This article aims to raise awareness on the pitfalls that mostly emerged from cross –borders families and particularly focus on the impact of the law applicable to matrimonial property regime in an international context.

COMPLEXITY IN DETERMINING APPLICABLE LAW IN INTERNATIONAL CONTEXT… 

When establishing an estate / succession plan for assets in multiple jurisdictions, it is important to be aware of the principles and relevant rules determining which law governs the estate.

These rules, known as “Private international law” in civil law jurisdictions, are complex and unfortunately not uniform.

With regard to the law applicable to the succession 

In a world with high level of globalization, one may be surprised to learn that it may sometimes be rather unpredictable how the law will apply to assets in jurisdictions outside the court of the jurisdiction where a principal will is interpreted or the estate is settled.

Which estate law applies and how the ultimate decision is to be recognised and enforced may be decided inversely from one jurisdiction to another depending on the connecting factors used by the notary or the court to appoint the applicable law. While estate law varies considerably from one country to another, the connecting factors, which help to appoint the applicable law to the estate, are also diverse.

Depending on the jurisdiction of the probate or of the notary or court in charge of the case, the factors may vary from the domicile, the nationality and habitual residency at the time of the death.

Until recently, sharia forced heirship provisions determined the division of a UAE resident individual’s assets on their demise even for non-Muslims unless a will was registered with the Dubai International Financial Centre wills and probate registry or Abu Dhabi Judicial Department. Their inheritors were obligated to submit an inheritance certificate from the UAE so that the deceased’s estate could be divided according to Sharia. Any inheritance certificate issued from a non-Muslim country, attested or not, would not be accepted before the UAE courts. Some measures have been made to face the now more and complex situation of expat families. The distribution of a deceased person’s estate in the UAE, which was formerly governed by Islamic forced heirship principles, can now be divided in accordance with the rules of an individual’s home country (if that is different to the UAE position).

Under the new regime, the rules of the country where the deceased is a citizen should now dictate how their assets are divided, unless they have written a will. UAE real estate will however continue to be distributed according to the existing UAE rules, unless a will has been registered in the UAE.

Within the European Union, a major step to facilitate cross-border successions have been achieved with the entry into force in 2015 of the Regulation (EU) No 650/2012 which makes it easier for people to handle the legal side of an international succession. In nutshell, the EU rules on succession provide for a coherent treatment of the succession, by one single court applying one single law within the EU (Denmark and Ireland do not participate in this regulation on succession). Thus, people can choose whether the law applicable to their succession should be that of the country they have last lived in (applicable de facto in absence of contrary choice of law) or that of their nationality. Additionally, the court decisions on successions in one EU country are also recognised and enforced in other EU countries. The law of succession is only intended to determine the civil aspects of the succession and has no impact on the tax aspects.

Some aspects of successions continue to fall under national rules, including who inherits and what share of the estate goes to children and spouse, property law and family law in an EU country and tax on estate’s assets.

With regard to the law applicable to the matrimonial regime 

In this context, one of the key issue is therefore to determine what law governs the property rights of the spouses. Indeed, depending on the jurisdiction and governing law, family law and more particularly matrimonial property regime may affect the succession. For instance, if the applicable matrimonial regime is a form of community of property (that is, the spouses’ property acquired during the marriage is considered community property and is divided equally on marriage breakdown), this may limit what each spouse can freely dispose of by will and will impact the distribution of assets between heirs. In cross border situations, problems would very likely arise where spouses are subject to one legal regime for matrimonial property and another legal regime governs succession to property on death.

“Within the European Union, a major step to facilitate cross-border successions have been achieved with the entry into force in 2015 of the Regulation (EU) No 650/2012 which makes it easier for people to handle the legal side of an international succession.

As it may be the case with succession law, in absence of written choice, conflict of laws principles may also arise with respect to the law of the matrimonial property regime.

The final determination of the applicable governing law would depend on whether one or more of the following connecting factors are present: the existence of an agreement between spouses (marriage contract), the date of marriage, the country of residence after the marriage as well as the current country of residence or the nationality of the spouse. In many cross borders cases where no marital agreement has been done, the matrimonial property regime is not the one that couples think they have, potentially triggering adverse financial consequences for the surviving spouse.

