman, Gilfillan Findlay & Tait, says certain pieces of legislation have extended the definition of spouse to include partners in long-term monogamous relationships. In some cases, gaps in existing laws have been exploited successfully and the courts convinced that couples who have lived together for a number of years have jointly accumulated wealth, and should therefore enjoy a legal status similar to that of married people.
For instance, although customary Muslim marriages are not recognised in terms of the law, a Muslim woman obtained compensation from her husband’s employer in terms of the Occupational Injuries and Diseases Act after he was killed in a work-related accident. In this case, the court extended the benefits of that Act to her, although they would normally apply only to partners in legal marriages. But the basis of the claim was that in Muslim marriages there is a contractual agreement that partners will look after each other.
In another case involving the Police Medical Scheme Fund, a gay policewoman succeeded in obtaining medical benefits for her partner, although these were normally only for the spouses of members.
More recently, High Court Judge Kathy Satchwell took the Minister to Justice to court for failing, despite certain undertakings, to bring about changes to the law governing the remuneration and the conditions of employment of judges. The Judges Remuneration and Conditions of Employment Act provides for certain benefits for the spouses of judges, and Satchwell, who has a long-standing same-sex relationship, claimed that her partner was discriminated against because she was not eligible for these benefits.
TheConstitutional Court subsequently found that a reciprocal duty of support was a vital requirement if benefits are to be extended to all same-sex partners.
Good news though all this is, the bottom line for cohabiting couples, Catto says, is that recognition of cohabitation is limited to specific pieces of legislation and there is no uniformity across legislation protecting unmarried couples. Without a specific law regulating cohabitation, it is still not a recognised legal relationship. When such a relationship falls apart, it is all too common that the finances of the couple unravel too, often with devastating consequences for one partner.
Unmarried individuals in a long-term relationship can protect their rights and finances by drawing up a cohabitation agreement. Without such a contract, whatever each partner owns prior to the relationship remains his/hers and what they accrue together is not shared, Catto says.
A cohabitation agreement – like any other agreement between two parties – is legally binding on the partners. However, to enforce your rights, you would have to take your partner to court, which is always a costly and lengthy process.
There is no set format for a cohabitation agreement, but it should stipulate who should get what if the relationship ends. The agreement should contain clauses dealing with immovable property, such as the home, and expensive movable items, such as washing machines and refrigerators, that were bought by one or other partner for the use of both.
The couple has to decide whether such possessions are his, hers or theirs.
Since spelling out the rights of each party to the accumulated possessions of the partnership is fraught with difficulty, it is advisable to have the agreement drawn up by a lawyer – preferably a family law specialist, Catto says. The cost of having such an agreement drawn up is a small price to pay for the financial protection of the partners should they split.
Catto says one advantage of a cohabitation agreement over a marriage agreement is that you can choose to go to arbitration rather than to court, and arbitration is a far quicker process, because just getting a court date can take 18 months.
Arbitration is not permitted as a method of reaching a settlement and dissolving a marriage. Another advantage of arbitration is that you can choose an arbitrator with specialist knowledge.
Some people believe that a cohabitation agreement must be notarised to make it enforceable. Notarisation is a process whereby a document is stamped by a notary and becomes a public document, registered at the Deeds Office. Notarising the agreement does not make it any more significant, Catto says.
Buying a house
If you buy a house together and it is not registered in both your names, one partner will be at risk of a substantial loss if the relationship ends – whether it ends because of a breakup or a death, FNB’s Feldman says.
While the law does not recognise cohabiting partners as spouses, the person in whose name the property is registered is the sole owner of the property, even if the other partner has made a significant contribution to, for instance, the bond.
If you contribute to a property that is not in your name and then have to divide your assets, you could be faced with a legal battle to recover your money from your former partner. You would need, for a start, detailed records of your expenditure on the property, Feldman says.
According to Catto, imbalances in partnerships usually favour men, who will have documentary evidence that they bought the house and car and were paying them off. Frequently, women invest in the home by way of paying for the consumables: electricity, telephone, domestic help, childcare and other consumables. When couples break up, women often lose out because they have no right to claim compensation from the partner who gets the house. The quid pro quo, in such situations, is that they lived rent free, Catto says.
