The matrimonial property regime seesaw: structuring the equalisation of assets between spouses in a tax-free manner

The legal framework: community of accrued gains and equalisation of accrued gains

In the absence of a marriage contract, spouses automatically live under the statutory matrimonial property regime of community of accrued gains. Contrary to what the name suggests, this matrimonial property regime does not result in the pooling of assets during the marriage. It is only upon termination of the matrimonial property regime – for example, through divorce, death or an amendment to the marriage contract – that equalisation of accrued gains takes place: the spouse with the greater increase in assets pays the other half of the difference. Spouses may modify the equalisation of accrued gains by contract, for example by excluding certain assets or setting maximum limits.

Tax-related feature: Equalisation of accrued gains is not a gift

The settlement of a claim for equalisation of accrued gains is made in return for consideration and is therefore exempt from gift tax under Section 5(2) of the Inheritance Tax Act (ErbStG), provided that the matrimonial property regime is validly terminated by a marriage contract and the claim is specifically determined and settled.

Also possible under a regime of separate property

If spouses have agreed to separate property, a change in matrimonial property regime is not ruled out: they can switch to the community of accrued gains with retroactive effect from the date of marriage and subsequently trigger a claim for equalisation of accrued gains by switching again. Tax recognition in individual cases requires careful examination.

Key areas of application

As part of succession planning, aligning the spouses’ asset bases enables both to utilise their tax allowances in respect of children (€400,000) and grandchildren (€200,000), particularly where assets have previously been concentrated in one spouse’s name. Furthermore, the ‘matrimonial property regime swing’ reduces claims to a compulsory share: as the equalisation of accrued gains is not a gift, its settlement reduces the subsequent estate without triggering a claim for a supplementary compulsory share.

Implementation in practice

Once the opening and closing assets have been determined, the change of matrimonial property regime is formalised by a notary, usually via a temporary separation of property. The claim for equalisation is generally settled by a cash payment; alternatively, a transfer of assets may be considered, which triggers income tax consequences but may also create new depreciation potential in individual cases.

A subsequent return to the community of accrued gains – the actual ‘swing’ – may be advisable in order to build up new potential for equalisation and to secure the inheritance tax benefit under Section 5 of the Inheritance Tax Act (ErbStG). There should be sufficient time between the changes so as not to jeopardise tax recognition.

Precise preparation is always crucial to success: a comprehensive asset valuation, careful drafting of contracts and a thorough examination of any potential income tax implications.

The most important points in brief

• The equalisation of accrued gains under the ‘matrimonial property regime swing’ is exempt from gift tax, provided that the matrimonial property regime is validly changed and the claim is specifically satisfied.
• This mechanism is particularly suitable for succession planning, as it allows for better asset allocation between spouses and helps to reduce claims to a compulsory share.
• Thorough legal and tax preparation is essential to achieve the desired objectives in a legally secure manner.