Financial dos & don’ts of cohabitation
08 August 2016
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On mobile, on digital, on demand, this is Old Mutual Live, the Money Coach edition. Hello and welcome, my name is Chris Gibbons. With me in the Old Mutual Live studio is John Manyike, Head of Financial Education at Old Mutual. John welcome, good to have you with us.
John Manyike: Hi Chris, I’m glad to be here.
CG: Did you know that it is estimated as many as 60% of couples living together are not married. They live together as man and wife, but legally their status can be problematic, especially when things go wrong. What do I mean by that? Well, when the relationship ends or worse, when one partner dies.
Therefore in this edition of Old Mutual Live Money Coach, we are going to be looking at cohabitation. John Manyike, this is a minefield, most people get it wrong. For example, I always thought that if I lived with a woman for an extended period of time, perhaps you had children together, who knows, that common law regarded us as man and wife?
Where things can start getting complex
JM: That’s true, unfortunately South African law on marriage doesn’t recognise such arrangements. So in other words, by virtue of living with a person, regardless of how long you’ve stayed with them. It does not necessarily, in other words, the law won’t classify you as a spouse to that person.
CG: Obviously if I have been married and maybe I haven’t got divorced and I now have a girlfriend, this is where things start to get really complex.
JM: Absolutely, it really does get complicated. But the issue here is that by living with a person, regardless how long, you will not enjoy the same rights as married couples. Unless you’re legally married, whether through customary law or through one of the marriage regimes.
Whether it’s in community of property or out of community of property or ante-nuptial contract. Whether with or without accrual. These are the things that people need to look at. In instances where people, couples are living together, without being legally married, we have to look at the financial risks that are involved and how can they mitigate against such risks.
Key risks of unmarried cohabitation
CG: The key risk must be, when one of the partners, heaven forbid but it happens, when one of the partners actually dies.
JM: Absolutely. Imagine if couples are living together and they’re not legally married and they accumulate assets together. The assets are intermingled. So when one of them dies, it’s a problem there because how do you distribute the assets of the estate of one? It becomes a nightmare.
CG: What tends to happen, what have you seen happen?
JM: What tends to happen is that you find that the family, the bereaved family, if I may put it that way, would, especially if the party that died is the one that owned the property. Then the assumption is that everything that’s in the house belongs to that person.
But it may as well be that you, the surviving partner, actually did most of the accumulation. Let’s say for example, maybe 80% of the assets or furniture that’s in the house belongs to you. How do you prove to an executor of an estate or to the family that actually that’s your portion?
CG: And maybe you had a bond on the house, maybe you were both paying or contributing towards the bond.
JM: I like that, because if you’re talking about a bond, these day you can actually acquire property as a couple, even if you’re not legally married. So you can have a joint bond. In such instances it becomes a nightmare when one party dies.
Because unlike with married couples who automatically, especially if you’re married in community of property. So in other words, 100% of the property now belongs to you, because the other 50% gets transferred to you. It doesn’t happen automatically if you were living together without being married. It means then the estate would have to liquidate the 50% in order to see how they distribute the assets in that estate. It becomes very problematic if you bought property like that without being legally married.
What happens to your pension & policies?
CG: Obviously then, under the same scenario, one partner dying, there’s an issue about a pension?
JM: Yes, then there’s the issue of pension. In terms of the Pension Fund Act, trustees have a fiduciary responsibility. If there’s a plea from a party that was living with a person who has died, they won’t consider whether you were married or not. Because in terms of the Pension Fund Act, if you were financially dependent on the person who died, they are obliged to consider that plea.
This is where a lot of people get confused because they assume that no, it means that I was recognised as a wife. It’s only that that act does recognise people who are financially dependent. So that’s why you find that girlfriends or boyfriends of a person who died, claiming from the person’s pension, you wonder whether they’ve got rights to do so. It’s because it’s a different act altogether and it does recognise people.
CG: I’ve taken out an insurance policy and I was asked to nominate a beneficiary and this is where it also gets complicated. Because if I nominate one person and then go and live with another person – and these things happen, let’s be grown up about it – then it gets even more complicated.
JM: Yes it does. Firstly, what people need to understand is that if you have policies and you have nominated a beneficiary, the beneficiary nomination form, or beneficiary nomination takes precedence, or rather it overrides the will –
JM: Yes, so even if you’ve written a will to say the spouse must inherit everything, but you’ve nominated your girlfriend or boyfriend in your policies, the financial institution is obliged to pay the proceeds of the policy according to the beneficiary nomination form.
Sometimes, if you have a girlfriend or a boyfriend and you’re no longer together and maybe you’ve gotten on with your life and you married or you went back to your spouse, but you forgot to amend your beneficiary nomination form. In the event that you die, the financial institution will have to pay the money to the boyfriend or the girlfriend. This is what makes a lot of families so distraught at the time of claiming for death of a loved one.
Legal system is adapting
CG: There is, I understand, new legislation in the pipeline to change this?
JM: Yes, there is a Domestic Partnership Bill which is going to try and clarify some of the issues that are there, particularly with regards to couples living together without being married. That’s why people who are in that kind of a relationship needs to make sure that there is some form of, what we call a cohabitation agreement. They need to speak to an attorney who can draft, legally, a cohabitation agreement. Which will stipulate the obligations and responsibilities of all parties –
CG: Like an ante-nuptial contract.
JM: Like an ante-nuptial contract, yes. It will also stipulate how assets will be distributed in the event that the relationship ceases or in the event of either of the parties passing away.
CG: We know that in general money matters can put a huge stress on a normal relationship. But this is especially true in terms of couples who live together, but aren’t married.
JM: It’s true, money is always a sensitive issue in relationships. At times you find that people are very, they believe that men are in charge and must always take all the decisions as far as money. The female or a woman must always toe the line. It’s not always the case.
I believe a family that plans together, stays together. But also you have to look at the fact that who might be more skilled or more disciplined in terms of managing money. It might be that the wife is more skilled and more strong in managing the money. You have to work together around that.
CG: I’ll tell you, my wife is much more disciplined than I am.
JM: I would imagine.
What to put in place if you are not married
CG: She calls me the ‘big spender.’ All right, you’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. John, what’s your advice, if you are in a relationship with someone, you’re living together, but you’re not married, what are the things you really must do?
JM: It’s very important for parties to protect each other’s rights and you might need to speak to an attorney to draft a proper contract. Whether it’s an ante-nuptial because an ante-nuptial contract can be drafted before you say ‘I do’. Because in that way both parties are protected.
CG: That’s what ante-nuptial means, ante – before, nuptial – the wedding.
CG: Get something on paper, something that stands up to legal scrutiny, talk to your lawyer.
CG: My name is Chris Gibbons, this has been another edition of Old Mutual Live, the Money Coach edition. I’ve been talking to John Manyike, Head of Financial Education at Old Mutual. John, if the listeners want more information on this, apart from the lawyer in this instance, where would they go?
JM: I would recommend that listeners join our digital community on Facebook and you’ll find us on, On the Money Financial Education Programme, like our page there, or follow us on Twitter @OM_OnTheMoney.
CG: John, thank you for that, get in touch any time, if you have any questions for either John or me, any topics you’d like us to cover on Old Mutual Live Money Coach, anything you want us to discuss. Feel free to send them direct to me at email@example.com and we would be delighted to hear from you. Old Mutual Live, on mobile, on digital, on demand.