Universal Partnerships and Divorce in South Africa
An antenuptial contract (ANC) or means that that you are married out of community of property. The most likely reason why people decide to marry with this marital regime is to shield their assets and financial position before and also during the course of the marriage.
Protection is provided to a spouse against attachment from creditors of the other spouse, and both spouses keep their uninhibited right to contract with third parties without having the consent of the other spouse.
When you marry out of community of property, there are two options to give consideration to regarding your ANC.
Will you incorporate the accrual system in my ANC, or not?
Marriages out of community of property with no accrual indicates that the property held by a person prior to the marriage, as well as all property amassed during, belongs only to that person. This also consists of liabilities such as debt.
Marrying out of community of property with accrual implies that both spouses attain a fair share of the estate if the marriage is over. The separate estates are assessed prior to marriage and upon divorce, the difference between the net increases in the respective estates during the course of of the marriage is then split equally between the two spouses.
It is essential to note that in terms of the Matrimonial Property Act, 88 of 1984, should you not specifically exclude the accrual system in your ANC, then by default the accrual system is automatically incorporated and you will be married out of community of property with accrual.
Recent Court Cases
In several recent cases, our courts had to adjudicate the grounds that allegations of a universal partnership agreement (the essence of which is profit sharing) would contradict the terms of an ANC (excluding community of profit and loss) conversely would constitute an attempt to amend the parties’ antenuptial contract, which is legally untenable (JW v CW 2012 (2) SA 529 (NCK), AL v CE (GSJ) (unreported case no 09/25924, 25-10-2012) (Kathree-Setiloane J) and RD v TD 2014 (4) SA 200 (GP)).
In the case of RD v TD the parties concluded a partnership agreement more than two years after they were married out of community of property. The agreement applied to a commercial fish farm enterprise. The court determined that the partnership, which was envisaged, established a separate legal entity from the matrimonial regime applicable to the parties. The nett benefits derived from the partnership were to be divided between the parties and to accrue to their separate estates. The parties were for that reason business partners like any other two individual partners, both having his or her separate estate.
It is also relevant for spouses who, before marriage, already have a business venture or commercial enterprise together. In the case of the latter, it would definitely be a good idea to address these possible legal traps in the event of potential future disputes.
In the case of Fink v Fink and Another 1945 WLD 226 at 228) as far back as 1995, the court determined that a universal partnership existed between spouses who were married to each other out of community of property in respect of a milk-producing business.
In the case of Mühlmann v Mühlmann 1984 (3) SA 102 (A) the Supreme Court of Appeal found that a universal partnership in respect of certain commercial enterprises (inter alia, an electroplating business) existed between spouses who were married to each other out of community of property.
In Ponelat v Schrepfer 2012 (1) SA 206 (SCA) it was held that a universal partnership is present if the necessary requirements for its existence are met regardless of whether the parties are married, engaged or cohabitating.
The requirements for a partnership are as follows:
There need not be a written or oral agreement and our courts have found that a tacit agreement may also prove a universal partnership. In the case of Fink it was said: ‘If the agreement is not in writing the intention of the parties must be ascertained from their words and conduct … the mode in which they have dealt with each other, and the mode in which it has, with the knowledge of the other, dealt with other people. This can be shown by books of accounts, by testimony of clerks, agents and other persons, by letters and admissions and, in short, by any of the modes by which facts can be established.’
In Mühlmann it was held that the methodology as to whether a tacit agreement can be held to have been concluded was to be, ‘whether it was more probable than not that a tacit agreement had been reached’. It was also mentioned that a court must be careful to determine that the conduct from which a contract is sought to be inferred is not simply that which reflects what is ordinarily to be expected of a wife.
It was furthermore stated that the next facts were suggestive of a common purpose that the business was a joint one for the mutual benefit of the parties:
Where a wife –
In McDonald v Young 2012 (3) SA 1 (SCA) it was held that: ‘In order to establish a tacit contract, the conduct of the parties must be such that it justifies an inference that there was consensus between them. There must be evidence of conduct which justifies an inference that the parties intended to, and did, contract on the terms alleged.’
In JW v CW 2012 (2) SA 529 (NCK) the Court held that a universal partnership in a marriage out of community of property excluding any form of accrual was not possible if it contradicts the terms of the ANC.
The question whether a post nuptial partnership is possible where parties are married out of community of property with the exclusion of the accrual system, was also considered in two other conflicting judgments:
An interesting and conflicting case was the case of A L Espag v C E Espag, in the South Gauteng High Court, in Johannesburg, under case no 09/25924. Here the parties were married out of community of property with the exclusion of the accrual system. Mrs. Espag claimed that a partnership came into being between the parties and sought an order appointing a liquidator to realise the whole of the partnership assets. The Plaintiff raised a special plea that the Defendant’s claims do not disclose a cause of action as the claims, and the evidence required to be tendered in support of them, will contradict the terms of the ANC concluded between the parties. The Defendant pleaded that a universal partnership agreement was entered into immediately prior to the marriage of the parties and the execution of the antenuptial contract. The court ruled that the establishment of a universal partnership, contradicts and refutes the clear purpose and terms of the ANC because it would in effect amount to a marriage in community of property. The special plea was upheld.
Many couples do not give consideration to the probability of divorce when they enter into a marriage regime, nevertheless, it is very important that these complicated conversations are discussed, for example, which marriage regime to enter into and the implications of each one. This is not only to guard yourself but also your future spouse in the event that the marriage breaks down or no longer ceases to subsist if one or the other spouse passes away.
Protection is provided to a spouse against attachment from creditors of the other spouse, and both spouses keep their uninhibited right to contract with third parties without having the consent of the other spouse.
When you marry out of community of property, there are two options to give consideration to regarding your ANC.
Will you incorporate the accrual system in my ANC, or not?
Marriages out of community of property with no accrual indicates that the property held by a person prior to the marriage, as well as all property amassed during, belongs only to that person. This also consists of liabilities such as debt.
Marrying out of community of property with accrual implies that both spouses attain a fair share of the estate if the marriage is over. The separate estates are assessed prior to marriage and upon divorce, the difference between the net increases in the respective estates during the course of of the marriage is then split equally between the two spouses.
It is essential to note that in terms of the Matrimonial Property Act, 88 of 1984, should you not specifically exclude the accrual system in your ANC, then by default the accrual system is automatically incorporated and you will be married out of community of property with accrual.
Recent Court Cases
In several recent cases, our courts had to adjudicate the grounds that allegations of a universal partnership agreement (the essence of which is profit sharing) would contradict the terms of an ANC (excluding community of profit and loss) conversely would constitute an attempt to amend the parties’ antenuptial contract, which is legally untenable (JW v CW 2012 (2) SA 529 (NCK), AL v CE (GSJ) (unreported case no 09/25924, 25-10-2012) (Kathree-Setiloane J) and RD v TD 2014 (4) SA 200 (GP)).
In the case of RD v TD the parties concluded a partnership agreement more than two years after they were married out of community of property. The agreement applied to a commercial fish farm enterprise. The court determined that the partnership, which was envisaged, established a separate legal entity from the matrimonial regime applicable to the parties. The nett benefits derived from the partnership were to be divided between the parties and to accrue to their separate estates. The parties were for that reason business partners like any other two individual partners, both having his or her separate estate.
It is also relevant for spouses who, before marriage, already have a business venture or commercial enterprise together. In the case of the latter, it would definitely be a good idea to address these possible legal traps in the event of potential future disputes.
In the case of Fink v Fink and Another 1945 WLD 226 at 228) as far back as 1995, the court determined that a universal partnership existed between spouses who were married to each other out of community of property in respect of a milk-producing business.
In the case of Mühlmann v Mühlmann 1984 (3) SA 102 (A) the Supreme Court of Appeal found that a universal partnership in respect of certain commercial enterprises (inter alia, an electroplating business) existed between spouses who were married to each other out of community of property.
In Ponelat v Schrepfer 2012 (1) SA 206 (SCA) it was held that a universal partnership is present if the necessary requirements for its existence are met regardless of whether the parties are married, engaged or cohabitating.
The requirements for a partnership are as follows:
- that each of the partners bring something into the partnership, whether it be money, labour or skill;
- that the business should be carried on for the joint benefit of the parties; and
- that the object should be to make a profit.
There need not be a written or oral agreement and our courts have found that a tacit agreement may also prove a universal partnership. In the case of Fink it was said: ‘If the agreement is not in writing the intention of the parties must be ascertained from their words and conduct … the mode in which they have dealt with each other, and the mode in which it has, with the knowledge of the other, dealt with other people. This can be shown by books of accounts, by testimony of clerks, agents and other persons, by letters and admissions and, in short, by any of the modes by which facts can be established.’
In Mühlmann it was held that the methodology as to whether a tacit agreement can be held to have been concluded was to be, ‘whether it was more probable than not that a tacit agreement had been reached’. It was also mentioned that a court must be careful to determine that the conduct from which a contract is sought to be inferred is not simply that which reflects what is ordinarily to be expected of a wife.
It was furthermore stated that the next facts were suggestive of a common purpose that the business was a joint one for the mutual benefit of the parties:
Where a wife –
- had rendered services manifestly surpassing those ordinarily expected of a wife;
- had not worked for a salary; and
- contributions made by her towards the business in kind (assets, capital) however modest in size.
In McDonald v Young 2012 (3) SA 1 (SCA) it was held that: ‘In order to establish a tacit contract, the conduct of the parties must be such that it justifies an inference that there was consensus between them. There must be evidence of conduct which justifies an inference that the parties intended to, and did, contract on the terms alleged.’
In JW v CW 2012 (2) SA 529 (NCK) the Court held that a universal partnership in a marriage out of community of property excluding any form of accrual was not possible if it contradicts the terms of the ANC.
The question whether a post nuptial partnership is possible where parties are married out of community of property with the exclusion of the accrual system, was also considered in two other conflicting judgments:
An interesting and conflicting case was the case of A L Espag v C E Espag, in the South Gauteng High Court, in Johannesburg, under case no 09/25924. Here the parties were married out of community of property with the exclusion of the accrual system. Mrs. Espag claimed that a partnership came into being between the parties and sought an order appointing a liquidator to realise the whole of the partnership assets. The Plaintiff raised a special plea that the Defendant’s claims do not disclose a cause of action as the claims, and the evidence required to be tendered in support of them, will contradict the terms of the ANC concluded between the parties. The Defendant pleaded that a universal partnership agreement was entered into immediately prior to the marriage of the parties and the execution of the antenuptial contract. The court ruled that the establishment of a universal partnership, contradicts and refutes the clear purpose and terms of the ANC because it would in effect amount to a marriage in community of property. The special plea was upheld.
Many couples do not give consideration to the probability of divorce when they enter into a marriage regime, nevertheless, it is very important that these complicated conversations are discussed, for example, which marriage regime to enter into and the implications of each one. This is not only to guard yourself but also your future spouse in the event that the marriage breaks down or no longer ceases to subsist if one or the other spouse passes away.