Asset Settlement: How Judgment Surpluses Are Taxed

The cashing out of the joint property has no translational consequences for the partners ownership of the property awarded. Spouses, through the company, own the assets (through their shares in the company) from the moment of their acquisition. When the partnership is wound up and the former partners are subsequently awarded the assets they had until then, they simply get back the assets that correspond to their original shares. The validity of the preceding statement requires that the value of the goods received be uniform. In other words, the value of the property awarded to each of the spouses coincides with their quota for participation in the joint-stock company. If there are excess distributions, the beneficiary spouse will see an increase in assets “ex novo,” which will mean an increase in their estate other than their participation fee. Naturally, as long as the injured spouse does not receive the corresponding compensation (usually in cash) from his partner.

The above arguments do not only apply to the monetization of municipal property. They also affect all communities of goods when the time comes for their extinction. Including the clan communities formed by spouses, whose economic regime is that of property division.

However – and regardless of community origin – one of the assets granted to former members is entitled to special (and privileged) treatment by the law and its enforcers. I mean the habitual residence of the members of the community.

Not a few tax administrations qualify the surplus (without compensation) in favor of one of the spouses as a donation. However, the excess in the distribution of the habitual residence in favor of one spouse, with no economic compensation for the other by the beneficiary, is not subject to inheritance and gift tax (ISD). This is the result of a decision issued by the Supreme Court (TS) on 12 July 2022.. In the matter analyzed by the Supreme Court, the family home was awarded to the wife, with a surplus in her favor of 40,000 euros, which did not compensate her husband in cash. The liquidation of the common property is a consequence of the termination of the marriage. The spouses, married under the regime of separate property, but owning different assets, including the matrimonial homeagreed to the said excess (without compensation) c divorce settlement. The (autonomous) liquidation office carried out a liquidation from the ISD (donation concept) for a tax basis equal to the excess (40,000 euros).

TS categorically rules out the existence of a donation, given the absence of “animus donandi” by the husband. Once the excess distribution is taken out of the scope of the ISD, it is appropriate to apply the provisions of the Transfer of Property and Documented Legal Deeds Tax (ITPyAJD). In principle, the excess will be subject to taxation under the order of “onerous transfer of ownership” (Article 7.2 B) of the consolidated text of the ITPyAJD Law). At the tax rate approved by the autonomous community in which the property is located.

The quoted sentence (FJ 2) says: “…however, apart from the fact that it is not possible here to verify the existence, essential to the donation, of “animus donandi” in the ex-husbandit turns out that from a fiscal perspective, remuneration overages are specifically regulated, in general, whether they come from divorce or other reasons for separation, in Article 7.2.B) of the TRLITPyAJD, excluding them for both ISDs…

Therefore, the PTZ of the Law on Property Tax and Documented Legal Acts is applicable to the case. […] as well as its regulations […], the art. 32 of this deals with a case of insubordination […] the declared extraordinary terms of a judicial decision resulting from the award of assets which are a hereditary effect of the termination of the marriage or the change in its economic regime, when they are a necessary consequence of the award of the habitual residence of the marriage to one of the spouses.

The TS doctrine is summarized in three points:

1.-It is applicable to excesses of the award in cases of division of property TRLITPyAJD is common. “Such applicability precludes the characterization of the excessive amount as a donation, as well as its taxation under this concept, because the `animus donandi’ is absent, among other requirements.”

2.- The reward excesses are regulated – in general, that is, regardless of whether they arise from the dissolution of the marriage or other reasons for the division of the common property – in Article 7.2.B) of the specified consolidated text.

3.-Article 32 of the ITP Regulation allows for the consideration of non-entities – although they probably better deserve the qualification of exempted, as in other cases TS itself has maintained– “The announced excessive amounts of the judgment resulting from the awarding of assets that are hereditary consequences of the termination of the marriage or the change of its economic regime, when they are a necessary consequence of the awarding of one of the spouses to the habitual residence of the marriage”.

With permission and in strict defense of the interests of the defendants, I must say that the interpretation of the court is a bit confused, inconsistent, partial and in terms of the syntax of its decision … perhaps it is better to remain silent.

I emphasize that Article 32.3 of the ITP Rules (although labeled as one of the special non-restriction assumptions) does not actually mention that we are in the presence of a nonretention assumption. It is limited to declaring that the excess of remuneration will not be subject to liquidation through the modality of “burdensome inheritance”. And in any case, a decree “contra legem” cannot, due to the principle of normative hierarchy, displace the law.

Unless I have a better opinion than mine, the aforementioned excesses of remuneration reveal one of the exemption assumptions (Article 45 IB). 3. from the revised text of the ITPiAZHD Law). An exemption that affects the three types of tax. In such a way that these excesses are not taxed either through the “onerous transfers of ownership” modality or through the “documented legal actions” modality. The judgment of July 12, 2022 is lame.

To reinforce my interpretation, I remind anyone who has followed me here that the Supreme Court based its argument on section 7.2.B) of the consolidated text of the ITPyAJD Act. Well, this rule refers to the tax event of the modality of “burdensome transfers” and subordination for the said concept of excess of judgment. For this reason, I do not understand why the TC derailed (on the regulatory route) after its good departure from the station (giving priority, logically, to the legal text). It is precisely this subjection to the taxable event (which is exempt under Article 45.IB).

3) rejects the submission of excesses through the modality of “documented legal acts” (Article 31.2 of TRLITPyAJD). In fact, legal transactions subject (with or without exception) to the “modality of onerous transfers” are not subject to the modality of “documented legal acts”.

Since the documentation of private deeds on immovable property requires a solemn form (a public deed), the TS doctrine creates a risk for the winning bidder for the family home that the subsequent deed of award will be burdened by “documented legal acts”. This, of course, is not a trifle, as TS might think.

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