Divorce with substantial assets: a family company, several properties and separate money

Why a divorce with assets is approached differently

In most divorces the assets are a home with a mortgage and two bank accounts. Where there is more than that — a company, let properties, investments, inherited money, assets abroad — three things change: the risk that the assets will move before they are divided, the difficulty of valuing what there is, and the weight of tax in every decision. And a fourth: the order of the steps matters. What is asked for as an interim measure shapes the winding up, and what is agreed on spousal maintenance shapes the division.

The first thing is to know which matrimonial property regime the marriage is under. Under Spanish common law — the law that applies in Madrid — with no marriage contract, the sociedad de gananciales applies, and everything either spouse earned during the marriage belongs to both in equal halves. If there were capitulaciones matrimoniales (a marriage contract before a notary) choosing separación de bienes, separate property, there is no winding up of common property: each spouse keeps their own, assets bought jointly are divided as ordinary co-ownership (ending a co-ownership) and the spouse who devoted themselves to the home may claim the compensation for work in the home under art. 1438 CC, which the Tribunal Supremo allows where that dedication to the home was exclusive, without requiring that the other spouse was enriched and even where there was some help in the other’s family business.

Protecting the assets from day one

For as long as the sociedad de gananciales is not dissolved, either spouse may go on administering it and, in some cases, disposing of assets. So as soon as a divorce becomes a possibility, it is worth:

• Taking a photograph of the assets: balances, properties, shareholdings, loans, insurance policies, pension plans, crypto-assets, with a date on it. That is the benchmark against any later movement.
• Applying as an interim measure for joint administration or a prohibition on disposing of particular common assets (art. 103.4.ª CC), and for an entry noting the claim at the Registro de la Propiedad, the Land Registry.
• If there have already been fraudulent dispositions, claiming them back: a spouse who disposes of assets in fraud of the other becomes a debtor of the common estate for what was taken, which is brought into account on the winding up (arts. 1390 and 1391 CC); the transaction can be set aside if the buyer acted in bad faith (art. 1391 CC) and, if it was made without the other’s necessary consent, annulled (art. 1322 CC). Fraudulent management also allows an application to the court for the dissolution of the regime (art. 1393 CC).
• Reviewing the powers of attorney and cross-authorisations: admission of the petition revokes them (art. 102 CC), but it is worth notifying banks and companies.

The family company on a divorce

If the company was incorporated during the marriage with common funds or with one spouse’s work, the shares are common property even though they stand in one name alone (arts. 1347.1.º and 5.º CC). If the company predates the marriage or was inherited, it is separate property, but dividends declared during the marriage are common property (art. 1347.2.º CC), unlike profits retained as reserves (judgment of the Tribunal Supremo 60/2020), and capital increases paid for with common money give rise to a right of reimbursement in favour of the common estate (art. 1352 CC).

The practical problem is valuation: book value almost never reflects the real figure; the company has to be valued by market methods (discounted cash flow, multiples, real net assets) with an expert economist, and the discount for lack of control argued where the holding is a minority one. It is also examined whether the spouse running the company set themselves a low salary in order to retain profits in it, or whether the company bears personal expenses. The spouse who runs the company has a right of preferential attribution to take it (art. 1406.2.º CC), compensating the other; the alternative is a split of the shares, which usually condemns the two of you to go on being business partners, and that rarely works.

Several properties, rents and separate money

With more than one property, each one’s character has to be determined individually: one bought before the marriage is separate property even though the mortgage was paid off afterwards (with a reimbursement to the common estate for what was paid with common money), except the family home bought by instalments, which belongs to both estates in proportion to what was paid before and after the wedding (art. 1357 CC); one bought during the marriage is common property unless it is proved that it was paid for with separate money (art. 1346.3.º CC), and if it was paid for with money of both kinds it belongs to both estates in proportion (art. 1354 CC). Rental income arising during the marriage is common property, whosever the flat is (art. 1347.2.º CC).

Separate money — inheritances, gifts from parents, compensation payments, savings from before the marriage — which was mixed into joint accounts or invested in common assets is not lost, but its trail has to be followed through statements and deeds. The result is a right of reimbursement at its updated value (art. 1358 CC). It is the item that generates the most argument and the one most often given up for want of documents: asking the banks in good time for the historic movements is part of the work.

We develop this in the guide to winding up the sociedad de gananciales.

Spousal maintenance, tax and a global settlement

In divorces with assets, pensión compensatoria is usually better resolved with a single capital sum or by transferring assets (art. 99 CC) than with a monthly payment over years: it closes the financial relationship, avoids later variation proceedings and can be coordinated with the winding up so that the overall result is balanced. Pensión compensatoria agreed in the convenio regulador or fixed by judgment reduces the income-tax base of the spouse paying it and is taxable in the hands of the spouse receiving it; a single capital sum has rules of its own which are worth calculating before signing.

On the winding up, allocations in payment of a half share of the common property are not subject to transfer tax and do not count as a disposal for income tax purposes (art. 33.2.b LIRPF, the Income Tax Act). Excess allocations compensated in money are subject to transfer tax unless they are unavoidable because the asset cannot be divided (art. 7.2.B of its consolidated text and art. 1062 CC), and the spouse receiving the compensation may have a taxable gain (judgment of the Tribunal Supremo 1269/2022). How the properties are divided, who keeps the company and how the other spouse is compensated therefore all have a tax reading, and that forms part of the strategy.

For all of these reasons, our aim in these divorces is a global settlement: the arrangements for the children, use of the home, spousal maintenance and the winding up negotiated at the same time, with the figures on the table. Where that is not possible, we litigate each piece knowing how it fits with the rest.

Deadlines worth not letting slip

• Measures to protect the assets are applied for with the petition or even before it as preliminary measures; without them, the other spouse can move money or assets whose disposal does not require both signatures.
• The right to annul acts done without the other spouse’s necessary consent lapses four years after the dissolution of the regime or of the marriage, unless there was earlier knowledge of them (art. 1301 CC); setting aside a transaction for fraud also carries four years (art. 1299 CC).
• Thirty working days to pay the transfer tax on any taxable excess allocations, counted from the deed of division.

Where we work

Our office is in Villanueva de la Cañada, and we act regularly in Brunete, Villanueva del Pardillo, Valdemorillo, Quijorna, Majadahonda, Las Rozas, Boadilla del Monte, Pozuelo de Alarcón and the rest of western Madrid. Divorces are heard by the court of first instance for the last matrimonial home; where the spouses already live in different judicial districts, the party bringing the claim may choose between that last home and the respondent’s residence (art. 769 LEC). Villanueva de la Cañada, Brunete, Quijorna and Boadilla del Monte belong to the judicial district of Móstoles; Valdemorillo and Villanueva del Pardillo to that of San Lorenzo de El Escorial; Majadahonda and Las Rozas to that of Majadahonda; Pozuelo de Alarcón has its own. This guide forms part of our divorce practice.