Search
Close this search box.

News and Events on Spanish Laws and Taxes

DIFFERENCES BETWEEN MARRIAGE IN COMMUNITY OR SEPARATION OF ASSETS IN SPAIN

It is the spouses themselves who have to opt for one of the three modalities in the matrimonial agreements. Community of assets is imposed in the event that the contracting parties have not opted for any, except in the case of the Valencian Community, the Balearic Islands o Catalonia, where the regime of separation of assets prevails in the case of silence because it is so stipulated in its regional law.

It should be noted that the legislation allows changing the matrimonial regime chosen by another at any time as long as it occurs by agreement between the parties and the modification does not harm third parties.

Community of Assets

It is the most frequent in Spain and different assets coexist in it:

  • The private assets of the spouses, which are those owned before the marriage and with respect to which each one maintains their autonomy,
  • The community assets, which increase over time. throughout the marriage through the income from their jobs and the assets that are purchased during the life of the union.
Separation of Assets

This approach implies the coexistence of two assets at all times:

  • The assets of each member of the marriage remain totally separate. Each spouse owns the assets they have at the time of the union and any assets they acquire afterwards.
  • In addition, each one has complete freedom to dispose of them in the sense that he deems appropriate.

For the separation of assets to take place, it must have been agreed by mutual agreement of the spouses in the capitulations (notarial deeds and registration in the Civil registry office), except in the previously mentioned case of marriages  celebrated in the Valencian Community, the Balearic Islands and Catalonia, where in the absence of explicit indication , the separation of assets is applied.

Participation regime
This is a very unusual modality, almost residual, in practice in Spain but as legally valid as the two previous ones. During its validity, each spouse has an economic relationship with the other of separation of property. The difference with respect to this modality is that when this regime comes to an end, the participant who has acquired the largest assets has the legal obligation to compensate the one who has acquired less assets.

ADVANTAGES AND DISADVANTAGES OF COMMUNITY OF ASSETS

Advantages:

  • It is the most supportive and equitable of the regimes by dividing the assets into two equal halves upon termination of the marriage.
  • Private assets do not enter into any distribution. Neither those purchased prior to the union nor those inherited.
  • It is not allowed to carry out acts of disposition of the habitual residence by either spouse without the acquiescence of the other.
  • It protects the weaker of the spouses, as it may be in the event that one of the two does not work or is in charge of the administration and care of the home.
  • If an exceptional situation such as the existence of a disability or family abandonment occurs, the courts may appoint the other spouse as administrator of the community of property.

Disadvantages:

  • Higher taxation is supported. If the Income statements are made jointly, the higher the common income, the higher the tax rates.
  • Greater exposure to third-party risk if one of the spouses is self-employed or has a business.
  • The debts are distributed, regardless of whether the contracting party is only one of the spouses.

ADVANTAGES AND DISADVANTAGES OF SEPARATION OF ASSETS

Advantages:

  • If debts appear, only the assets of the debtor will be erected to clear them.
  • The consent of the spouse is not required to freely dispose of the patrimony of each one.
  • Fiscally it is less burdensome because the fact of making separate declarations means that the tax rates do not increase by the sum of those of both members of the couple.
  • Allows the separation process to be easier.
  • The responsibility of the spouse for commercial errors before third parties is avoided.

Disadvantages:

  • It is a less supportive regime from which the economically disadvantaged spouse can be greatly affected by the fact of not working or taking charge of the home.
  • It encourages individualism as each one is the exclusive owner of its rights and obligations.
  • Serious problems can arise if the property acquired in common is only in the name of one of the two.
  • There is no obligation to inform the spouse of the economic movements that are made.

IN CASE OF INHERITANCE – SPANISH INHERITANCE TAX FOR INTERNATIONAL INVESTORS

Regarding the issue of the regime or separation of assents/community  and how this affects the Spanish inheritance tax  we have to say that, unfortunately, there is no type of difference in Spain with respect to the transfer of property from a spouse to the other, either in community property or separation of assets.

In both cases, whether the property is acquired in separation or community, in the case of succession and death of one of the spouses, the part thereof must pass to the other, or to the children. It will pass to the surviving spouse, or to the children, depending on what the deceased has left in will, or what NATIONAL from the deceased/ TESTANENT law says.

As established by international law, inheritance taxes for real estate are paid, following the laws of the country in which these real estate are located. In the case of this property, since it is located in Spain, the tax law to pay it to the Spanish.

