Attorney-at-law at LEXTAL Law Firm
As the wedding date is set, the future spouses start to think about the wedding venue, catering, music. In addition, they have to decide on the proprietary relationship which will apply to them once they are married. The proprietary relationship has to be selected at the time of filling in the marriage application. Which proprietary relationship to choose and how is the shared family home protected depending on the chosen proprietary relationships?
According to the Estonian Family Law Act, there are three proprietary relationship options to choose from – joint property, set-off of assets increment and separateness of property. Should the future spouses not choose a proprietary relationship on their marriage application, then joint property is applied as the default proprietary relationship. Spouses can change their proprietary relationship during their marriage by entering into a marital property contract. The marital property agreement has to be authenticated by a notary.
In case of joint property as the proprietary relationship, all assets obtained during the marriage are assumed to be the joint property of spouses in equal parts. Joint property is formed automatically and does not depend on who bought the specific item or who is using it. Assets on both spouses’ bank accounts, including salary, saving accounts and the investment portfolio are joint property. If any real estate is obtained during the marriage, then both spouses are the owners of such property in equal parts. As a result, a family home can be disposed – to be rented out or to be sold – only jointly, with the consent of both spouses.
The formation of joint property isn’t affected by the fact that only one spouse enters into a loan agreement or makes the down payment for a home. A family home, that has been bought during the marriage, is a joint property of the spouses even when only one of the spouses makes the monthly loan payments from his or her bank account.
Assets obtained before marriage are not joint property. Assets obtained during the marriage without paying a fee (e.g., gifts) or through inheritance aren’t joint property either. Such items and assets are the separate property of a spouse. Generally, a spouse does not need the consent of the other spouse to dispose separate property and transactions with separate property can be made independently.
In everyday life, it is common that spouses start their family home in a dwelling that belonged to one of the spouses already prior to marriage. How is the family home protected in such cases and does the spouse who owns the dwelling have the right to sell the family home whenever he or she sees it fit?
According to the Estonian Family Law Act section 27¹ subsection 2, a spouse may dispose of or undertake to dispose of a dwelling which is the spouse’s separate property and is used as a housing of the family or used separately by the spouse who is not the owner and grant the use thereof to a third party or terminate the legal relationship on which the use thereof is based only with the consent of the other spouse.
The protection of a family home is not dependent on whether the family home is joint property of the spouses or owned separately by one of the spouses. A spouse cannot sell the family home without the consent of the other spouse. Consent has to be given in order to rent out the family home to a third person or to end such a rental agreement.
In case of a divorce, joint property is divided into equal parts between the spouses.
In case of separateness of property as the proprietary relationship, joint property is not formed automatically during the marriage. Both spouses are separately the owners of their assets. The spouses may agree to purchase an asset and have common ownership over it. For example, the spouses may agree to buy a family home together. As it is with the joint property system, a spouse cannot dispose of a family home without the consent of the other spouse. This applies no matter whether the family home is a separate property of one spouse or in common ownership.
In case of a divorce, both spouses shall remain the owners of their separate property.
The third type of proprietary relationship option in Estonia is the set-off of assets increment. This is the least used proprietary relationship between spouses. In case of set-off of assets increment as the proprietary relationship, joint property is not formed during marriage. Both spouses shall remain the owners of assets that belonged to the spouse prior to marriage and that are obtained during the marriage. Common property can be formed by entering into a separate agreement.
In case of a divorce or in case of ending the proprietary relationship for any other reason, the increment of assets for both spouses during the marriage is compared and set-off in equal parts. The spouse, whose assets have increased less (or not at all), shall have a proprietary claim against the other spouse.
For example, James was the owner of company X before getting married. At the time of marrying, the value of company X was 20 000 euros. Sandra did not have any assets prior to marrying James. During the marriage, Sandra was a stay-at-home mom. Five years into the marriage, James and Sandra decided to get a divorce. By the time of the divorce, the value of company X had reached 100 000 euros. Sandra still did not have any assets. As the value of James’s assets has increased by 80 000 euros during the marriage and Sandra’s assets have not increased (as she had none), then Sandra has a proprietary claim of 40 000 euros (half of the 80 000 euros) against James.
No matter whether the family home belongs to one of the spouses or has been bought together by a separate agreement, a spouse cannot individually dispose of the family home without the other spouse’s consent.
In conclusion, family home is protected under the Estonian Family Law Act, not dependent on the choice of a proprietary relationship. Which proprietary relationship to choose depends on whether the spouses would like to obtain assets jointly or to set-off the increment.
The Estonian Social Insurance Board has issued “A Parent’s Guide. Information and support for divorcing families with children.” The Guide in Estonian can be found here. The guide is based on an article found here (in English).
The article is published as part of the project “Good Advice to Families with Children”