When entering into a marriage with the accrual system in South Africa, couples agree to share the growth in their respective estates during the marriage. To fairly calculate this growth, each spouse must determine the net commencement value of their estate at the start of the marriage. But how exactly is this calculated? Let’s break it down step by step.
What is the Net Commencement Value?
The net commencement value is the total value of each spouse’s assets minus their liabilities at the time of marriage. This value establishes a baseline to determine how much each estate has grown during the marriage. At the dissolution of the marriage (whether by divorce or death), the accrued growth of both estates is calculated to ensure fair distribution.
Steps to Calculate the Net Commencement Value
List All Assets
Start by listing all the assets you own at the time of your marriage. This includes both movable and immovable property, such as:
Real estate (houses, land, etc.)
Vehicles
Investments (stocks, bonds, mutual funds, etc.)
Bank account balances
Personal belongings of significant value (jewelry, artwork, etc.)
Determine Asset Values
Assign a monetary value to each asset as of the date of your marriage. If needed, obtain professional appraisals for items like property or artwork to ensure accuracy.
Subtract Liabilities
Next, deduct all debts and liabilities you owe at the time of marriage. This could include:
Outstanding loans (e.g., home loans, car loans, student loans)
Credit card debt
Any other financial obligations
The resulting figure is your net commencement value.
Document and Verify
It’s important to document this calculation carefully. Retain proof of the values you’ve determined, such as bank statements, loan agreements, or property valuations. This documentation will serve as evidence if there are any disputes in the future.
What About Excluded Assets?
Certain assets can be excluded from the accrual by agreement. Common exclusions include:
Inherited assets
Gifts received from third parties
Specific items explicitly listed in the marriage contract, such as a house, car, or pension fund
If an asset is excluded, it won’t form part of the accrual calculation, regardless of its value or growth during the marriage.
Adjusting for Inflation
When the marriage ends, the net commencement value is adjusted for inflation to reflect its present-day equivalent. This ensures that the growth of the estate is measured accurately over time. The adjustment is typically made using the Consumer Price Index (CPI).
An Example Calculation
Let’s say Alex is getting married and needs to determine the net commencement value of their estate. Alex’s financial situation at the start of the marriage looks like this:
Assets:
House: R1,500,000
Car: R250,000
Savings account: R100,000
Investments: R300,000
Liabilities:
Home loan: R1,000,000
Car loan: R200,000
Calculation: Total assets (R1,500,000 + R250,000 + R100,000 + R300,000) = R2,150,000Total liabilities (R1,000,000 + R200,000) = R1,200,000Net commencement value = R2,150,000 – R1,200,000 = R950,000
Alex’s net commencement value is therefore R950,000. If Alex’s marriage contract excludes their house from the accrual, the value of the house (R1,500,000) would not be included in the accrual calculation.
Why is This Calculation Important?
The net commencement value ensures fairness in the accrual system by establishing a clear starting point for each spouse’s estate. It protects assets owned before the marriage while ensuring that both parties share in the wealth created during the marriage. This balance fosters both security and equity in the partnership.
Need Help with Your Calculation?
Calculating your net commencement value can feel overwhelming, but you don’t have to do it alone. At EZ Marriage Contract, we’re here to guide you through the process and ensure your marriage contract reflects your unique needs. Contact us today to schedule a consultation or start your application online!