Cross-borders situations are typically complex family dynamics for estate planning. It needs to be carefully monitored as to whether a certain wealth structure is suitable for a particular family or not, will depend on their life and financial objectives but also the heirs’ country of residence, assets locations (situs) etc. Should you live in a Common law, Civil Law or Sharia law countries, it would give rise to different outcome-as for example the protection of the spouse and the concept, widely prevalent in continental Europe, of forced heirship. This concept could typically interfere with the use of certain arrangements commonly set up like in Common law jurisdictions. In this respect, and prior to any other arrangement, the very preliminary question to be solved is known as the Famosissima quaestio i.e. to what law the matrimonial property regime will be subject when prospective spouses do not possess the same nationality or live abroad.

This article aims to raise awareness on the pitfalls that mostly emerged from cross –borders families and particularly focus on the impact of the law applicable to matrimonial property regime in an international context.

 

COMPLEXITY IN DETERMINING APPLICABLE LAW IN INTERNATIONAL CONTEXT… 

When establishing an estate / succession plan for assets in multiple jurisdictions, it is important to be aware of the principles and relevant rules determining which law governs the estate.

These rules, known as “Private international law” in civil law jurisdictions, are complex and unfortunately not uniform.

With regard to the law applicable to the succession 

In a world with high level of globalization, one may be surprised to learn that it may sometimes be rather unpredictable how the law will apply to assets in jurisdictions outside the court of the jurisdiction where a principal will is interpreted or the estate is settled.

Which estate law applies and how the ultimate decision is to be recognised and enforced may be decided inversely from one jurisdiction to another depending on the connecting factors used by the notary or the court to appoint the applicable law. While estate law varies considerably from one country to another, the connecting factors, which help to appoint the applicable law to the estate, are also diverse.

Depending on the jurisdiction of the probate or of the notary or court in charge of the case, the factors may vary from the domicile, the nationality and habitual residency at the time of the death.

Until recently, sharia forced heirship provisions determined the division of a UAE resident individual’s assets on their demise even for non-Muslims unless a will was registered with the Dubai International Financial Centre wills and probate registry or Abu Dhabi Judicial Department. Their inheritors were obligated to submit an inheritance certificate from the UAE so that the deceased’s estate could be divided according to Sharia. Any inheritance certificate issued from a non-Muslim country, attested or not, would not be accepted before the UAE courts. Some measures have been made to face the now more and complex situation of expat families. The distribution of a deceased person’s estate in the UAE, which was formerly governed by Islamic forced heirship principles, can now be divided in accordance with the rules of an individual’s home country (if that is different to the UAE position).

Under the new regime, the rules of the country where the deceased is a citizen should now dictate how their assets are divided, unless they have written a will. UAE real estate will however continue to be distributed according to the existing UAE rules, unless a will has been registered in the UAE.

Within the European Union, a major step to facilitate cross-border successions have been achieved with the entry into force in 2015 of the Regulation (EU) No 650/2012 which makes it easier for people to handle the legal side of an international succession. In nutshell, the EU rules on succession provide for a coherent treatment of the succession, by one single court applying one single law within the EU (Denmark and Ireland do not participate in this regulation on succession). Thus, people can choose whether the law applicable to their succession should be that of the country they have last lived in (applicable de facto in absence of contrary choice of law) or that of their nationality. Additionally, the court decisions on successions in one EU country are also recognised and enforced in other EU countries. The law of succession is only intended to determine the civil aspects of the succession and has no impact on the tax aspects.

Some aspects of successions continue to fall under national rules, including who inherits and what share of the estate goes to children and spouse, property law and family law in an EU country and tax on estate’s assets.

With regard to the law applicable to the matrimonial regime 

In this context, one of the key issue is therefore to determine what law governs the property rights of the spouses. Indeed, depending on the jurisdiction and governing law, family law and more particularly matrimonial property regime may affect the succession. For instance, if the applicable matrimonial regime is a form of community of property (that is, the spouses’ property acquired during the marriage is considered community property and is divided equally on marriage breakdown), this may limit what each spouse can freely dispose of by will and will impact the distribution of assets between heirs. In cross border situations, problems would very likely arise where spouses are subject to one legal regime for matrimonial property and another legal regime governs succession to property on death.

“Within the European Union, a major step to facilitate cross-border successions have been achieved with the entry into force in 2015 of the Regulation (EU) No 650/2012 which makes it easier for people to handle the legal side of an international succession.

As it may be the case with succession law, in absence of written choice, conflict of laws principles may also arise with respect to the law of the matrimonial property regime.

The final determination of the applicable governing law would depend on whether one or more of the following connecting factors are present: the existence of an agreement between spouses (marriage contract), the date of marriage, the country of residence after the marriage as well as the current country of residence or the nationality of the spouse. In many cross borders cases where no marital agreement has been done, the matrimonial property regime is not the one that couples think they have, potentially triggering adverse financial consequences for the surviving spouse.

COUNCIL REGULATION (EU) 2016/1103 OF 24 JUNE 2016 

In some jurisdictions, the surviving spouse’s rights to property are determined partly by the rules on the division of property upon dissolution of marriage, i.e. the matrimonial law, and in part by the law of succession.

In many civil law jurisdiction, including Luxembourg, France, Belgium, Monaco, Switzerland and Liechtenstein, there is a set of rules governing the pecuniary interests of the spouses, the purpose of which is to regulate their property relations as well as their debts during the marriage and at its dissolution. In some cases, similar rules can also be applied to civil partnerships. The determination of what is own property and what is joint property depends on the couple’s matrimonial agreements or the applicable legal regime in absence of specific agreements. If the decedent was married at the time of death, the estate, which would then potentially be subject to estate tax, includes his or her own property and his or her share of the joint property. If the spouses do not choose to opt for a specific regime, spouses are automatically subject to a legal regime that may differ from one jurisdiction to another.

