Divorce of properties

Call it straight talk on an “undiscussable,” and do that before the marriage. If your relationship survives that, maybe you were meant to be. If it doesn’t, who knows if you just blew away your real chance to be truly happy?

Prenuptial agreements describe what will be owned in common after two people get married, and what will remain exclusive property of the spouses. These marriage settlements are almost not attuned to the Filipino culture and concept of marriage. It is like arranging for separation even before the wedding happens. It is also like creating a second-class citizen, in a marriage only for two. It is the situation when in a marriage, one is affluent, and the other, middle class.

So when this popular father cried when his daughter refused, despite his insistence, to enter into a prenuptial agreement with her fiancé, it is because—for the first time—someone, an outsider, is more important to his daughter.

It is also because he may just need to share part of the family wealth, or at least those that can be allocated to his daughter, with the family members of her husband.

Social status does not even need to be a factor for property dispute to happen. An average couple bought a house and lot while they were still engaged. Then their marriage soured. He left the wife who was residing in their house. A relative of her husband got interested in the property. And because the husband’s family does not have a good relationship with the wife, they are doing everything to make the wife leave so they can enjoy the property.

This would have no chance of happening if there was a prenuptial agreement. It is easier to enter into prenuptial agreements if one of the spouses is entering into a second marriage. This is because protecting the children from the first marriage is an acceptable and understandable position of any parent. Or, say, the well-loved husband is unfortunately a perennial gambler who incurs gambling debts. At least the wife’s property will be spared from such debts and will be spent instead on the children if there was complete separation of property.

For this Sunday, allow me to also discuss a less-considered angle of prenuptial agreements: potential tax costs, like the 15 percent donor’s tax and the 20 percent estate tax. These are non-issues until you need to pay them, or until the Bureau of Internal Revenue decides to go after the transfer.

It must be said that entering into a contract of marriage is one of the most effective forms of tax planning. (Although tax planning is never the motivation in marrying, I think.) The default property relations in the Family Code is the absolute community of property. Without a prenuptial agreement, both spouses instantly become co-owners of everything that each owns individually before the marriage, and everything that each may earn during the marriage. Half of the value of the community property is either given away or received by the other spouse in a marriage between persons of uneven social statuses.

Donor’s tax generally applies on gratuitous transfers. The main consideration in a donation is the generosity of the donor. In a marriage contract, property rights are transferred instantaneously upon marriage. But the consideration is not generosity. In other words, the rich spouse does not marry the other because of pity or because he just wants to help. The consideration in a marriage is mutual love and respect. The property rights are transferred by operation of law. It is not voluntary and no further act is required of the spouses apart from the main thing of marrying one another.

On the other hand, estate taxes apply to the properties of the deceased. And these properties pass on, with or without a will. The death of one crystallizes the ownership of the other over half of the community property. Theoretically, the spouse who has nothing coming into the marriage will be widowed owning 50 percent of everything. And that is not inheritance—it is simply a matter of ownership. So certain is the tax protection given to this other half that the Tax Code expressly excludes the share of the surviving spouse in the computation of the estate.

If the parties enter into a prenuptial agreement, those excluded from the community property remain separate. If a spouse gives property from his or her exclusive assets to his or her spouse, that can be subject to donor’s tax, with a very important qualification. If the “gift” is given as part of support, it is not a gift. It is complying with the obligation of a spouse or head of the family. So even a premium automobile can be considered support if that is in keeping with the family’s standard of living.

The more inescapable reality is estate taxes. The surviving spouse secures ownership of half of what was brought into the marriage without the need to pay estate tax on that half. On exclusive property of the deceased (some of which may be given to the spouse via succession), estate taxes are paid.

An important detail is that if there is a prenuptial agreement, this should likewise be followed up by drawing of a will by the rich spouse. Otherwise, the exclusive property would be accessed anyway by the surviving spouse and children through intestate succession (i.e., to inherit something when the deceased did not leave a will).

While writing this piece, I must admit that one would struggle to balance the weight between his family of birth and his new family by marriage. Or between practicality and the culture of support the Filipino willingly extends.

As a romantic, I would say, love and throw caution to the wind. As a lawyer, I would say: love, with caution.