Here’s a ‘love and marriage’ financial planning story for you…
Husband: “Honey…I think it’s time we relook our will!”
Wife: “But why, my love, nothings changed since we got married, has it?”
Husband: “Yes I know, but I read an article called ‘Love, Marriage, and the Accrual system’ which said that an accrual claim overrides the wishes of our will.”
Hubby’s correct just this once…
When it comes to death or divorce, there’s just no escaping the accrual claim.
So let’s take a look at what happened to Ken and Kate!
Ken and Kate got married in early 2000. Their timing was perfectly in line with the new millennium.
It was Ken’s second marriage and he was fortunate enough to keep the home when he divorced.
For Kate, it was her second marriage too. Unfortunately for her, most of the assets from her previous marriage were sold off to settle debts leaving her with little more than a few items of furniture.
They both had learnt a ton of lessons from their previous marriages. Armed with experience, they decided to get married with an antenuptial contract which included the accrual system.
This is how thing stood at the beginning of their marriage.
Ken owned a home worth R350, 000 at the time. He also owned a car worth R120, 000.
Kate owned furniture worth R60, 000 and a car worth R85, 000.
Their combined assets stood at R615, 000 with Ken responsible for R470, 000 thereof and Kate the remaining R145, 000!
Neither of them had any liabilities.
In 2000:
- Ken’s assets – R470, 000
- Kate’s assets – R145, 000
- Total assets – R615, 000
Then in 2010 disaster struck!
Ken and Kate decided to call it quits. Ken’s job took him away from home for weeks at a time and slowly the two of them had drifted apart.
Here’s how things stood at the end of their marriage.
Ken’s home was now worth R1, 500, 000 and his latest car was valued at R350, 000
Kate in the meantime had built up an impressive collection of furniture worth R450, 000 and also owned a new car worth R240, 000.
Her dad had also left her a holiday home which was currently worth R750, 000 (He passed away in early 2004).
Together their assets equalled R3, 290, 000 with Ken’s share of that being R1, 850, 000 and Kate’s share R1, 440, 000. Neither of them had any liabilities.
In 2010:
- Ken’s assets – R1, 850, 000
- Kate’s assets – R1, 440, 000
- Total assets – R3, 290, 000
This is how the accrual claim was calculated:
First…
Ken and Kate needed to find out what the weighted consumer price index (CPI) rate as at 2000 when they got married and 2010 when they divorced (Please download number 16 on the above link in order to see the information as published by Stats SA).
- February 2000 – 60,40
- June 2010 – 111,50
Second…
They needed to adjust their asset values at the beginning of the marriage in order to take into account inflation.
- Ken: R470, 000 x 111,50 ÷ 60, 40 = R867, 632
- Kate: R145, 000 x 111,50 ÷ 60, 40 = R267, 674
Now both Ken and Kate know how much their original assets are worth in today’s money.
Third…
Ken and Kate now calculated their accrual claim.
Ken Kate Net value of assets/estate R1, 850, 000 R1, 440, 000 Less: Inheritance R 750, 000 Equals: Subtotal R1, 850, 000 R 690, 000 Less: Value at beginning of marriage R 867, 632 R 267, 674 Equals: Net value of assets R 982, 368 R 422, 326
Straight away they can both see that Kate, with the smaller estate, has an accrual claim against Ken.
Fourth…
Ken and Kate now need to determine the difference between each other’s respective assets and award half of that to Kate since hers is the smaller of the two.
R982, 368 – R422, 326 = R560, 042 as the difference
R560, 042 ÷ 2 = R280, 021.
Kate had a claim against Ken’s assets for an amount of R280, 021 when they got divorced.
What would the implications be if Ken had passed away?
Now if it had been a case of Ken passing away – and leaving all his assets to his children – then because of Kate’s accrual claim – Ken’s estate would need to come up with the R280, 000!
If Ken’s estate didn’t have enough cash to settle this then…
Assets which he might have wanted to leave to his children would need to be sold off.
So there in a nutshell you have it.
Often you need to consider the implications of your marital regime first before drafting a will and that’s where financial planning – and life insurance – comes in!
Fortunately we can help with both!
Till next time
Related posts:
- Financial Planning | Love, Marriage, And The Accrual System
- Financial Planning | How Does Insolvency Impact ANC Marriages?
- Financial Planning | The One Major Reason Why We Set Up Trusts
- Financial Planning | Why Would You Want A Trust Anyway?
- Financial Planning | Paying More For A Meal Than Your Will Document!
Article by Lawrence
Someone, who as he gets older, finds he has more questions than answers
Lawrence has written 150 awesome articles for us at Insurance Fundi
