“Isn’t it true that if we’ve been living together for three years, that we’re seen as being married?” asked Michael.
Michael and Sandra had been living together for the past ten years and had called us in to complete a financial planning exercise when Michael asked the question. Since co-habitation is becoming more and more popular, maybe now’s as good a time as any to discuss the topic.
Please remember that our expertise is financial planning. Our focus in this article is on reducing or eliminating estate duty, and specifically, how it applies to those who choose to live together. We suggest always consulting a lawyer first before entering into any type of relationship…but hey, we’re not here to preach!
Let’s take a quick look at how assets and liabilities are handled when you co-habit…
In South African law there is no such thing as “living together for ‘X’ amount of years and therefore we’re married common law!” In fact, there is no such thing as common law marriage in South Africa fullstop!
Basically your stuff remains your stuff should the two of you separate or either one of you pass away (The Domestic Partnerships Bill of 2008 should iron out this problem to a large extent when it comes into being).
But who wants to live together for twenty years – buy homes and cars together, have children, the whole enchilada – only to lose it all should either partner pass away?
If this is the situation you find yourself in, then you might want to have a will drafted which deals with your assets. You don’t want to end up in a situation where the wrong person inherits everything.
Since living together is a partnership, another way to prevent problems is through a registered partnership agreement.
There are two ways to go about doing this:
- A universal partnership agreement (which is similar to marriage in community of property), and
- Life partnership agreement (which is similar to an antenuptial, or ANC, contract)
In a universal partnership all assets are owned jointly, and in terms of such an agreement, a court of law must distribute assets in proportion to the contribution made by each partner.
Four legal requirements must be met by a universal partnership:
- The aim is to make a profit (Which creates a problem since, unless you’re a gold digger, how on earth are you expected to make a profit?)
- Both parties must contribute
- The partnership is for the benefit of both parties
- The contract must be legitimate
A life partnership agreement specifies:
- Each partners financial contribution to the partnership
- Each partners rights and obligations
- How the assets should be divided if they separate
Should the partners separate then each partner is only entitled to the assets which they own.
This partnership agreement does not need to meet the four requirements set out in a universal partnership agreement.
Ok, succession planning while living together is done and dusted; now we move on to estate planning with the question being…
Will the assets I leave to my partner be free of estate duty?
Let’s look at the definition of ‘spouse’
The Estate Duty Act clearly states that a spouse is:
“in relation to any deceased person, includes a person who at the time of death of such deceased person was the partner of such person –
a) In a marriage or customary union recognised in terms of the laws of the Republic;
b) In union recognised as a marriage in accordance with the tenets of any religion; or
c) In a same-sex or heterosexual union which the Commissioner is satisfied is intended to be permanent.
Provided that a marriage or union contemplated in paragraph b) and c) shall, in the absence of proof to the contrary, be deemed to be a marriage or union without community of property.”
So yes, your life partner is defined as a spouse in the Estate Duty Act!
Why is it important that my partner be recognised as my spouse?
For one reason only…and that’s because any bequests made to a spouse are free from estate duty (And that includes your life insurance policy! 
). Section 4(q) of the Estate Duty Act allows these bequests to a spouse as a deduction in your estate.
So, by leaving all your worldly possessions to your spouse, you end up paying nothing – nada, not a single cent – in estate duty!
Of course leaving your total estate to your spouse is not necessarily a good thing from an estate planning perspective, but let’s leave that discussion for a later post…
Till next we chat
PS: By the way, if you’re interested in identifying whether you have a potential estate duty problem, why not give us a call or contact us here?
Related posts:
- For Better Or For Worse…We’re Married In Community Of Property!
- Financial Planning | We Are Married COP And My Spouse Is Insolvent
- We’re Getting Married Soon…Tell Us About Antenuptial Contracts!
- What Are The Advantages And Disadvantages Of Being In Partnership?
- Financial Planning | Love, Marriage, And The Accrual System
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
