Marriage establishes a special matrimonial property regime between the spouses, known as community of property. This special matrimonial property regime governing the acquisition and disposal of assets during marriage is regulated by law. If the spouses do not wish to have this matrimonial property regime, they may enter into a contractual amendment, which may be modified by a court if necessary. This article deals with the statutory matrimonial property regime (i.e., the matrimonial property regime without modification) and how it is regulated. When joint property is dissolved, it is generally assumed that both spouses have equal shares. However, this is not always the case. In some cases, the so-called special rule for the division of unequal shares applies.
Community of property between spouses – what does this mean?
Although the law does not contain its own definition of the joint property of spouses (hereinafter referred to as “SJM”), Section 708 of the Civil Code nevertheless specifies what belongs to the SJM. It includes everything to which the spouses are entitled, which constitutes an asset and which is not excluded from the marital community of property. SJM includes both assets and liabilities acquired by one or both spouses during the marriage. The specific determination of the assets and liabilities belonging to SJM can be found in Sections 709 and 710 of the Civil Code.
The principle of SJM is that each spouse is the owner of all assets belonging to the joint property, but at the same time both spouses are mutually restricted by the equal ownership rights of the other.[1] In contrast to community of property, the amount of the share in the total property cannot be determined in SJM. Both spouses have equal shares in the joint property. If, for example, a property is entered in the land register as SJM, the spouses’ shares are not specified under their names as in community of property, as such shares do not legally exist.
The joint property of the spouses (SJM) usually arises upon marriage. However, its commencement can be contractually set at a different time, up to the date of dissolution of the marriage. Usually, SJM ends with the dissolution of the marriage. In certain cases, however, the joint property may be divided during the marriage. This is the case, for example, if the property of one spouse is seized by court order in bankruptcy proceedings.
The joint property of the spouses (SJM) may be subject to the statutory matrimonial property regime, regulated by a court decision or contractually arranged by the spouses, in which case it is a contractual matrimonial property regime.
The joint property of the spouses (SJM) not only regulates the rights and obligations between the spouses, but also influences their relationship with third parties.
How is the joint property of the spouses divided?
After the dissolution of the joint property of the spouses (SJM), it must be divided. However, a division can also take place if the SJM has been contractually restricted between the spouses or revoked by court decision (see above). A division is understood to mean the settlement of the spouses’ previous joint rights and obligations.
According to our legal system, the division of the spouses’ joint property (SJM) takes place in the following manner:
- by agreement between the spouses
- By court decision
- By legal presumption of division in accordance with Section 741 of the German Civil Code (BGB)
The individual methods can be combined in the settlement. For example, the spouses can agree on the division of part of the property, while the remaining part is settled by court decision. The legal presumption of settlement applies if the SJM is not settled by agreement or court decision.
How is the amount of the shares determined in the division of the spouses’ joint property (SJM)?
The basic rule for the division of the spouses’ joint property (SJM) under the statutory provisions is that the shares of both spouses in the property to be distributed are in principle equal.[2] However, this presumption does not apply if the spouses have agreed on a different distribution within the framework of a contractual matrimonial property regime or if the division of property is carried out in accordance with the legal presumption of Section 741 of the German Civil Code (BGB).
Equal shares are the starting point for the division of the spouses’ joint property (SJM) and are applied in particular when property is divided by court decision. The wording of the law clearly states that the spouses are first given the opportunity to agree on the division of property at their own discretion. Only if no agreement is reached does the court decide on the distribution of the property. In doing so, the court is guided by the distribution rules of Section 742 BGB. This provision, which establishes the presumption of equal shares, is dispositive; the court may therefore deviate from this statutory provision.
Inequality of shares
The parity of shares as a general starting point for the division of the spouses’ joint property (SJM) therefore means that the shares of both spouses in the property to be distributed are equal.
Disparity of shares means the exact opposite: it is a situation in which, when dividing the joint property of the spouses (SJM), the starting rule of equal shares has been deviated from and the shares of the spouses have been determined to be unequal.
The spouses can contractually determine the disparity of shares at the beginning of the marriage. This option is based on general principles of freedom of contract and autonomy of will. However, it can also arise through an agreement between the spouses in the context of the division of joint property. This is not unusual, as it is difficult to divide everything exactly in half when dividing property.
