M v M

REM (the appellant) and VM (the respondent) had been married and divorced three times. Their most recent marriage was concluded out of community of property with accrual in terms of the Matrimonial Property Act 88 of 1984, governed by an antenuptial contract (ANC). The ANC contained several specific provisions including: (1) a clause requiring the appellant to provide fixed property worth R300,000 (escalated at 10% per annum) if an extramarital affair by him caused a divorce; (2) clause 6 excluding certain defined assets from the accrual system, specifically the appellant's beneficial interest in the Vacation Investment Portfolio Trust (VIP Trust), members interest in RM Consultants CC, and beneficial interest in the RMF Trust, as well as "any other asset acquired by such party by virtue of the possession or former possession of such asset"; and (3) a provision that contributions made to the RMF Trust after the date of marriage would be subject to the accrual system. After the parties' third divorce, the respondent brought claims concerning: (A) the escalated property payment based on the appellant's extramarital affair; (B, E, F) declarations that assets held by the Shajo Trust, RMF Trust and Capmark Business Trust formed part of the appellant's accrual estate; (C) setting aside the transfer of the appellant's 50% interest in Milcar Development CC to the Shajo Trust as fraudulent; and (D) that contributions to the RMF Trust formed part of the accrual. The appellant had conducted business through multiple trusts and entities, and evidence showed he had used trust funds to pay personal maintenance obligations, shifted money between various accounts including personal accounts, and transferred his interest in Milcar to the Shajo Trust without payment after the divorce action was instituted.

• What constitutes 'the cause' of a divorce for purposes of an antenuptial contract penalty clause?
• How should the phrase 'any other asset acquired by such party by virtue of the possession or former possession of such asset' in an antenuptial contract be interpreted for purposes of excluding assets from the accrual system?
• When can a court pierce the trust veneer and treat trust assets as personal assets of a trustee for purposes of calculating accrual?
• Does a spouse have standing to challenge trust administration when seeking to enforce an accrual claim?
• What constitutes 'contributions' to a trust for purposes of an antenuptial contract providing that such contributions are subject to the accrual system?
• What is the appropriate approach to costs where an appellant achieves substantial success but the respondent faced inherent difficulties in proving her case?

The appeal was upheld in part. Paragraph 2 of the High Court order was set aside and substituted with an order that the appellant pay the respondent R2,669,822.78 (reduced from the amount awarded by the trial court which had included the Shajo and Capmark Trust assets in the accrual calculation). The respondent was ordered to pay the appellant's costs of the appeal (majority judgment; Mocumie JA would have ordered each party to pay their own costs).

1. An antenuptial contract clause requiring payment if an extramarital affair is 'the cause' of divorce must be interpreted purposively in context; where designed to preserve marriage by deterring infidelity, causation is established if the affair destroys trust leading to marital breakdown, without requiring narrow application of legal causation principles. 2. An exclusion clause in an antenuptial contract providing that assets are excluded from accrual together with 'any other asset acquired by such party by virtue of the possession or former possession of such asset' requires proof of a direct nexus between the specifically excluded asset and the asset claimed to be excluded; the phrase means 'the particular asset, its proceeds, and assets which replace the excluded asset or are acquired with its proceeds' and does not extend to all assets acquired through general involvement in the same industry. 3. A spouse has standing to seek to pierce the trust veneer when enforcing an accrual claim, even though not a trust beneficiary or third party transacting with the trust, where the unconscionable abuse of the trust form by the trustee through fraud, dishonesty or improper purpose prejudices enforcement of the obligation owed to the spouse. 4. To succeed in piercing the trust veneer in the matrimonial property context, a spouse must prove the trustee transferred personal assets to the trust and dealt with them as trust assets with the fraudulent or dishonest purpose of avoiding the obligation to account for accrual and evade payment, or that transfers were simulated to retain ownership while cloaking assets with trust form. 5. Poor trust administration, disregard for fiduciary duties, and failure to maintain separation between control and enjoyment, while potentially justifying removal of a trustee, do not alone justify piercing the trust veneer without proof of fraudulent intent to defeat the spouse's patrimonial claim. 6. The word 'contributions' in an antenuptial contract providing that contributions to a trust are subject to accrual means any asset that accumulated in the trust after marriage, irrespective of how accumulated, and is not limited to voluntary acts benefiting the trust without legal obligation.

Swain JA expressed disagreement with the conclusion in WT v KT that a spouse has no standing to challenge trust management when neither a beneficiary nor third party transacting with the trust, stating: 'There can be no basis in logic or principle for a distinction to be drawn between legal standing to advance a claim to pierce the veil of a trust, by a third party who transacts with the trust on the one hand, and a spouse who seeks to advance a patrimonial claim, on the other. Breach by the trustee of his or her fiduciary duties in the administration of the trust, is not the determining factor.' Mocumie JA in a separate judgment disagreeing on costs noted that where trust assets are at issue and only one party possesses all relevant facts about the trusts, a respondent 'could not be expected to be up to date with the affairs of trusts that she did not herself run or administer' and that failure to discharge the onus 'cannot be held against her at appeal level' in determining costs, particularly where novel legal issues are involved and the legal position is uncertain.

This case provides important guidance on the interpretation of antenuptial contracts governing marriages out of community of property with accrual, particularly regarding the exclusion of assets from the accrual system. It clarifies that exclusion clauses referring to assets acquired 'by virtue of possession or former possession' of specified assets require proof of a direct nexus or causal link between the excluded asset and the asset claimed to be excluded - general involvement in the same industry or business sector is insufficient. The judgment also addresses the circumstances in which a court may pierce the trust veneer in matrimonial property disputes. While affirming that unconscionable abuse of the trust form through fraud, dishonesty or improper purpose can justify piercing the veneer, the court set a high evidentiary threshold requiring proof that assets were transferred to trusts with the specific fraudulent or dishonest purpose of defeating patrimonial claims. The judgment importantly recognizes (contrary to WT v KT) that a spouse has standing to challenge trust administration and seek to pierce the trust veneer when enforcing an accrual claim, even though not a beneficiary or third party transacting with the trust. However, poor trust administration and disregard for fiduciary duties alone, without proof of fraudulent intent to defeat the spouse's claim, is insufficient. The case also demonstrates the purposive approach to interpreting penalty clauses in antenuptial contracts, and provides guidance on interpreting 'contributions' to trusts in the context of accrual provisions. The minority judgment on costs highlights considerations relevant to matrimonial property disputes where one party controls information and the legal position is uncertain.