In most jurisdictions where common law is the basis of the legal system, there is in principle no legal property regime between the spouses and thus marriage (or Civil partnership) in principle does not have a proprietary effect.

After many years of discussions, on 29 January 2019, European Regulation came into play in order to harmonise matrimonial property regimes of couples with a foreign element, following the enhanced cooperation mechanism.

One concerns matrimonial regimes (Council Regulation (EU) 2016/1103 of 24 June 2016), hereafter (“the Regulation”) and the other concerning the property effects of registered partnerships (Council Regulation (EU) 2016/1104). The Regulation provides first that spouses may choose the law applicable to their matrimonial property regime. This choice implies the conclusion of a marriage contract. However, this choice is limited and can only concern:

either the law of the State in which at least one of the spouses has his or her habitual residence at the time the marriage contract is concluded

or the law of the State of which at least one of them is a national at the time of the conclusion of the marriage contract.

The spouses may then, if the law chosen so permits – this will generally be the case – opt for a matrimonial regime authorised or organised by that law.

In absence of choice of law, the Regulation establishes harmonised connecting factors to determine the law applicable to matrimonial property regimes in addition to the jurisdiction competent to rule on all civil law aspects of matrimonial property regimes, concerning both the everyday management of the couple’s property and the liquidation of the matrimonial property.

ILLUSTRATIONS :

-  Swedish national Mrs Larsson has lived in Brussels with her husband, who is Greek, since their marriage in December 2019. Belgian law will be applicable to their matrimonial property regime (first common habitual residence just after marriage).

-  Mr and Mrs Garcia, who both have French nationality, lived in Argentina just after their marriage in June 2023. They never concluded a matrimonial property agreement. They move to France in 2027 where, a few months later, they decide to buy a property. The French notary will need to take into account Argentinian law, which is applicable to their matrimonial property regime, when drafting the purchase document for the property (first common habitual residence shortly after their marriage).

-  Mr and Mrs Berbatov, who have Bulgarian nationality, marry in February 2020. Mrs Berbatov continues to live in France, whereas her husband lives and works in Greece. Bulgarian law will be applicable (common nationality at the time of marriage).

-  Mr and Mrs Vicente, who both have dual Spanish- Colombian nationality, have lived in Spain and Colombia respectively since their marriage (in January 2021). They concluded their marriage in Spain, where they have real estate. Spanish law will be applicable (closest connections at the time of marriage).

-  Mr and Mrs Leeuw, who are Dutch, establish their common habitual residence immediately after their marriage in Germany. Two years later, they move to Amsterdam where they live for 15 years, considering that their matrimonial property regime is that of full community of property provided by Dutch law. When Mrs Leeuw dies, her surviving spouse discovers that the German regime of joint ownership of acquired property applies. He asks the competent court for Dutch law to be the law applicable to their matrimonial property regime.

PITFALLS AND CONSIDERATIONS 

This Regulation provides for the principle of a single law that governs all the assets of the spouses without distinguishing between movable and immovable property, or whether the property is located in a Member State or in a third country.

However, this Regulation does not apply across all EU member states but it is only applicable in the Member States participating in the enhanced cooperation. Third party countries therefore continue to apply their own rules of private international law, which may generate potential conflicts of law or jurisdiction. Furthermore, while this EU Regulation provides for the principle of one single law to the whole estate, the universal character of these rules may lead to the application of third party countries’ law based on different mechanism. A court of a Common law jurisdiction, for instance, might determine the rights of the spouse under conflict of laws principles regarding succession to property on death and characterize local property as either real estate or personal property. As such, the determination of the surviving spouse’s share of the estate for real estate assets will be governed by the law of the situs while the law of domicile will apply for personal property.

It should also be noted that most of the above-mentioned EU Regulation apply to couples who marry or propose to change the law applicable to their matrimonial regime after 29 January 2019. Consequently, the old rules will continue to apply to unions formed before that. In many jurisdictions, in absence of choice of law (with retroactive effect), it could not be excluded that for very mobile couples married before the entry into force of the above mentioned EU Regulation, the national domestic rules may lead to some automatic changes of applicable law consecutively to a change of residence. This means that, in the absence of a choice of law, the spouses may potentially be subject to one (or more) automatic changes of matrimonial law during their lifetime. In such cases, if the spouses have changed repeatedly their marital domicile during the marriage, it is entirely possible that different laws will govern the different assets of the spouses’ estate.

In order to avoid these difficulties in an international context, it is strongly recommended, to have a marriage contract drawn up in presence of a notary in order to fix the choice of the law applicable to the matrimonial regime and to the succession.

Eventually, some estate mechanisms, which are appropriate in some jurisdiction, may be ignored or may trigger adverse consequences in other jurisdictions. It is therefore advisable to be vigilant as to their use in an international context.

CONCLUSION

Cross-border families and multinational asset portfolios add substantial complexity to the financial and estate planning needs of global families. Therefore, cross-border planning and cross-border solutions are key to implementing structures that will follow them across the globe, but also those who will benefit from their estate – and subsequent generations. Each situation being unique, wealth-planning needs of cross-border families or internationally mobile clients need to be carefully monitored by cross borders expert able to liaise with reliable network of professional in every jurisdiction involved. Do not hesitate to contact your Banque Havilland relationship manager should you wish to discuss the impact of your cross border situation on your financial and estate‘s goals.