COUNCIL REGULATION (EU) 2016/1103 OF 24 JUNE 2016 

In some jurisdictions, the surviving spouse’s rights to property are determined partly by the rules on the division of property upon dissolution of marriage, i.e. the matrimonial law, and in part by the law of succession.

In many civil law jurisdiction, including Luxembourg, France, Belgium, Monaco, Switzerland and Liechtenstein, there is a set of rules governing the pecuniary interests of the spouses, the purpose of which is to regulate their property relations as well as their debts during the marriage and at its dissolution. In some cases, similar rules can also be applied to civil partnerships. The determination of what is own property and what is joint property depends on the couple’s matrimonial agreements or the applicable legal regime in absence of specific agreements. If the decedent was married at the time of death, the estate, which would then potentially be subject to estate tax, includes his or her own property and his or her share of the joint property. If the spouses do not choose to opt for a specific regime, spouses are automatically subject to a legal regime that may differ from one jurisdiction to another.

In most jurisdictions where common law is the basis of the legal system, there is in principle no legal property regime between the spouses and thus marriage (or Civil partnership) in principle does not have a proprietary effect.

After many years of discussions, on 29 January 2019, European Regulation came into play in order to harmonise matrimonial property regimes of couples with a foreign element, following the enhanced cooperation mechanism.

One concerns matrimonial regimes (Council Regulation (EU) 2016/1103 of 24 June 2016), hereafter (“the Regulation”) and the other concerning the property effects of registered partnerships (Council Regulation (EU) 2016/1104). The Regulation provides first that spouses may choose the law applicable to their matrimonial property regime. This choice implies the conclusion of a marriage contract. However, this choice is limited and can only concern:

either the law of the State in which at least one of the spouses has his or her habitual residence at the time the marriage contract is concluded

or the law of the State of which at least one of them is a national at the time of the conclusion of the marriage contract.

The spouses may then, if the law chosen so permits – this will generally be the case – opt for a matrimonial regime authorised or organised by that law.

In absence of choice of law, the Regulation establishes harmonised connecting factors to determine the law applicable to matrimonial property regimes in addition to the jurisdiction competent to rule on all civil law aspects of matrimonial property regimes, concerning both the everyday management of the couple’s property and the liquidation of the matrimonial property.

ILLUSTRATIONS :

-  Swedish national Mrs Larsson has lived in Brussels with her husband, who is Greek, since their marriage in December 2019. Belgian law will be applicable to their matrimonial property regime (first common habitual residence just after marriage).

-  Mr and Mrs Garcia, who both have French nationality, lived in Argentina just after their marriage in June 2023. They never concluded a matrimonial property agreement. They move to France in 2027 where, a few months later, they decide to buy a property. The French notary will need to take into account Argentinian law, which is applicable to their matrimonial property regime, when drafting the purchase document for the property (first common habitual residence shortly after their marriage).

-  Mr and Mrs Berbatov, who have Bulgarian nationality, marry in February 2020. Mrs Berbatov continues to live in France, whereas her husband lives and works in Greece. Bulgarian law will be applicable (common nationality at the time of marriage).

-  Mr and Mrs Vicente, who both have dual Spanish- Colombian nationality, have lived in Spain and Colombia respectively since their marriage (in January 2021). They concluded their marriage in Spain, where they have real estate. Spanish law will be applicable (closest connections at the time of marriage).

-  Mr and Mrs Leeuw, who are Dutch, establish their common habitual residence immediately after their marriage in Germany. Two years later, they move to Amsterdam where they live for 15 years, considering that their matrimonial property regime is that of full community of property provided by Dutch law. When Mrs Leeuw dies, her surviving spouse discovers that the German regime of joint ownership of acquired property applies. He asks the competent court for Dutch law to be the law applicable to their matrimonial property regime.

PITFALLS AND CONSIDERATIONS 

This Regulation provides for the principle of a single law that governs all the assets of the spouses without distinguishing between movable and immovable property, or whether the property is located in a Member State or in a third country.

