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20th March 2019

New property rules for international couples

One of the problems most frequently encountered when dealing with international couples is identifying the laws which apply to their property in the event of divorce or death.
European legislation, in the form of two new Regulations, has now been passed to provide a clear set of rules for couples who enter into a marriage or registered partnership (e.g. in the UK civil partnerships) of a cross-border nature. The new rules will apply to marriages and registered partnerships entered into, or to proceedings commenced after, 29 January 2019 and also where changes are made after that date.

The Regulations provide a framework to determine the laws of which jurisdiction will apply to issues affecting the division of assets for international couples. Broadly, they aim to answer three main questions:

  • 1) Which country’s court has jurisdiction to decide on these matters?
  • 2) What is the applicable law (which could be that of another country)?
  • 3) Do decisions made in one Member State have to be accepted in another?

As the UK has (unsurprisingly) opted out of the Regulations, the question is – do we really need to worry about them? The answer, for anyone with foreign assets or any foreign connection is yes. The rules affect clients who hold assets in foreign countries, or who are not British (but live here), or when one of the spouses is a national of a different EU State.

In different jurisdictions, there are different types of matrimonial property regimes, ranging from complete community of property to total separation. These regimes affect the ownership of a property and can determine the entitlement of a spouse to a share of one or more assets before the remaining share forms part of the deceased’s spouse’s estate.

For instance, a property located in Italy could, in certain circumstances, be deemed to be held under the community of property regime, which is the default regime for Italy. If that is the case, even if the title is held solely by one of the spouses, the value of that asset would be split 50%-50% between their estates. On the death of the owner spouse, the surviving spouse would be entitled to 50% which they are already deemed to own under the matrimonial property regime. This would be in addition to inheriting a 25% share of the owner spouse’s half, if Italian intestacy rules applied.

Under the Regulations, partners and spouses can choose to apply to their property either the law of their “habitual residence” or the law of the nationality of either one of them. If no choice of law is made, the marital property law relationship will be primarily governed by the law of the Member State where the spouses had their first habitual residence.

In relation to jurisdiction the Regulations state that a court which would deal with the divorce should also have jurisdiction on matters regarding matrimonial property regime. That said, the parties may override this by having a choice of court agreement. If there is no jurisdiction for divorce and no choice of court, jurisdiction will be assigned based primarily on the habitual residence of the parties.

The Regulations also provide that Member States should in general accept each other's decisions.

By way of example, two British citizens, who moved to Spain after their marriage, could now make a choice of law agreement under the Regulation, electing to apply English law to their matrimonial property. If they then get divorced, having immoveable assets in Spain and moveable assets in the UK, what happens? The jurisdiction for the divorce would be in Spain, if this is where they start proceedings. The applicable law would be English law, which Spain would accept. Will decisions made by the Spanish Court be enforceable in England? As the Regulations do not apply here, this would be determined by our Private International Law. So in this case, England would accept the decisions made in relation to the immoveable assets (Spanish land), but would apply the law of domicile (whatever the “home country” is deemed to be by that point in time) to apply to the moveable assets (bank accounts).

In view of the increasing mobility of couples, the new Regulations are likely to be frequently applied. Couples with cross-border connections should seek professional advice on the implications for them of these new European Regulations and what steps they may wish to take to ensure their interests are adequately protected.

This article is intended only as a general guide and no liability is accepted for any action taken in reliance on it. Hewitsons do not advise on foreign law and the examples above are not necessarily complete or exhaustive.
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