Wife forced to include her assets in late husband’s insolvent estate – to pay creditors

A deceased Gauteng man’s family did not know he was insolvent when he died. And to make matters worse, he was married in community of property, meaning his wife had to include all her assets in the estate for the creditors.

Gauteng man insolvent at the time of death

The family of a deceased man in Gauteng received more traumatic news last week when they learned he was insolvent when he died.

It is not known whether the man was aware of his insolvent status, but when lawyers for the estate began winding up his affairs, it became apparent that the liabilities exceeded the assets in the estate and, because he was married in community of property, she would be obligated by law to include her own assets in the estate for assessment and claim by the creditors.

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The sad incident is an unfortunate warning to couples that, before choosing their matrimonial property regime, it is important to consider their circumstances with their spouse to ensure that it will not compromise both their futures later on in life.

The drawback of community of property

When marrying in community of property, without an antenuptial contract, both spouses’ separate and individual estates cease to exist.

Their estates obtain a legally recognised joint status. The effect would be that the spouses become co-owners to the estate assets.

There is a tragic misconception that they own a 50/50 share in the estate and that when the marriage dissolves by way of death, and that only 50% of the estate is administered. When a spouse from a communal estate passes away, the estate in its entirety must be dealt with.

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It is important to emphasise that a spouse has a claim for 50% of the joint net estate – but only after payment of all administration costs, claims, etc.

This means that the assets of the surviving spouse must also be brought in for administration purposes. Whether the assets were obtained before the marriage, is irrelevant.

When getting married in community of property, both parties are involved in the management of the joint estate.

That being said, a spouse from this kind of marriage, cannot enter into a credit agreement without the approval from their better half. This is why creditors can attach the assets of the surviving spouse to an insolvent communal estate. Both spouses agreed to entering into this debt agreement.

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In circumstances where a person is unaware of their solvency status prior to their death, and it is discovered during administration of that the deceased estate the deceased was in fact insolvent, the creditors are entitled to attach the surviving spouse’s assets to the estate as it all forms part of the communal estate.

As experienced by the Gauteng family, the consequences of this event are severe. The assets of the surviving spouse must now also be sold to cover the liabilities in the communal estate and any free residue from the sale will be used for the concurrent creditors leaving the surviving spouse with slim means of survival.

How to avoid such a situation

There are a few solutions available to couples in South Africa to help them avoid such a tragic situation.

The first would be to ensure that an antenuptial contract is signed prior to the registration of the marriage.

If the couple is already married in community of property, then a postnuptial contract can be entered into after complying with the relevant requirements.

A third and possible less expensive alternative, is to ensure that life policies have nominated beneficiaries. Monies paid out will not form part of the insolvent communal estate, and will belong to the beneficiaries. The proceeds will not be able to be claimed by any creditor of the insolvent deceased estate.

Zach Visser is an estate administrator and Ariza Vermeulen a senior associate, at Barnard.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.