However, this Regulation does not apply across all EU member states but it is only applicable in the Member States participating in the enhanced cooperation. Third party countries therefore continue to apply their own rules of private international law, which may generate potential conflicts of law or jurisdiction. Furthermore, while this EU Regulation provides for the principle of one single law to the whole estate, the universal character of these rules may lead to the application of third party countries’ law based on different mechanism. A court of a Common law jurisdiction, for instance, might determine the rights of the spouse under conflict of laws principles regarding succession to property on death and characterize local property as either real estate or personal property. As such, the determination of the surviving spouse’s share of the estate for real estate assets will be governed by the law of the situs while the law of domicile will apply for personal property.

It should also be noted that most of the above-mentioned EU Regulation apply to couples who marry or propose to change the law applicable to their matrimonial regime after 29 January 2019. Consequently, the old rules will continue to apply to unions formed before that. In many jurisdictions, in absence of choice of law (with retroactive effect), it could not be excluded that for very mobile couples married before the entry into force of the above mentioned EU Regulation, the national domestic rules may lead to some automatic changes of applicable law consecutively to a change of residence. This means that, in the absence of a choice of law, the spouses may potentially be subject to one (or more) automatic changes of matrimonial law during their lifetime. In such cases, if the spouses have changed repeatedly their marital domicile during the marriage, it is entirely possible that different laws will govern the different assets of the spouses’ estate.

In order to avoid these difficulties in an international context, it is strongly recommended, to have a marriage contract drawn up in presence of a notary in order to fix the choice of the law applicable to the matrimonial regime and to the succession.

Eventually, some estate mechanisms, which are appropriate in some jurisdiction, may be ignored or may trigger adverse consequences in other jurisdictions. It is therefore advisable to be vigilant as to their use in an international context.

CONCLUSION

Cross-border families and multinational asset portfolios add substantial complexity to the financial and estate planning needs of global families. Therefore, cross-border planning and cross-border solutions are key to implementing structures that will follow them across the globe, but also those who will benefit from their estate – and subsequent generations. Each situation being unique, wealth-planning needs of cross-border families or internationally mobile clients need to be carefully monitored by cross borders expert able to liaise with reliable network of professional in every jurisdiction involved. Do not hesitate to contact your Banque Havilland relationship manager should you wish to discuss the impact of your cross border situation on your financial and estate‘s goals.

Tax season has finally come and gone, and by now most Americans have either gotten their refund or established a payment plan for taxes owed to the government. Here’s a nice thought experiment: go back and look at your tax return to figure out how much money the government claims through all forms of taxation. How does your own situation compare to the rest of the world?   The Organization for Economic Coopération and Development (OECD), tracks both the average wage earnings and taxation figures for each of its 35-member countries. Gross earnings refer to the amount of money you get paid before anything gets taken out, like taxes, health insurance and retirement contributions. The remainder is referred to as net earnings. We used these numbers to create a pie chart. The overall size of each slice refers to the level of gross earnings, and the green portion represents net income after taxes. We illustrate the difference between these two figures with dark red referring to income tax rates, and pink referring to social security taxes. The result is a snapshot of how much workers actually take home across the OECD.

