New Law regulating Proprietary relations

On 1 July 2010, a new Family Law Act entered into force, the most interesting part of which may be the new regulation of property relations. If until now the terms joint property and separate property were used, then from now on we can speak about three types of property relations – jointness of property, set-off of assets increment, and separateness of property.

Prospective spouses may, by agreement, select a property relationship before contracting marriage by an application for marriage. This declaration of intention takes effect upon contracting marriage. If prospective spouses do not select a property relationship by an application for marriage and do not enter into a marital property contract, in that case jointness of property is created.

In the case of marriages contracted before entry into force of the new Family Law Act and not involving a marital property contract, the provisions of the new Act on jointness of property apply to property relations between spouses. It can be said that there is no essential difference between the former joint property and the current jointness of property, because jointness of property involves objects and other property ownership rights of spouses acquired during jointness of property transferring into the joint ownership of the spouses, as was the case with the former joint property. However, there are new aspects concerning administration of joint property, entry into transactions with regard to joint property, and division of joint property.

Compared to the earlier version, in the amended Act the regulator has incorporated several principles established in court practice or through major disputes. Division of joint property used to be quite a frequent situation in legal disputes where courts were presented with requests to declare property acquired out of the separate property of one of the spouses to be joint property. Now the Act clearly sets out that the separate property of the spouses is also considered as property acquired during marriage, but acquired out of a transaction made with regard to the separate property of the spouse(s). For example, in a situation where one of the spouses held shares as separate property before marriage, the dividends payable on those shares are deemed to be the separate property of that spouse, and the same applies to property acquired with the dividends.

Upon termination of jointness of property, current joint property changes to property in common ownership and the shares of spouses in common ownership are deemed to be equal. While the Act in force until 1 July 2010 enabled courts to deviate from the equality of shares of the spouses, for example in a situation where one spouse had for no valid reason not participated in acquiring joint property through his or her earnings or efforts or when a spouse or child had a particular interest not to participate, the amended Act excludes such possibility.

Transfer from jointness of property to the set-off of assets increment is possible, but only within one year after entry into force of the new Act, i.e., until 30 June 2011. To do so, spouses must jointly apply to the registrar of the marital property register in notarised form affirming their wish to change to set-off of assets increment. Transfer is excluded only if divorce proceedings have begun or the marital property contract entered into between spouses prescribes otherwise.

A change in property relationship has legal effect with regard to third parties only if the change is entered in the marital property register or the third party was aware of the change in the property relationship.

Transfer to another kind of property relationship under a simplified procedure is not possible after 30 June 2011 and then a marital property contract must be concluded to agree upon other property relations.

Set-off of assets increment has no effect on the ownership of property or the proprietary right that a spouse had acquired before entry into force of the property relationship. Rights acquired by one spouse with regard to property during the property relationship do not transfer to the ownership of the other spouse.

Set-off of assets increment is a new institution for us, so that choosing or transferring to it from earlier property ownership arrangements is currently not yet especially popular.

In brief, set-off of assets increment means that assets which have been added to the assets of both spouses during their marriage are set off between the spouses.

Spouses jointly administer property belonging to them. Administration of joint property could mean that objects included in property cannot be used and disposed of by the spouse who is their owner. The Act provides only a few exemptions, so for example a spouse may dispose of a property that he or she owns and is used as a joint residence of the family only with the consent of the other spouse. Moreover, a spouse whose dwelling is separately used by the other spouse has no right to dispose of that property and conclude commercial lease contracts for use by third parties without the consent of the other spouse.

Upon termination of set-off of assets increment, a calculation has to be made to fix the amount by which the assets of a spouse (i.e., the usual value of things belonging to a spouse and his or her rights and obligations that are capable of being valued) exceed his or her fixed assets (separate property or property acquired on the basis of rights constituting separate property). The difference arrived at will be deemed to be acquired assets.

If the acquired assets of one spouse are greater than those of the other spouse, the difference in value of acquired assets will be calculated. One half of that difference will be compensated by the other spouse to the spouse whose acquired assets proved to be smaller. A situation could arise where the assets of one spouse do not exceed his or her fixed assets as of termination of the property relationship (i.e., the value of fixed assets has remained the same or even dropped). In that case, the acquired assets of that spouse are deemed to be equal to zero.

Upon termination of the set-off of assets increment, separateness of property is created upon which spouses with property relations will be deemed to be persons not married to each other. However, this does not mean that spouses would have no mutual rights and obligations at all in their matrimonial cohabitation.

The regulator has considered it necessary also to deal with the rights and obligations of spouses in a more detailed manner in addition to property relations; satisfaction of the needs of matrimonial cohabitation and family in the interests of the needs of each other and children; matters related to earning income and maintaining the family. For example, a new provision has been introduced under which, if spouses are legally separated, each spouse must provide regular cash maintenance to satisfy the common needs of the other spouse. A separated spouse is not entitled to claim maintenance from the other spouse if he or she is able to maintain himself or herself or if legal separation was caused by his or her conduct.

Senior associate Viive Kaur (viive.kaur@borenius.ee) provides legal advice on issues relating to intellectual property. In addition, Viive has long-term experience in representing clients in court disputes concerning private and administrative law.