Understanding Insolvency (Part 2)
Sequestration information – Part 2
For consumers under debt stress Debt Counselling is often the key to solving their financial difficulties. For others though the legal process of Sequestration might be the best choice. When meeting with a Debt Counsellor consumers should consider this option. Most consumers know little about what is involved in insolvency and sequestration. Industry expert Nanika Prinsloo of Prinsloo & Associates helps Debtfree readers to understand more about this option. Let’s consider what happens when a spouse is declared insolvent or is sequestrated:
THE MARRIAGE REGIME AND INSOLVENCY
The effect of sequestration on his/her spouse will depend on what regime the parties are married under: in or out of community of property. As far as insolvency goes “marriage” will also include a union under customary law, and even where the parties are living together as husband and wife even though they are not married.
In this article we will briefly discuss the effect on the spouse of the person who is sequestrated.
PARTIES ARE MARRIED IN COMMUNITY OF PROPERTY
When parties are married in community of property, the estate of the parties are sequestrated, in other words, both are sequestrated.
It is irrelevant that as it happens in some marriages, both parties manage their own financial affairs despite the marriage in community.
For parties married in community of property, one sequestration application will be lodged. The husband and the wife will either be the applicants (voluntary surrender) or they will be the First and Second Respondents (aggressive/friendly sequestration).
PARTIES ARE MARRIED OUT OF COMMUNITY OF PROPERTY
When the parties are married out of community of property, each spouse’s estate forms a separate estate and must be sequestrated separately. Assets that belong to a particular spouse will form part of that particular spouse’s sequestration application. One spouse can apply for sequestration and the other not, and the one who does not sequestrate will not be affected by the sequestration of the spouse who does apply for sequestration.
Both spouses are insolvent
If both spouses are insolvent, both can (and should) be sequestrated, but it will be two separate sequestration applications that will be lodged simultaneously. It is better to lodge the applications simultaneously as one can save on legal costs.
One spouse is insolvent and the other not
Where one spouse is insolvent and the other not, it is not necessary for the spouse that is not insolvent to sequestrate, provided that the solvent spouse did not sign surety for the insolvent spouse.
If the solvent spouse did not sign surety for the insolvent spouse
Where the solvent spouse did not sign surety for the insolvent spouse, it is not necessary for the solvent spouse to sequestrate.
It could be necessary that the solvent spouse must prove which of the assets belong to the solvent spouse. This is so that the Trustee can ascertain whether there was collusion between the insolvent and solvent spouses with regards to hiding the assets of the insolvent person. Legally the ownership of the solvent spouse will also vest in the insolvent estate – until the solvent spouse can prove that the assets belong to him/her.
The solvent spouse signed surety for the insolvent spouse
Where the solvent spouse has signed surety for the insolvent spouse, he/she will be looked at by the creditors of the insolvent spouse to pay any shortfalls that occurred in the estate of the insolvent spouse.
Serving of documents by the Sheriff on the solvent spouse
The sequestration application documents will also be served on the solvent spouse, despite that fact that the solvent spouse is not sequestrating. The solvent spouse will be listed as Second Respondent, even though the solvent spouse is not involved in the application of the insolvent spouse. The estate of the solvent spouse will not be involved in the sequestration of the insolvent spouse.
MARRIAGE OUT OF COMMUNITY OF PROPERTY WITH ACCRUAL
The accrual system is simply an arrangement as to their financial affairs and assets between the spouses. The accrual system has no consequences to the outside world. It is therefore irrelevant for sequestration purposes (or any other legal purposes except divorce) that the accrual system applies. No creditor can make any demand of the accrual of the other spouse.
This article is a general discussion and does not purport to be full legal advice. Each situation is unique and advice must be received on the merits of each case. Contact writer for further advice.
This article written by Nanika Prinsloo of Prinsloo and Associates.