Reform of the matrimonial property law: implications for the spouse who is professionnaly active through a company
Common shares of which the membership rights are own.
In case of spouses who are married under the legal regime with community of acquisitions, the professional income generated by each individual spouse is considered as community property. In this context, each spouse continues to have professional autonomy and can make his own professional choices, without the interference of the other spouse.
To strengthen this professional autonomy, the 2018 reform of the matrimonial property law clarified and further developed the former rules provided for in article 1401,5° of the Civil Code regarding the membership rights of common shares. Today, the membership rights of shares acquired with common funds and registered in the name of one of the spouses, are the property of the spouse in whose name the shares are registered. The membership rights also include the right to act as owner of these shares. Their asset value however, is part of the community property (article 1405, §1, 5° of the Civil Code). This rule only applies to shares that have been acquired for at least 50% with common funds (first condition). If this is not the case, the asset value of the shares remains own property. In addition, the shares must be registered in the name of only one of the spouses (second condition). The membership rights and property rights of shares that have been acquired for at least 50% with common funds, but registered in the name of both spouses, will belong integrallyto the community property. Finally, article 1405, §1, 5° of the Civil Code specifies that this rule only applies to shares of companies having legal, statutory or conventional share transfer restrictions (which indicates that the person of the shareholder is important) or in which the spouse on whose name the shares are registered (and only that spouse) is professionally active as a director or manager (it is required that he/she is involved in the company’s managmement and direction) (third condition).
If these three conditions are met, the membership rights of these shares are own and their asset value belongs to the community property. Upon the dissolution of the matrimonial property regime, the asset value of the shares will be integrated into the mass to be divided, however, since the reform of the matrimonial property law, this value will be estimated at the date of the dissolution and no longer at the date of the division (article 1430, § 2 of the Civil Code). This correction was necessary to avoid unfair situations, such as the increase in value due to the continuing efforts of the working spouse for the benefit of the community property during the period between the date of the dissolution and the date of the division, but also a decrease in value at the hands of the working spouse to the detriment of the community property.
Compensation rules for the community property
Inequities may also occur when one of the spouses excercises his/her professional activities within a company whose shares are, pursuant to the matrimonial property law, his/ her sole property. In the case of spouses who are married under the legal regime (community of acquisitions), the shares are fully owned by a spouse-shareholder if he/she has already acquired them before the marriage; or if he/she has inherited them or received them as a gift during the marriage, or if he/she has acquired them with his/her own funds. The community property will be prejudiced when the spouse-shareholder is professionally active in his/her ‘own’ company and pays himself/herself only a low salary or distributes very little dividends/tantièmes (knowing that he/she will be indirectly compensated through the capital gain on his/her own shares), and thus reserves the profits of his/her company instead of paying them out to himself/herself. Under the legal regime, the professional income, such as described above, normally belongs to the community, which is in this case prevented since the income is ‘hoarded’ within the company. In the past, the legal doctrine already criticized such inequal allocation of professional income to the detriment of the community property. By introducing new compensation rules, the legislator has responded to this issue within the scope of the recent reform of the matrimonial property law.
According to the new article 1432 of the Civil Code, the spouse exercising his/her profession within a company whose shares are his/her own, will owe compensation to the community property for the net professionnal income that the community property has not received and could have reasonably received if the profession had not been exercised within a company.
This legislative amendmentdoes not imply that the value increase of the own shares falls into the community. What it does imply however, is that the spouse who is professionnally active through his/her ‘own’ company, might owe compensation to the community property for the unreceived income. The spouse who claims compensation in the event of the dissolution of the marriage, shall have to prove that the community property could have gained more professional income if the spouse-shareholder had not excercised his/her profession within the company.
In our opinion, the spouse-shareholder could dispute the compansation claim, for instance by arguing that he/she had no decision-making power within the company regarding the distribution of income, or that the decision to not (entirely) distribute the income was based on economically justified reasons, such as the need to build up reserves for making investments, or unsufficient financial capacity to pay a higher salary.
Entry into force
The aforementioned legislative changes are fully applicable to anyone who is married since 1 September 2018.
The new patrimonial property rules also apply from 1 Septembre 2018 for couples who were married before 1 September 2018, but subject to a number of exceptions. The new rules concerning the membership rights, the asset value of the common shares and the new valuation moment in the event of the dissolution of the marriage (new articles 1401, 1405 and 1430 of the Civil Code) are such an exception and only apply to shares acquired after 1 September 2018.
Remains the question whether the compensation rules also apply to the professional income that was reserved before 1 September 2018. In our opinion, this is not the case. Questions also arise with regard to the tax treatment: under which tax regime falls the compensation? In practice, these new compensation rules will certainly give rise to discussion.
Naomi Glibert, intui attorneys