The matrimonial property regime
The Statutory Matrimonial Property Regime of Community of Acquired Property as a Planning Tool in the Field of Gift and Inheritance Law
by Dr. Heribert Warken
If you look at the internet posts under the term ‘equalisation of gains’, almost all of them relate to divorce law.
It is certainly true that almost every 2-3 marriages end prematurely these days, and so does the often agreed statutory matrimonial property regime of the community of acquired property.
Conversely, however, it is also true that the other portion of marriages works out and families remain intact. And it is precisely this target group that the following article is aimed at.
For this group of individuals – who have also frequently chosen the statutory matrimonial property regime of community of accrued gains upon marriage – the dissolution of this regime, with full knowledge and intent, can be a useful planning tool in the context of inheritance and gifting considerations.
But let’s start at the beginning:
1) What is the statutory matrimonial regime of community of acquisitions?
Pursuant to Section 1363(1) of the German Civil Code (BGB), all individuals who marry today without a prenuptial agreement are legally subject to the matrimonial regime of community of acquisitions.
Contrary to what the term might suggest, however, each spouse’s assets and debts remain separate. Thus, everything that belonged to each spouse prior to the marriage remains their property thereafter, in accordance with Section 1363(2) of the German Civil Code (BGB).
Furthermore, under this regime, each spouse continues to manage their own assets and debts even after marriage. This separation of assets means that one spouse is not responsible for – or liable for – the debts of the other spouse. Therefore, many couples do not necessarily need to enter into a prenuptial agreement due to existing debts of one spouse, even though this is often assumed to be the case.
Assets acquired, inherited, or received as gifts during the marriage remain the property of the respective spouse.
Only when the spouses acquire joint property – for example, by purchasing a house together – do both become co-owners under civil law. In this case, they are also jointly liable for any debts if both have signed the loan agreement.
2) How is the equalization of marital gains calculated?
Marital gains are calculated by comparing the total assets of both spouses. The increase in assets (marital gains) is determined as the difference between each spouse’s final and initial assets. The difference between the calculated gains of each spouse represents the net gain. This amount is divided in half, and the spouse with the higher net gain must compensate the other spouse for this amount.
For clarification, here is a sample calculation for the equalization of marital gains:
| Husband | Wife | |
|---|---|---|
| EUR | EUR | |
| Initial assets (§1374 BGB) | 0 | 0 |
| Final assets (§ 1375 BGB) | 100.000 | 50.000 |
| Community property (§ 1373 BGB) | 100.000 | 50.000 |
| Surplus community property | 50.000 | 50.000 |
| X 50% | 25.000 | 25.000 |
| Community property equalisation (§ 1378 Abs.1 BGB) | -25.000 | +25.000 |
| Assets after community property equalization | +75.000 | +75.000 |
When determining the initial assets (§ 1374 BGB), three factors must be taken into account:
Unless it can be proven what initial assets were present at the time of marriage, the initial assets are set at 0 EUR (§ 1377(3) BGB)
Inheritances and gifts are excluded from the calculation of the equalization of accrued gains because they are considered part of the initial assets (Section 1374(2) of the German Civil Code (BGB)), even if they were acquired during the marriage. As a result, they are generally not subject to the equalization of accrued gains.
Negative initial assets may also occur if one or both spouses entered the marriage with debts (Section 1374(3) of the German Civil Code (BGB)). The same naturally applies to final assets (Section 1375(1), sentence 2, BGB).
In this case, however, it should be noted that the equalization of accrued gains is limited to the amount of assets actually available (Sections 1378(2), sentence 1, and 1384 BGB).
3) How can i use the equalization of accrued gains as a planning tool?
The equalization of marital gains as a planning tool is also known as the “marital property regime swing”.
To explain and illustrate this, we will use the following highly simplified example, in which we can easily swap the amounts between the husband and wife for the sake of equality.
Example:
Bernd (EM) and Erna (EF) met and fell in love at college about 40 years ago. The two moved in together, got married shortly after graduating, and a few years later, they had two children. Since neither spouse had any personal assets after graduation – they started with nothing – they did not enter into a prenuptial agreement at the time. When the children were young, EF stayed home to take care of the family. EM initially held a management position in the real estate sector and, after a few years, successfully started his own business. The company was very successful in the market and generated good profits. Once the children were grown, EF began working part-time and then returned to full-time work.
The couple is now in their mid- to late 60s and is already considering transferring part of their assets to their children. The couple’s financial situation is as follows:
| Husband | Wife | |
|---|---|---|
| EUR | EUR | |
| Initial assets | 0 | 0 |
| Current assets | 4.000.000 | 0 |
As is relatively easy to see, the couple’s current assets are distributed very unevenly. If both were to want to transfer assets to their children today, only the father could do so, since the mother currently has no assets. This is certainly a very extreme example, but it is intended to illustrate how the system works.
Since each spouse has an exemption of EUR 400,000 per child every 10 years, within which they can transfer assets tax-free, the situation described above leads to a suboptimal outcome, as only the father’s exemptions can be utilized in an asset transfer, but not the mother’s.
Against this backdrop, it is worth considering the use of the “matrimonial property regime swing” as a planning tool:
The matrimonial property regime swing is brought about by terminating the statutory community of accrued gains regime for the future through a prenuptial agreement.
This gives rise to a claim for equalization by the wife against the husband (Section 1378 of the German Civil Code [BGB]), which does not constitute a gratuitous gift but rather arises by operation of law upon the termination of the statutory matrimonial property regime (Section 1378(3), first sentence, BGB). The basis for the claim for equalization is therefore not subject to gift tax, as § 5(2) of the German Inheritance Tax Act (ErbStG) clarifies.
Accordingly, the following occurs in our initial case:
