Wedded to a matrimonial property regime

Whether there is Brexit or no Brexit, deal or no deal, in some respects the cross-border private client arena will remain the same.

The majority of private client solicitors dealing with international work are familiar with the EU Succession Regulation. Although the UK was not a party to this Regulation, it still has an impact on UK nationals who own property or live in a Regulation member state, i.e. a member state that has ratified the relevant Regulation. In January 2019 the EU Council passed two new regulations, for matrimonial property regimes (MPRs): Regulation (EU) 2016/1103 (“the MPR Regulation”), and the property consequences of registered partnerships: Regulation (EU) 2016/1104. These new regulations have been ratified by 18 EU member states, whereas the Succession Regulation applies to 25 EU member states. Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia have not ratified the new regulations.

UK nationals who acquire property in a Regulation member state will be impacted by these two regulations, as already happens with the Succession Regulation.

In this article we discuss how the MPR Regulation will apply in France and Spain, as these are the preferred countries for British nationals to relocate to or to acquire property in.

How do MPRs work?

MPRs are a set of rules which govern the property aspects of a marriage both during its duration and when it ends, either through divorce or death. There is no marriage in Spain, France or the majority of continental Europe without an MPR. If the couple do not choose a regime, a default one will be imposed. Under Scottish law, whilst there is no true MPR and the regime most closely aligns with a separation of assets regime (see below), there is a concept of matrimonial property which is similar to the concept of “acquests” seen in either the community of acquests or the community of gains (see below) in terms of rights on divorce, but not otherwise. When a marriage ends by divorce, French and Spanish judges have very restricted powers in relation to the divorce, contrary to what happens in Scotland where the judges have some discretion to distribute the marital assets.

These are the main MPRs used in both countries:

• Separation of assets: each spouse retains full ownership of their assets. Only assets belonging to the deceased spouse form part of their estate. This is similar to the Scottish law position during the marriage.
• Community of assets: some or all the assets belong to the marital community, not to the spouses individually. Community assets, even if in the name of one spouse only, require both spouses’ agreement for management and disposal.
• Community of gains (acquests): a hybrid regime in which the assets and their management remain with the individual spouse, although each spouse is entitled to half the value of the assets defined as acquests at the time of the dissolution of the MPR. This is similar to the Scottish law position on separation.

In France and Spain, the intervention of a notaire or notario is necessary for the winding up of an estate. Regardless of the law applicable, it is necessary to liquidate the MPR prior to winding up the estate of a person who was married at the time of their death. If the deceased was married under a community of assets, 50% of the community assets will be transferred to the surviving spouse and the remaining 50% will form part of the estate.

The position in France and Spain

The communauté des acquêts, which translates to “community of acquests”, is the French default MPR. Despite the similar name, the French community of acquests is a type of community of assets and not a community of gains. Under the communauté des acquêts all assets acquired onerously after the marriage form part of the community; those acquired prior or by gift or legacy are the individual spouse’s property.

The second most common form of community is a “universal” community (communauté universelle), which is another type of community of assets, so called because all assets of both spouses, however, whenever and wherever acquired, are part of the community. A universal community will often include a clause which transfers all the assets to the surviving spouse on the first death.

When a couple marry in France, the existence or absence of a marriage contract is noted on their marriage certificate. If a marriage contract was signed, the type of MPR adopted is also noted.

When acquiring property in France, the MPR (or at least the existence or absence of a marriage contract, and if there is a marriage contract, the type of MPR) should be recorded in the title deeds to the property.

In Spain, the situation is slightly more complicated. The default regime is sociedad de gananciales (community of assets), very similar to the French community of acquests; however, certain regions have a different MPR that applies by default, such as Cataluña and the Balearic Islands where the default regime is separation of assets.

In Spain, married couples have to register their MPR in the Civil Registry. When acquiring property in Spain, the MPR must be recorded in the title deeds to the property.

Scottish-Spanish couples

So, what happens when a Scot marries a Spaniard? Do they have an MPR?

The Spanish conflict of laws rules contained in the Spanish Civil Code state that the law that shall govern a marriage will be:
(a) the law of the common nationality of the parties or, failing this,
(b) the law of the nationality or place of residence of either of the parties (specifically chosen in a deed);
(c) in the absence of (a) and (b), the law of the place where the couple had their first joint permanent residence after their marriage;
(d) in the absence of (a), (b) and (c), the law of the place where the marriage took place.

