Understanding the Accrual System: CPI Adjustments & Contractual Exclusions

 

Marriages Under the Accrual System

The Matrimonial Property Act 88 of 1984 (the Act) provides that when a couple signs an antenuptial contract that excludes community of property and community of profit and loss, their marriage automatically follows the accrual system —unless they specifically agree to exclude it.

Under the accrual system, when the marriage ends (either through divorce or the death of a spouse), the spouse whose estate grew less during the marriage (or their estate if they have passed away) has a right to claim half of the difference in growth between the two estates.

The "accrual" of an estate is simply the increase in its net value from the start of the marriage to the time it ends.

The Act states that when calculating the starting value of a spouse’s estate at the time of marriage, adjustments must be made to account for inflation. This means that any changes in the value of money between the start and end of the marriage (whether due to divorce or death) are considered. To measure this change, the Consumer Price Index (CPI) — as published in the Government Gazette — is used as proof of how money’s value has shifted. This ensures that the original estate value is fairly adjusted to reflect its real worth at the time of dissolution.

While the CPI is commonly used in practice to adjust commencement values for inflation, parties can contract out of using CPI by specifying alternative methods in their antenuptial contract.

Use of CPI in Practice

The Consumer Price Index (CPI) is used to account for inflation when calculating how much a spouse's estate was worth at the time of marriage. To do this, the CPI at the time of divorce (or death) is divided by the CPI at the time of marriage. The result is used to adjust the starting estate value so it reflects what it would be worth in today's money. This ensures that each spouse's starting wealth is fairly measured in a way that considers changes in the cost of living over time.

Here’s a breakdown:

1. Net Commencement Value: This is the net value of each spouse’s estate at the beginning of the marriage, as declared in the antenuptial contract. It includes all assets minus liabilities.
2. Weighted Consumer Price Index (CPI): The CPI is a measure of inflation. To adjust the commencement value, you use the CPI to reflect how much the value of money has changed since the marriage began.
3. Adjustment Process:
• Identify the CPI at the time of marriage and at the time of divorce or death.
• Calculate the adjustment factor by dividing the current CPI by the CPI at the time of marriage.
• Multiply the commencement value by this adjustment factor to get the adjusted commencement value.

Example:

• CPI at Marriage (2000): 45.975
• CPI at Divorce (2010): 109.26
• Commencement Value: R100,000

Adjustment Factor: 109.26 / 45.975 = 2.37

Adjusted Commencement Value: R100,000 × 2.37 = R237,520

This adjusted value is then used to calculate the accrual, which is the increase in the value of each spouse’s estate during the marriage. The accrual is shared equally between the spouses upon divorce or death.

This process ensures that the initial values are adjusted for inflation, providing a fairer basis for calculating the accrual and dividing assets.

Contracting Out of Using CPI

Parties can include provisions in their antenuptial contract to use alternative methods for adjusting commencement values instead of the Consumer Price Index, such as market value, to account for inflation or other factors affecting asset values. This flexibility allows couples to structure their marital property regime to suit their specific needs and financial circumstances.

The couple (or their executors) can agree in writing on how to value their assets at the time of divorce or death. If they cannot agree, a sworn appraiser or valuer will assess the estates following estate valuation practices. If they cannot decide on an appraiser, they can agree that the Chairman of the Arbitration Foundation of Southern Africa will appoint one, and their valuation will be final unless there is a clear mistake.