Top 10 Countries with the Highest Net Wages 

1. Switzerland: $58,864 after paying 16.9% in taxes

2. Luxembourg: $46,593 after paying 29.1% in taxes

3. Iceland: $45,390 after paying 28.7% in taxes

4. Korea: $44,892 after paying 14.5% in taxes

5. Netherlands: $43,835 after paying 30.4% in taxes

6. Australia: $41,655 after paying 24.4% in taxes

7. United Kingdom: $41,608 after paying 23.4% in taxes

8. Japan: $41,139 after paying 22.3% in taxes

9. Norway: $40,834 after paying 27.6% in taxes

10. United States: $39,211 after paying 26% in taxes

Our chart reveals a few different dynamics in the OECD. First off, Switzerland stands out atop the rankings with $70,835 in gross and $58,864 in net take home pay. The combination of high earnings with low taxation is hard to beat. Now take a look at South Korea. The country ranks way down in 14th place in terms of gross earnings ($52,505) but rises to 4th in terms of net earnings ($44,892). That’s entirely thanks to a relatively light tax regime of 14.5%, which is the third lowest rate in the OECD behind only Chile (7.0%) and Mexico (11.2%). At the other end of the spectrum, some countries have extraordinarily high taxation levels that take up significant chunks of workers’ paychecks. Belgium is the clear outlier in this regard with $58,545 in gross but only $34,834 in net take home pay. This is thanks to an average total tax rate of 40.5%, pushing it below Ireland and France. Another interesting trend in our visualization is how many OECD countries are scrunched at the low end. Mexico, Latvia and Chile are so small that the slices are almost difficult to distinguish. In fact, the average gross earnings across the entire OECD is only $43,792 with net earnings amounting to just $32,624. This means that Americans are above average in terms of their earnings, but not dramatically so. The potential to make an obscene amount of wealth is likely higher in the U.S, than any other country, but not for most people. There are two important caveats to keep in mind. First, federal income taxes can be highly complex, and as much as 45% of taxpayers don’t pay any federal income tax whatsoever. Second, despite all the focus on take home pay, it is worth remembering that income taxes and social security taxes both eventually buy workers something—namely, everything that the government spends money on. Many people across the OECD take the long view that paying for social services through taxation makes a lot of sense for society. All that being said, more take home pay on par with Switzerland wouldn’t be too bad either.

When Joe Johnson  signed a six-year, $123.7 million extension with the Hawks  in the summer of 2010, it was considered a massive overpayment by Atlanta. Johnson was 29, his per-minute numbers didn’t suggest he was one of the top players in the league and the Hawks had yet to advance beyond the conference semifinals during his five seasons with the team.

Johnson has been unable to shed his “overpaid” label ever since, even after emerging as a reliable scorer with the Nets following a 2012 trade. One can debate whether Johnson’s production has trended closer to his price tag in recent years, but the general perception – one forged before he ever suited up in Brooklyn – is that he’s an untradeable, cap-sheet albatross. Grant land’s Bill Simmons rated Johnson’s contract the worst in the league last year, while The New York Times last month described  Johnson as “among the game’s most overpaid players”

Salary is the main talking point for Johnson and other players perceived to provide little bang for their buck. But Johnson’s true earnings differ considerably from the figure reported in that 2010 deal. Johnson comes in at No. 3 in the league when ranked according to yearly salary, behind the Lakers’ Kobe Bryant  and the Knicks  Amare Stoudemire. After adjusting for taxes, however, Joe Cool is the highest-paid player.

SI.com endeavored to determine the net earnings of 25 players at the top of the league’s financial food chain. Federal, state and city taxes all came into play, as well as costs for agents and NBAPA membership. We decided to exclude contract incentives, as they would have further complicated an already fraught exercise. These calculations were not without limitations. To start, there were inconsistencies in salary figures across several databases, but we decided Spotrac.com was the most reliable source.

Another issue was determining the place of residence for certain players. This is a crucial distinction when looking at taxes. Whether a player on one of the New York teams lives within state and/or city lines, for example, could make a significant difference on his true (post-tax) earnings. But a player owning a house in New York isn’t necessarily a telltale sign that he is taxed as a New York resident.

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People whose permanent home is not in New York – or are not “domiciled” there, in NY tax code parlance – are deemed residents if they maintain a permanent place of abode in the state and spend at least 183 days of the taxable year there (or qualify as “statutory residents”). An additional tax is imposed for city dwellers using the same criteria. With travel for road games and other offseason excursions, figuring out whether players meet that and other thresholds can be tricky. Intel from league sources helped reduce our margin for error.

Twenty-two NBA teams are based in states that enforce income taxes and four teams play in cities with income taxes. Another layer of complication comes from the so-called “jock tax,” a calculation based on “duty days” or games played. Players can be taxed for visiting various cities and states during road trips.

In Ohio, where lawsuits brought by former Bears linebacker Hunter Hillenmeyer and former Colts center Jeff Saturday are currently pending in the state Supreme Court, professional athletes and entertainers, unlike other workers who visit the state, are targeted  as “easy-to-identify, high-end source(s) of revenue.” While there’s no jock tax in Tennessee, NBA players must pay a $2,500-per-game occupational privilege tax with a three-game cap per year. An exemption already made for NHL players in the state will be extended to NBA players in June 2016. NFL players have never been subjected to this tax.