For instance, Angus (a Scotsman) marries Josefina (a Spaniard) in Aberdeen. They have their first joint residence in Marbella, so their marriage will be governed by Spanish law. This would imply that they would have an MPR of a community of assets, unless they state otherwise. This means that Angus and Josefina’s salaries and any income received during their marriage as well as lottery prizes shall be treated as commonly-held assets. Any property that they acquire individually after their marriage will also be considered as a commonly-held asset, unless they declare that the asset is held exclusively by one of them (bien privativo).

Let’s continue with Angus and Josefina; they purchase a property in joint names in Marbella. Josefina has substantial credit card bills. Sadly, their marriage breaks down. On their divorce in Spain, because they are married under a community regime, their salaries, the property, and credit card bills will be part of the pot that will be distributed equally between the spouses. If Angus and Josefina had entered into a separation of assets, the credit card bills and the salaries would not be part of the pot. The property would have to be dealt with as it is held in joint names as tenants in common. Being married in a community of assets can be problematic if one of the spouses is in debt.

Scottish-French couples

According to French private international law (Hague Convention on Matrimonial Property Regimes of 14 March 1978), if the couple do not choose the law they want to apply to their marriage (which happens fairly often in the case of couples of different nationalities), it will be that of the couple’s first joint habitual residence; in the absence of a joint habitual residence, the joint nationality of the parties; and in the absence of both, the law of the country with which the spouses are most closely connected.

The new regulations

The new EU regulations cover: conflicts of law; which law should apply; jurisdiction; and enforceability. In terms of the applicable law, the position is similar to that of Brussels IV: the law applicable by default will be the spouses’ first common habitual residence after the marriage; failing that, their common nationality; failing that, the country with which the spouses jointly have the closest connection at the time of their marriage, taking into account all circumstances. However, the spouses can elect either the law of the country of one spouse’s habitual residence at the date of the agreement, or the law of the country of one spouse’s nationality at the date of the agreement. The MPR Regulation will only apply to spouses who marry after 29 January 2019 (or change their MPR after that date).

Scottish couples owning property in France or Spain

We frequently encounter British couples with French property, who have been advised to enter into a communauté universelle for their French property. However, this can be a dangerous exercise where one of the spouses has children from a previous marriage. The French Civil Code allows the children of a first marriage to limit what the non-parent spouse receives from their parent under an MPR. This will have effect regardless of English law being applied to the deceased’s estate, as the MPR will have to be liquidated prior to winding up the estate.

Take the example of Theresa and John. They are both British. They married in 1985 in Edinburgh, where they live. John has a son from a previous marriage. Theresa and John purchased a property in Cap Ferrat in 1997, where they spend their summer holidays. Under the advice of their French notaire, they entered into a French communauté universelle for their French property.

In 2015, their UK solicitors advised them to make an election for Scottish law so that on the first death the estate would pass to the surviving spouse; this was done to avoid French forced-heirship rules applying to the French property.

However, under a communauté universelle it is immaterial whose name is associated with an asset; the regime’s rules determine whether or not an asset is common or personal property. Theresa and John’s matrimonial property regime will be liquidated on the first death. The French Civil Code allows the children of a first marriage to limit what the non-parent spouse receives from their parent under any French MPR. This will have effect regardless of Scottish law being applied to John's estate, as the MPR will have to be liquidated prior to the winding up the estate.

If they had not adopted a communauté universelle and instead elected for Scottish law to apply to John’s estate, his son would not have had a claim.

The MPR Regulation no longer allows for a separate MPR relating solely to foreign land, so new cases like this should cease to arise, although there are many estates in which the question will still be relevant for years to come.

In Spain, a British couple that had no connection to Spain other than having a home there was not able to elect for a Spanish MPR, as happened in France. The Spanish Civil Code states that modifications to an MPR shall be valid if these are made in accordance with the law governing the marriage. In a property purchase, a Spanish notario will make reference to the fact that in Scotland there are no MPRs, but the Spanish equivalent would be that of a separation of assets regime.

British couples who marry after 29 January 2019 will no longer be able to have an MPR from a Regulation member state, unless they meet one of the connecting factors such as being jointly resident in that country, being a national of or having the closest connection to that country. British couples already married, but who wish to change their MPR now, will also only be able to adopt an MPR from a Regulation member state if they meet one of the connecting factors.

The new MPR Regulation no longer allows for a separate MPR relating solely to foreign land. British couples purchasing property after 29 January 2019 will no longer be able to have a French MPR solely for the French property if the only connection they have with France is owning a holiday home there. Likewise, if a British couple already own a French property, they will no longer be able to adopt a French MPR solely for French property.