A “hot topic” that came up recently at the International Family Law Committee brown bag lunch was the division of property on divorce, with an emphasis on the concept of ‘matrimonial regimes’. This is a concept which is adopted by civil law jurisdictions, but not by common law jurisdictions. ‘Matrimonial regimes’ are broadly defined as a set of rules that govern financial matters between spouses and third parties (e.g. creditors) during the marriage, on divorce and/or on death. Given that they do not exist in every jurisdiction, this is a topic that requires delicate consideration when dealing with cross-border family and matrimonial matters as, on divorce, a judge will distribute assets according to the laws and rules that exist in the country in which the divorce is taking place. The brown bag lunch provided a comparison review between the principles in France, Mexico and England and Wales on this subject matter.
Division of assets upon divorce under French Matrimonial Regimes
In France, upon divorce, a French judge will review (1) the liquidation of the matrimonial regime and (2) the payment of a compensatory allowance to the spouse who is in a financially weaker position.
Firstly, it is important to determine whether the parties have signed a prenuptial agreement. If the prenuptial agreement is valid, a French judge will apply the law chosen by the spouses in respect of the matrimonial regime to proceed to the distribution of the assets. In the absence of a prenuptial agreement, or a choice of applicable law and in the presence of a cross-border case, the judge will have to determine the applicable law based on International Private rules:
For marriages entered into before 1992: the French case law of Gouthertz is the precedent that applies, and it establishes that the applicable law that governs the division of assets is the law chosen by the spouses or their presumptive will.
For marriages entered into between 1992 and 2019: the Hague Convention of 14 March 1978 on the Law Applicable to Matrimonial Property Regimes determines that the applicable law is the law of the habitual residence of the spouses right after the marriage.
For marriages entered into from 2019: the Council Regulation (EU) 2016/1103 of 24 June 2016 implementing enhanced cooperation in the area of jurisdiction, applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes states that the spouses can choose to designate one of the following laws:
“(1) the law of any State of which either spouse is a national at the time of designation;
(2) the law of the State in which either spouse has his habitual residence at the time of designation;
(3) the law of the first State where one of the spouses establishes a new habitual residence after marriage.”
If French law is deemed applicable, the distribution of assets will be based on one of the four French matrimonial regimes that exist.
Legal community property regime.
Under the French Civil Code, the legal community is the default matrimonial regime that applies where the spouses did not sign a prenuptial agreement before getting married.
The legal community is basically made up of three types of property: marital property and each spouse’s personal property.
Marital property consists first of the acquired property from the spouse’s personal revenue such as the assets acquired during the marriage.
The spouse's personal property falls into four types:
- all the personal property owned by origin such as the movable and immovable properties belonging to the spouse prior to his/her marriage, or all the properties acquired during the marriage like inheritance, gift or legacy;
- all the personal property derived by the person (e.g., clothes, jewelry, titles);
- all personal accessory property such as the undivided shares of a private property co-owned by one of the spouses;
- all the estate that has been subrogated i.e., exchanged for another movable or immovable estate by stipulating that it belongs to one of the spouses.
Separate property regime.
Under this regime, each spouse owns his/her personal property. There is no marital property. This means that spouses must prove what they own in their sole name. For the determination of personal property, each spouse, who buys a property after marriage, owns the respective financing of the operation.
Universal community property regime.
The universal community consists of having a single property entity. All the movable and immovable properties - no matter whether they are present or future - will belong to the community. All gifts and legacies, however, as well as the movable properties which have a personal nature (clothes, jewelry etc.), belong to the spouse, unless it has been stated elsewhere.
This matrimonial regime is rarely used. But, where it is used, this regime is often adopted by older spouses when they change their matrimonial regime or during a remarriage. For this reason, this regime is often combined with a full attribution clause to the surviving spouse, enabling him/her to collect the entire community, not just half of the assets.
Community property of acquisitions regime.
This type of matrimonial regime is not very common - although it has become more popular – and from my experience more so among legal professionals.
During the marriage, the system operates as a separate property regime. At the time of its dissolution, however, each spouse is required to participate in the enrichment of the other one through the so-called “debt participation”. For example, if one spouse was enriched thanks to his/her job and/or real estate, it is considered that he/she has been so thanks to the other one who helped and supported him/her. The other spouse will then be able to claim a financial benefit as if they were married under the legal regime.
After having liquidated the matrimonial regime of the spouses, a French judge will consider the respective situation of the parties (income, assets, ages, health, career evolution etc.) in order to decide whether a compensatory allowance should be awarded to the spouse who is in the weaker financial situation. This mechanism intends to reduce the inequalities between the spouses upon divorce. There are, however, no clear tables or calculations to determine the amount that should be awarded. It is possible to estimate a rough bulk sum based on different calculation methods but it remains in the French judge’s sole discretion.
Application of Foreign Law (E.g.: qualification of the principle of equitable distribution in France).
