You are a practising attorney and insolvency expert. Mr Broke approaches you for

Question

advice.
During your consultation with Mr Broke the following comes to light:
• Mr Broke is married out of community of property to Mrs Broke (née
Havalotamoney)
• Mr Broke has the following liabilities: (i) a home loan from RobBanks Bank valued
at R500 000 and secured by a mortgage bond; (ii) several smaller unsecured
loan from We Loan Everyone Money Bank to the value of R450 000.00, (iii) a
loan from a loan shark, Mr Shark, valued at R40 000.00; and (iv) a small loan
from a Family Member Littlemoney to the value of R10 000.00.
• Mr Broke’s assets comprise of the following: (i) a house valued at R450000; (ii)
a car valued at R50 000; and (iii) smaller loose assets valued at R25 000.
• Mr Broke has a business in his personal name the business has no assets, 1
employee whom is owed a salary of R20 000
• Mrs Broke is completely solvent, having an estate worth R300 000 consisting of
a bank account containing inheritance money she got in terms of a will that states
this amount is to be excluded from insolvency and various smaller assets with a
total value of R50 000.00. Mrs Broke has no liabilities at all.
Your instruction is that Mr Broke does not want to go under debt review and has heard
that sequestration may be an option for him to explore to escape the crushing debt he
finds himself in. Advise the Broke’s on the following matters:

Mrs Broke believes that she is protected from insolvency and any impending
sequestration of Mr Broke as they are married out of community of property. Is she
correct in her view? Please advise her as to the position of the solvent spouse and
what it encompasses a spouse should Mr Broke be successfully sequestered.

Answer 1

In South Africa, the legal implications of a marriage out of community of property (with or without the accrual system) can have significant effects on the financial affairs of both spouses, particularly when one of them is facing insolvency or considers sequestration.

Mrs. Broke's Position

Mrs. Broke is indeed correct that as a person married out of community of property, she has a separate estate from that of Mr. Broke. This means that her assets and liabilities are generally not available to satisfy Mr. Broke's debts, and vice versa.

Implications of Sequestration

If Mr. Broke were to be successfully sequestrated, here's what could happen:

1. Non-Impact on Mrs. Broke's Assets: Mrs. Broke's assets would typically remain protected in the event of Mr. Broke's sequestration. Since she is solvent and her estate has specific exemptions (like the inheritance), her financial situation would not be directly affected by Mr. Broke’s insolvent status.

2. Creditor Claims: The creditors of Mr. Broke cannot lay claim to Mrs. Broke's assets unless there has been some form of collusion or fraud involved. However, it’s essential that all financial arrangements between them remain transparent and documented.

3. Implications on Joint Expenses: If Mr. Broke has joint obligations with Mrs. Broke (for example, joint loans or bank accounts, which doesn’t appear to be the case here), their creditors may still attempt to recover debts from these shared responsibilities despite their marital regime. As far as the information provided indicates, they do not have any shared debts.

4. Maintenance and Support: While her assets are protected, there could be discussions regarding maintenance. If Mr. Broke has limited means post-sequestration, it may affect his ability to support Mrs. Broke financially or contribute to household expenses.

5. Exemption on Inheritance: Since Mrs. Broke's inheritance is specifically excluded from any insolvency considerations, this adds a layer of protection to her financial situation.

Conclusion and Advice

• Mrs. Broke's position as a solvent spouse married out of community of property is indeed a protective factor against Mr. Broke’s potential sequestration. However, she must remain vigilant about all financial dealings and avoid any actions that could be construed as attempting to hide assets or conflate their assets inappropriately.

• It may be advisable for Mrs. Broke to keep detailed records of her assets and their overall value to easily demonstrate her solvent status.

• If Mr. Broke decides to proceed with sequestration, Mrs. Broke should ensure that she consults a legal professional to understand her rights better and possibly protect her interests further, especially in consideration of any ongoing financial responsibilities they may have together.

In summary, while Mr. Broke explores his options, the financial position of Mrs. Broke should remain proactive, considering potential impacts both legally and practically.