Parts of Divorce Act declared unconstitutional: Here’s what it means

BOITUMELO NTSOKO: Welcome to the Money Savvy podcast. I am Boitumelo Ntsoko. In a landmark ruling last week the Pretoria High Court declared parts of the Divorce Act unconstitutional and invalid. According to various reports, this clears the way for spouses married after November 1, 1984 – within the ‘out of community of property without the accrual system’ – to ask the court to exercise its discretion and order that any asset or any sum of money be transferred from one spouse to another.

Eric Jordaan, who is a certified financial planner at Crue Invest, joins us on this episode to give us more insight into what exactly this ruling means, and how it will impact marital contracts as well as divorces going forward. Welcome, Eric.

ERIC JORDAAN: Thank you, Tumi. Thank you for the opportunity.

BOITUMELO NTSOKO: Before we get into the high court judgment and what it means, could you please give us a quick breakdown of the Divorce Act?

ERIC JORDAAN: Sure. The Divorce Act is the piece of legislation that really governs how a divorce is given effect to – in other words, in terms of how the parties arrange the matters when their two estates are divided, as well as matters regarding custody, maintenance, and so forth. That’s the piece of legislation that the courts will use to determine how to give effect to that divorce agreement.

BOITUMELO NTSOKO: Can you please tell us more about this judgment and what the effects of it would be should the Constitutional Court confirm it?

ERIC JORDAAN: Sure, certainly. As you said in your introduction, a decision that was handed down in the Pretoria High Court dealt with a matter where the parties were married out of community of property excluding the accrual system, and that marriage took place in 1988. When the parties divorced, the court was asked to make a ruling on whether or not specifically Section 7.3 of the Divorce Act is constitutional insofar as it excludes a party married out of community property without the accrual system after 1984 from laying a claim on the other party’s assets, based on an equitable distribution of these assets.

Where this emanated from is that, in this case, the one party was a stay-at-home mom, meaning she looked after the family, looked after the kids, made sure that they were well educated – which meant that she could not attend to furthering her own career, could not grow her own estate, whereas the husband was in a position where he could continue his farming operations and was very successful at it – and that allowed him to grow his estate quite substantially.

When the parties then got to a position where they had to end the marriage and there was a divorce matter, the wife wanted to have an equitable distribution of the growth that took place in her husband’s estate while they were married.

Really what the matter was about was that she wanted to have an equitable share of the growth in that estate; in other words, value that she added to his estate while they were married.

BOITUMELO NTSOKO: If someone is married under a similar contract, but they have been divorced for a while, can they now approach the court for a settlement?

ERIC JORDAAN: Yes. Each matter would have to be dealt with based on the facts of each case. That could have various consequences, like the date on which the divorce took place, whether the divorce was done via a settlement agreement, or if it was a contested matter where the court made a ruling.

Those are some of the factors that would have to be taken into account.

But in essence, it is possible to have a divorce order amended, and you would have to either appeal that decision that was made by the court, or you would have to apply for a variation of that divorce settlement or divorce order that was granted by the court based on the settlement agreements.

The success of that would definitely depend on the facts of each matter, and that outcome will obviously then depend on those factors.

BOITUMELO NTSOKO: If someone is considering doing this, would they have to wait for the Constitutional Court to confirm this ruling first?

ERIC JORDAAN: Yes, I think that would definitely be the first step. At this point in time, the matter was referred to the Constitutional Court to confirm that ruling. Once that is done, it’ll definitely provide more direction and a firmer basis on which you could apply for any such variation; or, if you are in the process of being divorced, of actually claiming for a distribution of assets on the basis of this judgment.

BOITUMELO NTSOKO: For those who are considering getting married, what should they consider when choosing a marital contract – especially in light of this ruling?

ERIC JORDAAN: So, when you are looking at getting married and considering your options currently there are three options of marital regimes available.

Either you would be married in community of property, which means there’s no formal agreement entered into before your date of marriage; that means that both your estates are merged into one joint estate, which obviously comes with certain practical implications and potential problems down the line, especially when looking at the contractual ability of each of the parties.

The other option would then need to be married out of community of property, either with the accrual system or without the accrual system. The difference between those two is that the accrual system automatically will entitle a party at the end of the divorce to an equal share in the growth of each party’s assets while the marriage was in existence. So that would be a much clearer claim in terms of what each party would be entitled to.

The third option would then be to be married out of community property without the accrual system, which means that there’s no automatic claim to [the] growth in each other’s estate.

But yes, this new ruling does open the door to not leave a party destitute – if that was the system that you chose to have applicable to your marriage and you put your own career on hold to further the marriage as such.

BOITUMELO NTSOKO: What financial planning should a stay-at-home spouse undertake so that they don’t end up in an adverse situation after they’re divorced?

ERIC JORDAAN: Yes, it’s very important if you are a stay-at-home spouse that you do financial planning almost on an independent basis to ensure, if anything does happen – and we are not just talking about a divorce, but also if there’s a death of one of the spouses – what your specific position would be. It’s important to understand the implications of such an event, and how your position is arranged to allow you to move forward with your own life.

Often, what spouses can do is start to make investments in their personal capacity, and that could just provide some more security to, for instance, a stay-at-home spouse that he or she would be able to at least look after themselves while the other party’s estate is wound up in the event of a death, or if there is a divorce that is not subject to a claim that needs to be proved in a court of law.

Obviously, in terms of spouses, any donations made between spouses are exempt of donations tax, so that doesn’t make things easier to be able to transfer assets from one spouse to the other and have assets invested in that specific spouse’s name.

BOITUMELO NTSOKO: Why would someone go this route of contesting for a settlement, versus maybe going according to the Maintenance Act?

ERIC JORDAAN: Often the Maintenance Act will only provide, say, certain limit limitations to it in terms of the lifestyle that any person was accustomed to, for how long the marriage was in existence, and it also takes into account the individual spouses’ personal assets and what they would be entitled [to], how they would be able to provide for themselves.

This claim itself is much wider; it looks at the full growth of the assets and it needs to determine what is an equitable distribution of the growth in each party’s assets while the marriage was in existence. It also looks at what contribution each spouse made to that specific marriage and obviously what that resulted in, in terms of the growth and asset value.

BOITUMELO NTSOKO: This ruling caused a lot of debate on social media, with some justifying the wife not receiving a settlement, by saying that if the husband is the only one working, the least the wife could do is look after the home and kids.

However, as a flip side to this, a few years ago a study found that if a housewife were to be compensated for all the work that she does, her pay could end up in the region of R50 000 per month, which could be argued as a considerable saving for the husband. What are your thoughts on this debate?

ERIC JORDAAN: Yes, it’s quite a tricky question. But really, when you look at it objectively, if you look at when parties are married and they’re building a life together, each party does bring something to the whole that allows either one party to focus more on their career and build some wealth, while the other party potentially looks after the raising of the family and so forth.

So each party does bring into the marriage a value, and that should be rewarded or considered in some way or form. What the exact amount is [for] that equitable distribution, or what contribution each party makes to the marriage, is very difficult to put into numbers, as it very much depends on the parties’ lifestyles or what they are accustomed to. So that would have to be considered in each individual case. But, [as] a principle matter to me, it definitely is a justifiable claim to have against the other party in the event of a divorce.

BOITUMELO NTSOKO: Thank you so much, Eric, for joining us on this episode.

ERIC JORDAAN: Thank you, and thanks a lot for the opportunity. It’s much appreciated.

BOITUMELO NTSOKO: That was Eric Jordaan, who is a certified financial planner at Crue Invest.