By registering a property in both names, both partners have a stake in the property and their interests are protected in terms of the title deed. If your name is not on the title deed and you do not have a cohabitation agreement, in terms of the law you are not entitled to a share in the property. When a house is registered in both names and the relationship turns sour, one partner can buy the other partner out and take transfer of that share of the property. Transfer duty and costs have to be paid, but these costs are less than they would be if the entire property were transferred.
Property registered jointly does not have to be shared 50:50. It can also be registered 80:20 or 70:30 if there is a vast disparity in the financial input of the partners. The bond on such property must be registered in both names too. How the partners pay the bond is up to them, Feldman says, but the bank will usually hold the partners liable 50:50. Accepting different levels of liability from different parties can create great risk for the bank, and thus banks tend to hold both signatories jointly and severally liable if the bond falls into arrears. In other words, if your partner does not pay his/her share of the bond and the account falls into arrears, you will be individually as well as jointly liable for the outstanding amounts.
If your partner defaults on his/her portion of the bond repayments, and you pay it to prevent the bank from repossessing the house, if you have a cohabitation agreement, you can sue your partner for what you paid on his/her behalf.
Sharing the possessions
When couples separate, possessions such as the dining room suite and the dishwasher can be as great a source of conflict as the house, Catto says. Your cohabitation agreement must specify how you plan to deal with those assets in the event of the relationship ending.
The agreement should state that the belongings remain the possession of the purchaser, or it can provide for an accrual system in which all the possessions are shared – irrespective of who paid for them – in the event of a breakup.
Some people like to contribute to a joint account that pays for household items such as appliances and furniture. In that case, the cohabitation agreement should specify how items bought from this account should be divided.
Death and estates
Married couples automatically inherit from each other when a partner dies intestate. But there is no right of intestate succession between cohabiting couples, no matter how long they have lived together. A partner is not automatically regarded as an heir or a dependant, according to a report by the South African Law Reform Commission.
In terms of the Intestate Succession Act, if there is no valid will, the beneficiaries of the estate are, first, a spouse or descendants, or both. If there is no spouse or descendants, the estate will go to more distant members of the family.
If you lived together out of wedlock and your partner failed to make you a beneficiary in terms of his/her will, you might have to prove your contribution to the joint estate before you would be entitled to anything. Proving actual contribution is often extremely difficult, especially after a partner has died. The solution to the problem of inheritance is for cohabiting partners to make wills naming each other as beneficiaries. Alternatively, inheritance can be regulated in terms of a cohabitation agreement.
In March 2004, maintenance benefits under the Maintenance of Surviving Spouses Act were extended to unmarried life partners. As a result, the surviving partner may claim reasonable maintenance from the estate of their deceased partner.
Justine Wyatt, the senior legal adviser at Metropolitan Odyssey, says both the Income Tax Act and the Estate Duty Act have extended the definition of spouse to include couples living in permanent same-sex or heterosexual unions. These couples are now treated as married couples from an income tax and estate duty perspective.
Donations tax is dealt with under the Income Tax Act and unmarried couples can now donate freely to each other as married couples do. However, be careful not to use donations to evade or delay the payment of tax, Wyatt says. When it comes to estate-planning, the partner with the larger estate can donate R30 000 a year to the partner with the smaller estate, and the couple can then donate R60 000 (without incurring donations tax) to a trust which can invest the money. In this way, the partner with the larger estate can reduce his or her estate and allow investment growth to take place in a trust, rather than in his or her estate.
Couples should revisit their estate planning in order to take advantage of a potential saving in estate duty. This is because all the assets left to a surviving spouse are not subject to estate duty.
Assets bequeathed to spouses on death are also not subject to capital gains tax (CGT). The CGT liability rolls over to the estate of the surviving spouse. Couples can take advantage of this rollover provision to delay the payment of CGT, Wyatt says.
The rules of pension and provident funds often provide benefits to the “spouse” or “widow/widower” of a member with explicit or implicit reference to marriage.
The Pension Funds Act does not say whether a partner in a same-sex relationship should be accommodated by a pension fund, but the Pension Funds Adjudicator has ruled in specific cases that spousal benefits should be paid to partners in same-sex relationships.
