Liquidation of community property with excess in the adjudication

How is the community of property dissolved?

The community of property is dissolved for the following reasons established by law:

1. Dissolution of marriage by death, declaration of death or divorce.

2. Court judgment declaring the marriage null and void.

3. Judicial separation of the spouses.

4. Change of matrimonial property regime.

Division and award of community property: over-allotment

Over-allotment occurs when one of the participants in common assets is awarded more than his share in the common assets, with the result that the other participant receives less than his share in the common assets.

For example, in the case of divorce, an excess in the award occurs if, as a result of the dissolution of the marriage, one of the spouses becomes the owner of the main residence, resulting in an imbalance of assets with respect to the other spouse.

What types of over-allocation are there?

Over-allocations can be:

1. Declared. That is to say, those resulting from the values declared by the unitholders themselves.
2. Resulting from the verification of values. These are those that are brought to light by the Administration’s verification activity and can only result from inheritance partitions.

Furthermore, it should be noted that the over-allotment can be either onerous or gratuitous, depending on whether or not the beneficiary of the over-allotment compensates the other sharers.

In the case of marital separation, if there is an excess in the award of the main residence, how should this excess be taxed?

Do I have to pay ITP and ADJ?

If a married couple separates or divorces and they agree that the main residence becomes the property of one of the spouses, resulting in an excess in the award with respect to the other spouse, this can happen:

1. With compensation by the spouse who keeps the home. In this case, the taxation would depend on the matrimonial property regime. If the married couple is married in:

a) In the community of property regime, there is no taxation under any form of Transfer Tax (ITP). These awards of community property are exempt.

b) Separation of assets, the award is not taxable either; it is not subject to the transfer of property for valuable consideration (TPO) of the ITP.

However, if the agreement is formalised in a public deed, the purchaser must pay Stamp Duty (AJD) tax at a rate of between 1% and 1.5% of half of the reference value of the property being purchased.

2. Without compensation, the spouse who keeps the main residence does not financially compensate the other spouse. In this case, until now it was considered that the spouse was receiving a donation from the latter, and therefore had to pay Inheritance and Gift Tax (ISD).

However, the Supreme Court has established a new criterion, according to which whether it is a marriage in community of property regime or in separation of property regime, the excess in the award of the main residence in favour of one of the spouses, without compensation, is not subject to ISD (SC 12-7-22 EDJ 641773).

The High Court ruled out the possibility that the over-allotment could be understood as a donation, and therefore its encumbrance as such, since, among other requirements, the animus donandi and the absence of a unilateral act of willingness to donate were missing.

In these cases, do I have to pay personal income tax?

The Supreme Court considers that in these cases, if the compensation received by the co-owner who ceases to be the owner of the property is higher than the acquisition value of the part he/she owned, thus producing an increase in assets, he/she must pay personal income tax (SC 10-10-22, EDJ 2022).

For more information, please do not hesitate to contact the law firm Chapapría-Navarro & Asociados to arrange a no-obligation appointment.

Article written by Tatiana Tsur