The difficulty arises when a French judge has to apply the division of asset as per a foreign law as it is not always straightforward. A French legal professional will try to make an analogy with one of the matrimonial regimes. Although community property states are quite similar to the legal community property regime, the equitable distribution principle is more complex to categorize. One tends to make an analogy with a separate property regime while it is actually quite different and more similar to a community property regime with the consideration of different factors. This is the reason why it is important for both spouses to appoint an expert to help them determine the distribution of assets applicable in their situation.
Division of assets after divorce under Mexican Law.
Inspired by ancient Roman law, Mexico's civil legal relations are ruled by a compilation of civil codes and codes of civil procedures.
Months after its declaration of independence from Spain, Mexico started its efforts to create the needed codification to rule the developing nation's civil.
Since then, the codification as it is developed today was the result of multiple efforts in different periods and historical stages of the, all of them inspired by the Civil French Code or Napoleonic Code from 1804, soon after inherited to every government with roman-canonic .
Though each of the thirty-two states of the republic legislated its own substantive and procedural civil codifications, the standardized bases upon all of them were written to allow a general study of each topic in family law. Therefore, there is no need to be specific about each state's legislation when only a general study is asked.
Substantive applicable law.
First, it is essential to determine the applicable substantive law in Mexico in a divorce case involving international parties or the marriage was contracted in a different nation.
For that matter, the international private law theory provides us with the Conflicts law, in which articles from domestic legislation define the applicable law under global.
In Mexico, marital issues are ruled by the applicable laws from the state where the parties reside. For example, we have article 13, fraction II from Mexico City Civil Code.
“Article 13.- The determination of the applicable law in the Federal District (now Mexico City) will be made according to the following rules:
II. Marital status and legal capacity are ruled by the laws applicable in the Federal District (now Mexico City).”
Jurisdiction and procedural law.
In the same manner as the substantive law applicable to marital issues, the jurisdiction and procedure applicable in Mexico are defined by the last domicile as a couple.
Article 156 of the Civil Procedure, applicable to Mexico City, is an example of such a general rule:
“Article 156.- It is competent the Judge:
XI. From the marital domicile, to decide matrimonial disputes and the marriage annulment trials….”
Matrimonial property regimes.
In Mexico, in contrast with other countries with Civil Law systems, there are only two different matrimonial property regimes, Marital Partnership and Separation of Property.
Example in the Mexico City's Civil Code:
“Article 178.- The marriage must be celebrated under the patrimonial regimes of marital partnership or separation of property.”
During the Marital Partnership, both parties share equal rights over all assets gained after getting married, with some exceptions.
The applicable exceptions may be different in each state of the republic, but in general terms, we can list them as follows:
- Assets that were owned by each one of them before getting married.
- Assets possessed by one of the parties before the marriage and acquired by that holder after contracting marriage through adverse possession (usucapion).
- Assets acquired through the profits earned because of the sale of property owned by one of the parties before the marriage.
- Personal objects.
- Any kind of instrument that are necessary to develop or conduct a profession, art, or career. If both parties bought such instruments, the one that keeps the instrument in question must compensate the other.
- The assets bought through long-term credits by one of the parties before getting married if the party in question settles the debts with their own money.
- Gains or profits earned by one of the parties as a result of games of luck, gambling, and betting.
- Any other exception settled by the parties according to the prenuptial agreement if existed.
A marital partnership ends at the time of the marriage dissolution or by mutual agreement. In both cases, the parties will proceed to elaborate an inventory of the partnership's assets to determine the best method to divide them.
Separation of property.
The general rule of the separation of property regime is that each one of the parties maintains the rights over their salaries, profits, property, and the administration of the assets gained by themselves during the marriage.
Through prenuptial agreements, the separation of property regime could be partial, in which case the separation of the assets will be subject to exceptions agreed upon by both parties.
Prenuptial agreements in Mexico.
An odd circumstance that we find under Mexican law is that the Civil Codes are sometimes written as if the general rule when marrying is to have a prenuptial agreement, and not having it is the exception.
The truth and reality are that most of the time (if not all), no one signs a prenuptial agreement in Mexico (called “capitulaciones”).
The lack of prenuptial agreements is probably a consequence of the need to employ the services of a lawyer or a notary public, making it much more expensive than just getting married and being subject directly to the code’s provisions.
The notary public institution in Mexico is not as it is in the United States of America, where the notarization of documents is rather a simple and accessible procedure. In Mexico, notarization is expensive and usually follows certain complex formalities in its operations.
The compensatory allowance is an issue in which a wide variety of provisions depend on the State in which the parties are located. It is an issue that has recently brought new connotations and interpretations.
A majority of the Civil Codes from the Mexican States do not mention the phrase “compensatory allowance.” Most of them only include one paragraph by which one of the parties in a marriage has the right to no more than 50% of the property acquired by the other if, and only if, the first was devoted mainly to the housework and care of children.
Nevertheless, since 2014 the higher federal courts have issued numerous precedents (jurisprudence) throughout which they have expanded the principles, interpretation, and application of the compensatory allowance as a concept, both to married and unmarried couples:
- It arises from an inequitable economic circumstance between the parties due to the different roles played by each one during the marriage.
- It is a relief duty from one party to the other.