Case law also addresses the issue of contractually determining shares. It confirms in principle that a division of property by agreement in which one spouse receives a smaller share than the other does not violate the law and affirms the freedom of contract of the parties involved. However, the freedom of the spouses is not unlimited, but is restricted by case law. An agreement that violates good morals (good faith) cannot be accepted. It is not possible to establish a general criterion for when an agreement is contrary to public policy, as the assessment is always made in the context of the specific circumstances of the individual case. For example, the Supreme Court dealt with this issue in its decision of 9 December 2015, ref. 22 Cdo 4527/2015, and clarified: “The assessment of whether a legal transaction is contrary to public policy depends in each individual case on the consideration of the court, which is granted broad discretion by law to ensure that the judgment takes into account all the circumstances of the specific case, taking into account the rules of equity. A legal transaction is contrary to public policy if its content conflicts with the generally accepted idea that determines how the content of this legal transaction should be structured in interpersonal relationships so that it is in line with the fundamental principles of the moral order of a democratic society – regardless of freedom of contract, regardless of who caused the contradiction and whether the other party acted in good faith when concluding the contract. The corresponding judicial assessment must be based on careful findings of fact and must convincingly demonstrate that these findings allow the conclusion to be drawn in the specific case that the legal transaction in question is in fact contrary to public policy.”
In addition to an agreement, the unequal shares in the division of the spouses’ joint property (SJM) can also be determined by a court’s decision. However, case law shows that the courts generally give preference to an equal division of property, often even in cases where an unequal distribution would be fairer.
Forms of disparity
An unequal division of the spouses’ joint property (SJM) can take place in various ways:
- Allocation of specific assets – An asset is allocated exclusively to one spouse without the other spouse being entitled to compensation.
- Allocation of debts – A specific liability is assigned to only one spouse, without the other spouse being obliged to pay half of it.
- Percentage or fractional division – Each spouse is allocated a specific share of the value of the joint property, expressed as a percentage or fraction.[3]
Circumstances justifying a disparity in shares
Case law is generally based on the principle that the default rule is equal shares. If the courts deviate from this principle, they must justify this on the basis of the specific circumstances of the individual case.[4] Such circumstances include, for example, negative events in the marriage, the concept of merit or other case-related special features.[5]
Negative circumstances in the marriage
Negative circumstances that can lead to unequal shares are those that have a significant impact on the marital property or the family’s livelihood.[6] Even a circumstance that does not directly affect the matrimonial property regime can justify inequality if it is so morally serious that disregarding it by the court in the context of the division of property would be contrary to public policy.[7]
In the judgment of the Supreme Court of the Czech Republic of March 5th 2012, ref. no. 22 Cdo 3637/2010, the concept of negative circumstances in the behaviour of a spouse was defined in accordance with Section 18 of Act No. 94/1963 Sb. on the family, as applicable at the time. According to this provision, husband and wife have equal rights and obligations in marriage, are obliged to live together, be faithful to each other, respect each other’s dignity, support each other, care for their children together and create a healthy family environment. Conduct that contravenes these provisions may, at the discretion of the court, only be used as a reason for unequal shares if it has a significant impact on the management of the joint property or the care of the family. The circumstances must always be assessed on a case-by-case basis.
The infidelity of one spouse, which led to the breakdown of the marriage,[8] is not in itself a reason to reduce their share of the joint property, even if the court should take into account the causes of the breakdown of the marriage. Such a reason, which is of an intimate nature, is difficult to grasp and often has its own causes. The Supreme Court ruling of February 26th 2014, ref. 22 Cdo 1683/2013, states: “However, it cannot be ruled out that the infidelity of one spouse, in conjunction with other circumstances, may cause the court to consider an unequal division of shares, for example if it leads to a significant reduction in care for children and family , has a negative impact on the management of joint assets, or is so morally serious that it would be contrary to public policy if the court did not take it into account in the division of assets.”
The Supreme Court recently commented on the issue of domestic violence within the family in its ruling of August 25th 2022, ref. 22 Cdo 3652/2021. Once again, the importance of the specific circumstances of the individual case was emphasised. Although there were several proven attacks by the husband in the marriage in question, the joint property was divided equally despite the wife’s objections. The Supreme Court had previously ruled that domestic violence is one of the circumstances that “may be a basis for considering an unequal division of property, even if it does not automatically constitute such a reason“.[9] In particular, the intensity, duration and all other circumstances of the individual case must be taken into account in the assessment in order to reach a decision in accordance with the principle of good morals. The ruling makes it clear that the division of marital property does not serve the purpose of punishing a spouse.[10] Domestic violence against family members does not therefore automatically lead to a disparity in the shares.