The Special Pensions Act has been amended to provide some protection for unmarried couples, but it does require some reciprocal duty of support. The fund member would need to have nominated his or her partner as a beneficiary, but bear in mind that the trustees of the retirement funds have discretion as to who receives the death benefits of a fund member who dies. They will consider the beneficiaries nominated by the fund member, but they have a legal obligation to consider all those who were dependent on the deceased member.
The Divorce Amendment Act allows for the accumulated pension interest of married members to be shared with their spouses on divorce, but unmarried partners have no claim against each other’s pension interests unless they are nominated as a beneficiary of their partner’s pension.
A person may name a cohabiting partner – or anyone else – as a beneficiary of a life assurance policy, according to the Law Reform Commission report, but you must be sure there is no clause in the policy that confers benefits on members of the insured’s family.
According to Catto, your cohabitation agreement, too, can be used to state that the parties irrevocably undertake to nominate each other as beneficiaries in their policies.
Insurance policies are a good option for covering joint financial obligations, such as mortgage bonds, she says.
Partners in marriage have a legal duty to support each other during their marriage. This obligation ends on divorce, unless the court orders that maintenance must continue. There is no reciprocal duty of support in partnerships between cohabiting couples and so, at separation, an unmarried partner is not entitled to maintenance from a former partner, unless there was a cohabitation agreement.
If you try to claim maintenance, Catto says, you might have to prove that your former partner agreed to support you. You would have to prove this to the court by presenting evidence or an agreement.
Proposed new laws could result in domestic partnership acts. If these laws come into being on the basis that is being proposed, they will make maintenance rights available to unmarried couples in certain circumstances. In the meantime, case law does provide precedents for partners to claim maintenance from each other, where there was a duty of support.
Medical scheme benefits
The Medical Schemes Act prohibits the registration of a medical scheme that discriminates against members. Therefore, according to the Law Reform Commission report, a medical scheme may not discriminate against individuals in same-sex relationships and unmarried couples by refusing to register their dependants, including their partners. However, depending on the rules of your medical scheme, you may have to prove that you and your partner have been living together for a specified minimum period.
Children born out of wedlock
The law does not distinguish between married and unmarried parents, when it comes to their obligation to support their children. The Law Reform Commission says biological parents are obliged to contribute towards the costs of the birth, clothing and maintenance of the child, according to the reasonable needs of the child and the ability of the parents to contribute. If the parents separate, both remain liable for the maintenance of the children.
Because the law recognises the relationship between a parent and child based on biology or marriage, there is no obligation on a cohabiting partner to support his or her partner’s children in any way, unless he or she is a biological parent.
Sweeping changes may be on the cards for couples who live together in both same-sex and heterosexual relationships.
A discussion paper on domestic partnerships prepared by the South African Law Reform Commission was released for comment towards the end of last year. The objective of the paper is to give rights to same-sex and heterosexual couples who are in established relationships, but are not married.
According to the commission, marriage is currently the only legally recognised form of intimate partnership. Partnerships between cohabiting couples, on the other hand, are not legally recognised and cohabiting partners are excluded from the rights and obligations automatically afforded to married people.
The number of people living together out of wedlock has increased worldwide and inSouth Africa. Social customs have changed, replacing early notions of marriage as the only form of acceptable relationship. Partnerships between cohabiting couples have come to be regarded in many cases as functionally similar to marriage.
Following court challenges, various laws have extended the definition of spouse to include a partner in a same-sex or heterosexual relationship. However, cohabiting partners are faced with a plethora of laws, all with differing criteria for partners to enjoy benefits. The commission says partnerships between cohabiting couples need to be legally recognised.
The commission hopes that the discussion paper on partnerships between cohabiting couples will result in amendments to the Marriage Act, to include civil unions, and the promulgation of legislation to deal specifically with registered and unregistered partnerships.
A Registered Partnerships Act is proposed for partners of the same or opposite sex who do not wish to get married but seek legal recognition of their relationship.
An Unregistered Partnerships Act is proposed for same or opposite sex couples to be afforded a civil status as if they formally committed to the relationship, but who do not take steps to get such recognition.
The paper is available from the commission’s website, which can be accessed via the Witwatersrand University Law’s website at www.law.wits.ac.za/salc/salc.html Once you have accessed the commission’s website go to discussion paper 104 to download the paper on domestic partnerships.
© Personal Finance 2004. All rights reserved.