SOME KIND OF ADVANTAGE IN CASE OF COMMUNITY IN INHERITANCE TAX

With regard to Inheritance taxes, since there is a patrimonial displacement, both in the case of marital property, and in the case of separation of property, yes or if taxes will have to be paid.

In marriages under the community regime, the assets acquired during the marriage are considered common to both spouses, even if they are in the name of only one.

So, in case of death, when one of the spouses dies, a double effect occurs:

1.- The property partnership is dissolved: Half of the common property assets acquired during the mariage (properties, cars, bank accounts, etc)  are passed  to the surviving spouse, specifying the half that already belonged to him.
2.-  Private assets: The other half of the assets are passed to the inheritance assets to be passed to the inheritors.

These two acts are usually carried out simultaneously in the same public deed. However, the way in which the dissolution of the community is carried out may, in some cases, reduce the payment of taxes derived from the inheritance.

But, in the case of successions and inheritances in marriages married under a community  regime, the dissolution of the conjugal partnership upon the death of one of the spouses may affect the taxation of the inheritance depending on:

  • The place of permanent/fiscal residence: Spouses must be Spanish tax residents, and they need to have a permanent residence in Spain.
  • The existance of other assets different from the main residence with value similar to the main residence property. These assets must arrive, at least, to the value of the permanent residence in Spain.

In the above cases, instead of awarding each and every one of the marital assets, it is possible to award individual assets up to half of the total value of the common assets.

Since the dissolution of the joint venture is not subject to tax, while the inheritance is taxed by the Inheritance Tax , it is convenient to act as follows:

1.- Passing the “Private assets” from the deceased to the Dissolution of the Community. This will imply that no taxes would be paid as there would not be considered as a transmisssion of the ownership.  So, assets included here, will not be subjected to Spanisn inheritance tax, as they were considered as a transmission covered by the community disolution.

2.- Passing the “Permanent Residence property” to the inheritance. In this case, as the inheritance of the permanent residence in Spain is exempted in Inheritance Tax in Spain.

In this way, by carrying out a strategic property dissolution, it is possible to minimize the payment of taxes on the inheritance by taking advantage of the available tax credits. It is important to note that tax laws and regulations can vary by country and jurisdiction, so it is advisable to seek specific legal and tax advice before making any decisions regarding probate and inheritance.

If this was the case, it would have to approach a notary in the country of nationality of the couple, request a change in the regime of separation of assets to community property, register the act in which they change the regime in the  civil registry, and provide in Spain, both a copy of the notarial deed in which the change of regime is declared, such as a copy of the civil registry certificate, stating that the change has been noted, translated into Spanish, and apostilled.

This must necessarily be done before the acquisition of the property in Spain. It will be problematic to be done afterwards. In other words, it must be made very clear that at the time of acquiring the property in Spain, the community of property had already been established, it cannot be carried out later.

IS THIS SOLUTION PRACTICAL?

In theory, yes, but in practice NO. In practice, the Spanish Inheritance Tax is quite reduced in Spain. IHT in Spain is delegated to regions. Some examples:

ANDALUCIA: Inheritance tax is exempted up  1.000.000 EUR

VALENCIAN REGION: in the Valencian Community there is an exemption of €100,000, and that it applies to both the spouse and the children. In other words, up to €100,000 of the value of the inhertiatce received separately considered by each one of the inheritors (each one of the inheritors have a bonus of 100.000 EUR from the inherti is not paid by the spouse or by the children. In addition, of the amount to be paid, there is a reduction of 50% of the tax.

With which, both in the event that the part of the property of the deceased spouse goes to the husband, or to the children, the €100,000 reduction will be applied, and 50% of the amount to be paid.


For example: 

A+B Foreign copuple buys a property in Valencia region  for a value of 600.000 EUR. They have 2 sons (1 1nd 2)

They are married in Separation of assets, so, “A” owns the 50 % of the property (300.000 EUR value), and “B” owns the other 50 % (300.000 EUR). 

“A” dies. So: 

  • “B” keeps its 50 % part
  • “A” part of 300.000 EUR is to be shared in equal parts between “A”, and the two sons “1”, and “2”. As there are 3 equal parts of 300.000 EUR, then, each one of them receives 100.000 EUR.

As the property is in Valencia region, where each inheritor has a bonus of expemtion in inheritance tax for 100.000 EUR, no one of the inheritors will have to pay inheritance tax.

So, considering the above…. changing your marital regime is recommendable?? 

We do not think so….