Earning principle
The merit principle is based on a situation in which one spouse has ensured the acquisition and preservation of assets of considerable value through increased effort.[11] This does not automatically apply to cases in which one spouse merely ran the household and the other earned the financial means for the family. For the earnings of one spouse to lead to an inequality of shares, they must be exceptional, even if the other spouse properly ran the household. The specific circumstances of each individual case are also decisive when assessing a disparity in shares based on the merit principle. No general conclusions can be drawn that would be applicable in every case. However, if one spouse fails to fulfil their obligations towards the family and the joint property without a reason that is acceptable from the point of view of good morals, case law tends to conclude that an unequal division of shares is appropriate in such a case.[12]
An example of a decision in which the court recognised an unequal division of shares in the settlement of joint property (SJM) on the basis of the exceptional merits of one spouse is the judgment of the Supreme Court of January 17th 2001, ref. 22 Cdo 2433/99. This case involved a globally successful athlete who, during his career, achieved an outstanding position and income that ensured a high standard of living for the entire family and acquired assets of considerable value. His great success was based on extraordinary dedication and continuous effort. Although the athlete’s wife did not neglect her duties in caring for the family and the household, her husband’s achievements were so exceptional that they justified an unequal distribution of shares in the final division of property.
Further circumstances
The law and case law also provide for further circumstances under which an unequal distribution of shares may occur in the division of the spouses’ joint property (SJM).
One example of this is the consideration of the needs of a child who is not entitled to maintenance. The law, in particular Section 742 (1) (d) of the German Civil Code (BGB), states that the needs of children who are not entitled to maintenance must be taken into account when dividing joint property (SJM). The law does not expressly specify how these needs specifically influence the division of property or how they are to be taken into account when determining the spouses’ shares. This question is dealt with in case law: earlier court decisions take the needs of children into account, for example, by assigning specific assets that are necessary for the child’s upbringing to the spouse to whom the child has been entrusted for upbringing.[13]
However, case law has developed to the point where it is no longer exclusively a qualitative division of assets based on the criterion of which items are necessary for the child that is taken into account, but also the needs of the child itself can constitute a reason for deviating from the principle of equal shares. A landmark decision that broke with this earlier practice is the ruling of the Supreme Court of December 14th 2011, ref. 22 Cdo 3272/2010. In this case, two minor daughters who were about to reach the age of majority were transferred to the father for upbringing. In the context of the division of property, the amount to be paid to the wife was reduced in the appeal proceedings, resulting in a disparity in the shares. This reduction reflected the consideration of the needs of the minor daughters. The plaintiff argued, among other things, that the assignment of child custody to one parent could not influence the amount of the shares in the division of property and could not justify a disparity. However, the Supreme Court did not agree with her. It clarified that the legal system does not expressly regulate how the needs of minor children are to be taken into account when determining the shares. Although previous practice has predominantly taken the needs of the children into account by assigning certain items to the parent with custody, the court’s discretion does not preclude the possibility of taking these needs into account by determining unequal shares.
As in other cases, however, it is necessary to take into account the specific circumstances of the individual case.
Contributions and offsetting
Other legal rules that apply to the division of the spouses’ joint property (SJM), unless the spouses have agreed otherwise or Section 741 of the German Civil Code (BGB) applies, include the so-called “equalisation of contributions and offsetting”. A settlement is understood to be the reimbursement to the spouse for expenses from the joint property that were incurred for property belonging exclusively to the other spouse.[14] Contributions, on the other hand, are amounts or values that one spouse has contributed to the joint property of the spouses from their own property.[15] The spouse who has spent their funds is entitled to reimbursement of these expenses in the context of the division of property. The settlement of both claims is based on the principle of application (“principle of application”), i.e., it will only be taken into account if the entitled spouse actively asserts it.[16] This means that a spouse who wishes to assert a claim in the context of the division of matrimonial property must apply for this themselves in the proceedings. For example, if a spouse has purchased an item for the joint property exclusively from their own funds but does not apply for the purchase price to be credited to their equalisation share in the context of the division of property in court, the court is not authorised to make such a credit on its own initiative.[17]
The issue of contributions and offsetting is complex, as extensive case law shows. In the Supreme Court ruling, Ref. 22 Cdo 3428/2020, for example, the court ruled in a situation where one spouse had purchased a house with a loan in his sole ownership and the spouses subsequently lived in this house together with their family. During the marriage, the husband repaid the loan from the SJM’s funds. After the dissolution of the SJM, the wife demanded compensation for the funds that had been used from the SJM to repay the loan belonging exclusively to the husband. Both the courts of first and second instance recognised the wife’s claim, as it was an amount that had to be offset according to the law. However, the Supreme Court deviated from this purely legal assessment and took into account the fact that the family lived in the house and used it for their needs. In the opinion of the Supreme Court, funds from the SJM used for the family’s living expenses and household needs are not reimbursed, as they do not belong to the exclusively personal assets. Funds spent on securing the family’s living space cannot therefore be subject to the division of property. However, it must be examined whether the amount spent on the loan belonging exclusively to the husband would be comparable to the amount the family would have spent on rent, for example. In the aforementioned ruling, the court stated: “If, during the period of the SJM, a mortgage is paid from joint funds for a property in which the spouses’ family lives or which they use, and if these are therefore funds spent on the family’s living expenses and the family household, it must be determined what amount would be required to secure equivalent or similar living space on other legal grounds (in particular rent). If the amount of the mortgage payments were the same or lower, there would in principle be no obligation on the part of the person on whose property the funds were spent to reimburse this amount. However, if the monthly mortgage payments were higher than the (potential) rent, a pro-rata reimbursement of the funds spent on the mortgage payments would have to be made.”
