Weddings Coming Up? See How to Arrange Financial Matters Wisely

Just as wedding preparations include choosing a suitable date, venue, and dress, discussing financial matters with your partner is a natural part of the preparation. The Kinnisvara24 team offers advice ahead of the upcoming wedding season on what property rights and options are associated with marriage.

In Estonia, couples getting married must choose between three marital property regimes according to the Family Law Act: community of property, separation of property, or equalization of property increments. The most common choice is community of property, as this is automatically applied to those who do not make a separate choice at the time of marriage. In this case, all property acquired from the conclusion of marriage until divorce, except for inherited and gifted property, becomes joint marital property and is divided equally between the spouses.

„Creating a family and common home, and getting married, is so natural to people that often, at the beginning of something new and beautiful, we don't think about what legal consequences might come with it," added Kinnisvara24 CEO Urmas Uibomäe, noting that legal and regulatory matters are often encountered for the first time only when problems arise and one needs to understand what rights, obligations, and responsibilities each person has.

„It is important here to have the courage to discuss financial preferences with your partner before marriage," emphasized Uibomäe. „Of course, we all hope when we marry that it will last forever, but that doesn't mean we shouldn't proactively discuss all possible scenarios with our partner and prepare our family for unexpected situations."

According to Uibomäe, the greatest confusion with community of property arises in situations where couples decide to move apart but do not officially divorce. Moving apart, however, does not end the community of property, and after living separately for years, property division can eventually become very complicated and costly. „If spouses have, for example, a joint home loan and they no longer live together, and only one spouse repays the loan to the bank, it is considered that they are still doing so from the community of property account," Uibomäe gave an example of an unfair situation that can arise when matters are not discussed between the parties.

Alongside community of property and separation of property, there is also a third, lesser-known option – equalization of property increments

While it is generally clear that community of property binds spouses economically and separation of property means that spouses are economically independent of each other, the equalization of property increments model is not quite so straightforward.

According to the equalization of property increments regime, all property of each spouse is treated separately, which each spouse is entitled to use and dispose of as sole owner. Transactions involving the marital home, however, require the consent of the other spouse, regardless of to whom the marital home belongs.

In addition to property, most of the obligations of the spouses remain separate under this type of property regime. „The effects of equalization of property increments are primarily manifested at the end of the marital property regime, when the value of the spouses' total property, basic property, and acquired property is assessed. This usually occurs upon divorce, but the equalization of property increments can also be terminated by a marital property agreement, in which the spouses agree to a different marital property regime," added Uibomäe.

How is the value of total property, basic property, and acquired property assessed?

Total property is the sum expressed in money of the ordinary value of things belonging to the spouse as of the end of the marital property regime and monetarily valued rights and obligations. Basic property is real estate and other things that belonged to the spouses already at the time of marriage, as well as property acquired during marriage through gift or inheritance. Additionally, basic property includes rights accruing to the spouse under state and mandatory pension insurance, as well as property acquired through transactions involving basic property, and so on. Acquired property is property by which the spouse's total property exceeds their basic property – for example, wages or business income. Property whose attribution to the spouse's basic property has not been proven is included in their acquired property.

At the end of the marital property regime, in the case of equalization of property increments, only the part added to each spouse's property during the marital property regime, i.e., the acquired property, is subject to equalization. „This means that the spouse who has accumulated less acquired property has the right to demand compensation from the other spouse – provided that if total property turns out to be less than basic property, or if both spouses' property increased equally, acquired property is considered equal to zero," explained Uibomäe.

The purpose of the equalization claim is to create a situation where each spouse's property increases by an equal amount during the marital property regime. For example, if the husband had property worth 250,000 euros at marriage and the wife had property worth 200,000 euros, and by the time of divorce the husband had 150,000 euros more in property and the wife had 100,000 euros more, then the husband's property increment was 50,000 euros greater than the wife's, giving her the right to demand from the husband half of the difference in property increments, or 25,000 euros. In this way, both spouses' property increases by the same amount.