Example of a Family Covenant – part 1 of 2

Example of a Family Covenant – part 1 of 2

Example of a Family Covenant – Part 1 of 2

Suggested format of a family covenant with different clauses, as may be relevant, part 1 of 2,clauses 1-8.

1. Introduction

Explanation about the family structure, the relevant assets, the nature of the family business and the manner in which the structure is to be managed.  In most cases, family assets are divided into the core business, being an active company/ies, on the one hand, and assets held by the family for investment purposes, on the other hand. You will find below a separate reference to each.

2. Definitions

Define who is a “family member”, “founder”, “second generation”; what activity is considered to be the core business; which company/ies are part of the core business and which ones are for investment purposes; which assets are business assets and which are family assets.

3. Family values and visions; reasons for having a family covenant

What the family values, the family vision and aspirations are, examples:

  • The core business as a source of long-lasting pride and income.
  • The need to set up a principal framework for operation, also upon a change in needs.
  • The wish to keep amicable relations within the family.
  • Provide a framework for the growing family, not only for the day-to-day management but also as a means of dealing with conflicts and avoiding misunderstandings.
  • Formulate exceptions, division of roles, and decision making processes.
  • Assistance in distinction between management, ownership and family.
  • Formulate rules and norms that reflect the commitment to the expanding family as well as the community in which we live, in order to provide an appropriate foundation for economic prosperity as well as independence for the separate core families.
  • Allow common activity of the whole family, without impeding upon the independence of each member, and such member’s right to enjoy the family assets and the business profits.

4. Expectations of the future generation for the coming years

  • Find a way to keep the family business active and allow for all family members that may be interested in participating in the family activities.
  • Formulate the rights and obligations of family members that participate in the family business, and avoiding a situation in which being part of the business is taken for granted.
  • Ensure that each family member that is interested in participating in the business is committed to the business and contributes his time and energy in this respect, while accepting and applying the decisions taken with respect to the family.
  • Set out a decision making process in which the second generation takes decisions together with the founders.
  • Incorporate into the family business the personal abilities and the important contribution of each member of the second generation.
  • Formulate rules for the incorporation of the second generation into the family business.

5. Milestones following the signature of this covenant

We suggest setting precise dates or a time framework:

  • Complete transition to good corporate governance – a separation between management and board of directors.
  • Promote business plan with regards to the required organizational structure of new business.
  • Decide what is the required organizational structure for the various business fields.
  • Set principles for the transfer of ownership between the generations 1.

6. Safeguarding the economic security of the extended family

Consider the creation of a family fund to finance various matters; discuss the way such fund will be managed:

  • The family will try to keep the balance between business and family issues.
  • The legal structure and the division between the family assets and the business will be determined according to economic profitability.
  • Business matters are to be discussed at the board of directors and/or at management level; family matters will be discussed at the family council (see section 14 in part 2).
  • Business discussions are confidential, unless agreed otherwise.

7. Structuring the family assets

Review the family assets, divided into core business and investments, provide details on the core business and the ownership structure; set rules for future classification of assets, ownership structure.

8. Core business

Set rules about the ownership and management of the core business:

  • The family will act, through its lawyers, accountants and counsels, to adapt the legal structure and the various company documentation to the rules set out in this covenant.

https://www.rosak-law.com

Avi Abramovich

Avi Abramovich

Rosak Law
  1. from the founders to the second generation, and from the second generation to their heirs[]
Death, Divorce,Wills and Ex-spouse

Death, Divorce,Wills and Ex-spouse

In terms of Section 2B of the Wills Act 7 of 1953, if there is an existing will and either spouse dies within 3 months of the date of divorce, the ex-spouse will not receive any benefits allocated to him/her in terms of the will.  If, however, the ex-spouse dies 3 months after the date of divorce, the ex-spouse will receive the benefits allocated to him/her in terms of the will.

This rule is to allow divorced spouses a 3 month period within which to amend their wills.  If the will is not amended after this 3 month period, the presumption is that the deceased intended for his/her ex-spouse to receive any benefits bestowed upon her in terms of the will.

Redistribution claims by a spouse against a deceased estate

In Gunter v the Executor in the estate of the late Christian France Gunter the issue was whether the Plaintiff’s claim for redistribution in terms of Section 7(3) of the Divorce Act 71 of 1979 (hereinafter referred to as “the Act”) was extinguished by the death of her husband, prior to the divorce had been finalised, but after litis contestatio.  It was stated that divorce is a personal action which automatically comes to an end if one of the spouses die prior to the finalisation of the divorce.

Similarly, a claim for redistribution is a personal right which only a court granting an order of divorce has the discretion to consider.  It is trite that marriage dissolves upon death of one of the parties.  Similarly, any ancillary relief to a divorce would no longer be competent is the marriage relationship no longer existed.

It was held that the Plaintiff’s claim for redistribution in terms of Section 7(3) of the Act was extinguished by the death of her husband, irrespective of whether litis contestatio had taken place.

Maintenance of an ex-spouse on a deceased estate

In terms of Section 7(2) of the Divorce Act:-

“… the court may, …make an order which the court finds just in respect of the payment of maintenance by the one party to the other party for any period until the death or remarriage of the party in whose favour the order is given, whichever event may first occur.”

It is clear from the wording of the aforementioned Act that the payment of maintenance is linked to the life of the spouse receiving such maintenance, and not to the life of the spouse upon whom such obligation is placed.

Kruger v Goss and another (603/08) 1 ZASCA 105

This was an appeal case in which the question of whether an order for rehabilitative maintenance (maintenance for a specified / limited period of time) in terms of a final order of divorce is enforceable against her ex-husband’s estate.

As stated above, in terms of Section 7(2) of the Act, the payment of maintenance is NOT linked to the life of the spouse liable to pay such maintenance, but rather to the life of the person receiving the maintenance.  The court held that this decision should not be viewed in isolation and must be read with common law.  In terms of common law, the duty of support between spouses is dependent on a matrimonial relationship.  Death or divorce therefore brings that matrimonial relationship to an end.

An exception to the aforementioned rule is a provision in terms of the Maintenance of Surviving Spouses Act 27 of 1990, which allows widows / widowers to be maintained from their deceased spouse’s estate, in certain circumstances.

The provision of this Act altered the common law to a certain extent, in that, in terms of section 2(1):-

“If a marriage is dissolved by death after the commencement of this Act the survivor shall have a claim against the estate of the deceased spouse or the provision of his reasonable maintenance needs until his death or remarriage in so far as he is not able to provide therefore from his own means and earnings.”

A spouse is always free to bind his/her estate to pay maintenance post his/her death.  This can be done by either adding a provision to your will stating that your estate must pay maintenance to your ex-spouse, or such a provision should be included in a Deed of Settlement, upon divorce, which is then subsequently made an order of court.  This was not the case in the aforementioned matter.

The appeal court found that, should the First Respondent’s claim succeed, it may have “undesireable consequences” on the deceased’s estate.  Particularly in that the legitimate claims of dependants and/or minors may be diminished or excluded in light of the First Respondent’s claim.  It was also stated that it could not be that before the Maintenance of Surviving Spouses Act came into being that divorced spouses were in a more favourable position than widowed ones.

The court further found that the final order of divorce did not prevent the First Respondent from approaching the maintenance court to vary the terms of the rehabilitative maintenance order, thereby placing a greater burden on the deceased’s estate.  Furthermore, the final order of divorce did not exclude remarriage of the First Respondent.

The appeal was upheld and the original court order, ordering the executor to pay the claim by the First Respondent was set aside and dismissed. https://za.linkedin.com/in/liesl-rae-fischer-7b287b196

  1. 2009[]