Despite the brevity and clarity of the legal provisions, there are situations in which it is not possible to rely exclusively on the wording of the law and additional circumstances must be taken into account, as specified by case law.
Conclusion
Although there are many situations in which an unequal division of assets is possible and can often be considered fair, the basic starting point is still equality of shares. If the spouses reach an agreement on the division of assets, disparity is often the preferred and simpler option, and there is nothing to prevent them from reaching an agreement within the limits of good morals. In practice, however, court proceedings are more frequent in which one spouse asserts disparity without there having been a prior agreement on the division of the spouses’ joint property. Case law shows that lower courts are often reluctant to apply disparity and tend to stick to parity of shares, which they consider to be the basic starting point. Disparity is considered an exception and is often not applied even in cases where it would be justified and desirable. The courts of appeal, on the other hand, allow for more frequent deviations and the determination of unequal shares, but always emphasise the importance of taking into account the specific circumstances and maintaining fairness in the division of joint property. Case law is also evolving in this area and providing new insights – not only with regard to the circumstances that justify a disparity in shares.
Personally, we consider the possibility of determining different shares to be fair and necessary. If the type of division of property between the spouses is determined by an agreement before or during the marriage, this expresses their joint will and consent to this arrangement for the division of joint property. It is more problematic when the amount of the shares is determined by the court after the dissolution of the SJM, which is subject to the statutory matrimonial property regime. In such cases, it is often difficult for the former spouses to reach an agreement on the type of division, so it is left to the discretion of the court to determine the fairest solution. It is particularly difficult to retrospectively determine all the essential circumstances of the individual case, the course of the marriage, the merits of the individual spouses and other specific aspects that are necessary for a well-founded decision on a disparity in shares. This may also be the reason why practice shows that courts of first instance tend to divide the SJM into equal shares rather than unequal ones. Nevertheless, the possibility of a disparity in shares must be taken into account. In every property dispute, care must be taken to determine and assess all relevant circumstances so that both options for division are adequately evaluated and the one that is most appropriate and fair is chosen.
[1] FRANCOVÁ, Marie; DVOŘÁKOVÁ ZÁVODSKÁ, Jana. Divorce, Separation and Dissolution of Partnerships. Prague: Wolters Kluwer ČR a.s., 2008. p. 48.
[2] Section 742(1)(a).
[3] KRÁLÍK, Michal. Judicature of the Supreme Court: Parity and disparity of shares in the settlement of joint marital property (BSM). In Soudní rozhledy, 2012, vol. 18, no. 11–12, p. 385.
[4] See, for example, the judgment of the Supreme Court of 30 May 2005, ref. no. 22 Cdo 1781/2004.
[5] Decision of the Supreme Court of 25 January 2023, file no. 22 Cdo 2772/2022.
[6] Ibid.
[7] Judgment of the Supreme Court of 26 February 2014, ref. no. 22 Cdo 1683/2013.
[8] Judgment of the Supreme Court of 19 March 2007, ref. no. 22 Cdo 2921/2005.
[9] Judgment of 27 March 2018, ref. no. 22 Cdo 6109/2017.
[10] Judgment of the Supreme Court of 27 June 2012, ref. no. 22 Cdo 1137/2012.
[11] Judgment of the Supreme Court of 30 May 2005, ref. no. 22 Cdo 1781/2004.
[12] Judgment of the Supreme Court of 28 November 2012, ref. no. 22 Cdo 1096/2011.
[13] Opinion of the Supreme Court R 42/1972.
[14] Section 742(1)(b).
[15] Section 742(1)(c).
[16] Civil Code, 2nd edition (2nd update, 2023): M. Králík, Section 742.
[17] Judgment of the Supreme Court of 9 November 2006, ref. no. 22 Cdo 999/2006.