- There are various elements to determine the compensatory allowance, such as the providers income, the couple life standard, the health circumstances of each one, the professional qualifications, the work experience, and the length of the relationship.
- It must be ruled from a gender perspective.
The law in England & Wales and the principle of “fairness” in the context of dividing assets upon divorce
In contrast, no matrimonial property regime exists in England or Wales. Upon divorce, the court has a free hand to redistribute all the assets of either party in whatever manner is necessary to provide a fair result. Fairness of outcome is the court's objective. It is for this reason that London is considered to be the “divorce capital of the world;” the system is unpredictable, but it is also one of the most generous in the world to the financially weaker spouse.
If necessary to provide a fair outcome, assets that will be available for redistribution include:
i. assets held in the sole name of either party.
ii. in some circumstances, assets one party has brought into the marriage/inherited/ been gifted by their family.
iii. in some circumstances, resources held informally or indirectly for a party, for example by other family members, or within a company or trust. The court can even alter the terms of trusts which it decides are “nuptial”/marital in.
Judges are given a great deal of individual discretion to decide the outcome of financial claims on divorce; there are very few mathematical rules or formulae that they are required to follow. However, there is a list of factors that judges must consider when determining financial claims, which is set out at section 25 of the Matrimonial Causes Act 1973, and it includes:
i. the financial resources and needs of the parties;
ii. the standard of living enjoyed by the family; and
iii. the contributions each party has made to the welfare of the family.
A judge is required to reach a “fair” result by reference to those statutory factors.
There have been a number of cases which attempt to explain what “fairness” means in practice and there are three principles which justify the redistribution of assets between spouses upon divorce. They are: (i) meeting a spouse’s financial needs; (ii) sharing one spouse’s assets with the other; and (iii) compensating a spouse for “relationship-generated disadvantage”:
(i) Needs: a judge’s priority will always be to ensure that the financial needs of both spouses are going to be met. However, “needs” in this context is an elastic concept and judges will assess what the financial needs of each spouse are on a case by case basis. They will consider the type of capital and income it can reasonably be said a husband or wife needs as a result of the divorce, taking into account the general standard of living enjoyed during the marriage.
(ii) Sharing: How fair it is to move beyond simply meeting a spouse's needs to a sharing of the assets between the spouses depends on many factors. The most important are the extent to which the parties have generated wealth during the marriage and the length of the marriage. In very general terms, the longer a marriage lasts, the greater the chance that a judge will order an equal division of assets generated during the marriage. However, a judge might well consider it unfair to share assets which are external to the marriage (or “non-matrimonial property”) in other words, those brought in by one spouse beforehand, or inherited or given to them during it. An emerging trend is for these assets to be put on one side, and only used if financial needs require it.
(iii) Compensation: The principle of “compensation” rarely features in practice. The paradigm case is a successful professional woman who gives up work on marriage to be a housewife and mother, and so sacrifices a significant income stream. However, the financial consequences of these decisions can normally be resolved by reference to the “needs” and “sharing” principles in any case.
As such, the “fair” conclusion to one marriage (for example, a childless marriage of eighteen months) may be very different to the “fair” conclusion to another (for example, a thirty-year marriage where the wife has been a housewife and mother throughout).
Given this unpredictable nature of financial remedy outcomes, many couples choose to enter into pre-nuptial agreements and/or post-nuptial agreements. However, it is important to note that nuptial agreements are not automatically legally binding in England and Wales (albeit they are one of the relevant factors for the court to consider when carrying out the section 25 exercise). It is not possible for any agreement between parties to override the legislation or prevent a judge from deciding on the appropriate financial provision on a divorce. This means a nuptial agreement cannot stop either party from applying to the court for financial provision from the other party.
Nevertheless, nuptial agreements are now more effective in England and Wales than ever before. The applicable law is the test set out in the Supreme Court decision of Radmacher v Granatino from 2010. Provided the various criteria are met, the court would be likely to uphold the terms of a nuptial agreement. If they are not met, the court would exercise its discretion to decide on an appropriate level of award.
In order for a nuptial agreement to be considered “persuasively binding”, the following criteria must apply:
i. the agreement must be freely entered into;
ii. the parties must have a full appreciation of the implications of the agreement; and
iii. the agreement must be fair to hold the parties to in the circumstances prevailing on divorce (rather than at the time of signing the agreement).
This is important in the context of the divorce of an international couple. Many couples who choose to divorce in England but who, for example, have entered into a nuptial agreement in their home country in which it is considered binding, will assume that it will also be binding in the context of their divorce in England. This is not the case. Where a divorce takes place in England, English law is applied and a nuptial agreement that is binding in one country does not mean that it will necessarily pass the Radmacher test and be binding in England. As such, parties entering into agreements abroad who have connections to England or who may live England during their marriage, must take English advice. That way, the foreign nuptial agreements can be prepared to comply with English requirements (and vice versa).
International matters can get very complex especially when one does not have an extended understanding of the foreign law and or principles at stake that apply to a specific case. This is why it is usually necessary to reach out to the international community of family law and matrimonial attorneys to help you understand the essence of their law and help you break down the principles that govern your cross-border case.