As noted above, this is not a foolproof ranking. These calculations were done with the understanding that perfection was a virtual impossibility. Consider this a general assessment of how the NBA’s highest paid players’ gross earnings differ from their real (after tax) earnings.

It’s also worth pointing out that these figures could spike across the board over the next couple of years as the salary cap increases to accommodate an influx of revenue from the league’s new television deal.

The two-year, $48.5 million extension Kobe Bryant signed last November has undoubtedly hampered the Lakers’ rebuilding plans, but consider that Lebron James, who signed a two-year, $42.1 million contract with Cleveland this summer, could be set to land a five-year, max deal with an annual value north of 30 million in 2016-17, depending on how the league decides to phase in the new dough. Of course, some of that will go to Uncle Sam, state and local governments, but with teams better equipped to splurge on stars, this ranking could look completely different in the league’s new financial landscape.

Here are a few more observations from the data:

• The Nets are the only team in this analysis that includes three players. At first glance, there’s nothing particularly surprising about the presence of three of the league’s top net earners on a team whose majority owner dismisses $144 million in reported losses by saying  “It’s not a big deal […]” What’s interesting is that the one player here who has even come close to living up to his deal is Johnson, the league’s poster child for exorbitant contract values. Whereas Johnson has developed into one of the league’s more imposing wing threats, the bounty exchanged for Williams – Devin Harris, Derrick Favors, two first-round picks and cash – is one of the biggest reasons the Nets find themselves in financial dire straits. Of course, it would help if Williams and Lopez could stay healthy.

• The reaction to Bryant’s extension was similar – if more vehement – to the one that met Johnson’s 2010 deal. Thanks to California’s harsh income tax, Bryant, who commands the league’s highest annual salary at $23.5 million, falls to No. 4 in terms of net wages. It follows that the five other players in this study who belong to teams that play in California (Jeremy Lin(Lakers); Blake Griffin and Chris Paul (Clippers) ; Davis Lee (Warriors) ; and Rudy Gay (Kings)  top the list of percentage of salary deducted due to tax. To put that into context, California collected  a whopping $216.8 million in tax revenue from professional athletes in 2012. Meanwhile, Dwight Howard, who left money on the table in Los Angeles to join the Rockets  in July 2013, benefits handsomely from living in Texas, a non-taxing jurisdiction. Though he pays a jock tax for some road games, Howard is three spots higher (No. 2) on our net wages list than the gross salary list (No. 5).

• Who are the best players not included in this analysis? Here are 10, in no particular order: Stephen Curry  (Warriors), Anthony Davis (Pelicans), Damian Lillard  (Blazers), Tony Parker (Spurs), Tim Duncan (Spurs), James Harden (Rockets), John Wall (Wizards), Dirk Nowitzki (Mavericks), Kyrie Irving (Cavaliers)  and DeMarcus Cousins (Kings). Harden signed a five-year, $80 million max extension with the Rockets after being traded from the Thunder  on the heels of his 2011-12 Sixth Man of the Year campaign. He’ll ascend into the top 25 assuming he signs another max contract with Houston before or at the end of his current deal, which runs through the 2017-2018 season. Harden would be entitled to earn more under the new deal because of his experience. Like Rockets-teammate Howard, his placement on a future net wages list would likely be higher than it is on the salary list. The other Texas-based players mentioned (Nowitzki, Duncan, Parker) are unlikely to crack the top 25 before retiring.

• The Bulls, Lakers and Mavericks were among the teams that courted Carmelo Anthony  in free agency this summer. After a high-profile, cross-country tour, Anthony ultimately elected to remain in New York, where he’s set to lose more than 48 percent of his salary to taxes this year. Before Anthony made his decision, SI.com looked into how much he would have earned on other teams. Had Anthony chosen to sign with Chicago – the most serious competitor to New York, according to reports  – on an estimated four-year, $95.9 million contract, his net salary in 2014 projected to be approximately $12.5 million. After signing a more lucrative deal (reportedly more than $122 million, but less than the $129 million max, over five years) with the Knicks this offseason, Anthony is set to pull in a projected $11.6 million.