Our most recent Rising Leaders panel stepped into the codified world of civil law, and focused on its interaction with trusts and estate planning in common law jurisdictions. Here we will be looking at Spain and Russia, and their forced heirship laws and matrimonial property regimes. 

With particular thanks to Guadalupe Díaz-Súnico Aboitiz, Lener and Elena Vasilyeva, Charles Russell Speechlys.

 Matrimonial property regimes are defined as default statutory regimes which provide for the division of matrimonial property under civil law systems. There are three main types of regime: separation of assets (akin to the common law notion of tenancies and common),  universal community of property, which is similar to the notion of joint tenancy, and finally a combination of the two. The ownership rights, that these regimes give rise to, are all too frequently overlooked by common law practitioners. 

Forced heirship rights are the rights in those systems of succession law that very substantially limit testamentary freedoms, not through a ‘statutory backdoor’ as in England, but by mandating that certain quotas of an estate must be left to family members – usually with the provision that this can’t be undermined by lifetime dispositions either.  They are usually considered rights under a country’s public policy.

Spain

Matrimonial property regimes:

When individuals move to Spain, they should be aware that Spain has all three regimes as outlined above. In addition to that, in the absence of any agreement by means of a pre-nup  or post-nup, the applicable rules will differ according to the different regions of Spain.

As an example, in Madrid, the applicable matrimonial regime by default is the universal community of matrimonial property regime – as are any in the below diagram with green dots, when in Ibiza, Barcelona or Catania the legal matrimonial pf property regime by default is the separation of assets, as seen in the below diagram with yellow dots. 

With thanks to Guadalupe Díaz-Súnico Aboitiz, Lener, for her diagram.

It is important that a client considering to move to Spain understands the matrimonial property regime that is in force in the particular area where they are migrating to. In January 2019 the EU released a new ruling which affects expats who are habitually resident in Spain. Until this ruling, the position in Spain was that when spouses had common nationality, the law of that nationality would apply to the matrimonial assets – while spouses of different nationalities were bound by the law of the first common habitual residence after marriage,  which would regulate the matrimonial property regime. After the 2019  EU ruling, the rule that applies is that of the first common habitual residence after marriage and the common nationality rule is only applicable if spouses have not yet lived together. This has many ramifications from a tax perspective. 

Different regimes also affect alimony, and the amount of money one spouse can claim from the other. Some alimony is free of tax, such as in the separation of assets regime, whereas other payments can be taxed up to 50% – such as in Catalonia, where the person receiving money is taxed on their personal income tax.

This can be confusing when, for example, a British divorcee wants to move to sunnier climates and become a Spanish tax resident – England doesn’t have a matrimonial property regime as Spain understands it, and maintenance payments need to be treated differently to alimony. This is where many challenges arise.  

Forced heirship:

Spanish inheritance rules or succession law rules may need to be applied if the deceased has his or her habitual residence in Spain at the time of death. This is not unusual, even if the deceased was a national elsewhere – Spain is a very popular destination for retirement, and naturally often these individuals may die in Spain.  

An advisor, therefore, should look at the specific laws in the regions of Spain and the differences between them because the rules are not uniform. If the client wishes to migrate, they may need to understand and decide to make a choice of law of nationality,  if they do not want the Spanish rules to apply – in particular the Spanish forced heirship laws. The choice of law of nationality can be done in a will, but if it is  not done, and the deceased is in Spain as an habitual resident there, they will end up with Spanish forced heirship applying. 

The final point for forced heirship is that the Spanish courts have decided that forced heirship rules are not a matter of international public policy. Succession regulation mentions that the Spanish courts (or any EU courts) can prevent from applying the applicable law according to the regulation if that is public policy. This is important for people migrating to Spain where the trust provisions are against Spanish forced heirship rules, because it means that if the trust is valid according to the foreign applicable law, they cannot apply trust provisions on the grounds that they violate Spanish domestic rules. 

In conclusion, in Spain it is important to pinpoint geographically the exact regional advice that is needed for clients.

Russia

 Matrimonial property regimes:

Unlike Spain, Russia has an unified system, and it doesn’t matter which region a client is in or from, because the rules will generally be the same throughout the country. 

The universal community of property regime applies to Russian spouses by default. All assets acquired by them in the course of their marriage are subject to this regime, with the exception of gifts, or inheritance.

Spouses own their assets in equal shares, and it doesn’t matter if only one of them is the legal or registered owner of the assets. Therefore,  when a spouse would like to make a disposal, they should need to obtain the consent from the other spouse, or a spouse who hasn’t consented, might challenge the transfer as invalid. This might create unexpected consequences for lifetime transfers to trusts and similar structures, if Russian clients are involved. 

After a famous court case in Russia on a situation such as this there was a flood of inquiries from Russian clients which have now reduced, possibly because advisors now know to take pre-emptive steps and ensure that trustees know that they have to receive consent from both spouses before a Russian married settlor makes a disposition. 

Another example where these rules can really affect advice is in probate cases. Here, the rules can be a double-edged sword, because on the one hand a surviving spouse should have a 50% share in the deceased spouse’s assets, but on the other hand this can mean that the surviving spouse will come under attack from the other beneficiaries.   

So, what is important to bear in mind, when advising Russian clients? Nuptial agreements have been mentioned already, and this could be the ultimate solution because a nuptial agreement would create certainty, not only for lifetime transfers but also for death transfers – and so there would be certainty on the extent  of the estates. 

Forced heirship:

Russian law recognises freedom of testamentary disposition, but there are certain limits in place. The limits are there to ensure the provision for close family members – the surviving spouse, parents and children.

This applies only if they have not been provided for by the estate, and if they cannot  provide for themselves. It is not enough to be just a close family member, they have to be either a minor, of retirement age (which is 55 for women, and 60 for men), or not able-bodied. Anyone outside these categories will not be protected by the forced heirship rules in Russia. 

The beneficiary who has a claim under these rules is entitled to a half-share of what they could have received if there was no will – in other words intestacy rules will apply. For instance, if a settlor leaves everything to their spouse and children but nothing to their retired parents, they can claim up to 1/10 of the estate, or ⅕ in the absence of a will. 

 Therefore, it is important when advising Russian clients, wherever they are in the world, to bear these rules in mind. It may be worth advising them to consider those family members who fall into these categories and provide for them in order to avoid disputes in the future.