‘Til debt do us part
The community property is likewise liable for the debts incurred by one or both spouses even before they were married if they are redounded to the benefit of the family
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The community property is likewise liable for the debts incurred by one or both spouses even before they were married if they are redounded to the benefit of the family
“What’s yours is mine, and what’s mine is yours” is an adage describing the status of a spouse’s properties during the marriage. In the Philippines, the prevalent legal framework that outlines the rules on how property is owned and controlled within the marital union is the Absolute Community Property (ACP) regime.
ACP is the fusion of all the properties owned by the spouses at the precise moment of their marriage and the assets they acquired during their marriage. The common mass of property will be divided equally when the marriage is dissolved. However, its prevalence is only won by default because in the absence of a pre-nuptial agreement electing another property regime or when the regime elected is void, the ACP applies automatically for those who were married when the Family Code took effect (3 August 1988).
While the crafters of the Family Code found ACP to be the most nourishing of trust and unity between the spouses and the most aligned with Filipino values and culture, it is not ideal from an asset protection standpoint.
In ACP, the community property is answerable for debts and obligations contracted by either spouse without the other's consent to the extent that the family may have benefited. The intricacies of obtaining consent and establishing “actual benefit,” while surely serving sensible ends, stifle spouses' financial flexibility and expose them to unnecessary extents of civil liability.
The community property is likewise liable for the debts incurred by one or both spouses even before they were married if they are redounded to the benefit of the family. Merging the ownership of the husband and wife’s major properties is the antithesis of good financial planning and is akin to building a defenseless castle — a sitting duck for those with perverse financial intentions against them.
Luckily, ACP is not the only option. Few are aware that the Family Code provides couples ample leeway to formulate a property regime of their preference. Other than ACP, the principal types of property regimes under the Family Code are: (a) Conjugal Partnership of Gains (CPG); (b) Complete Separation of Property (CSP); (c) any other system that is not contrary to law, morals, good customs, public order, and public policy.
There is now a growing openness to electing a regime of complete separation of property for young would-be spouses. It is a matrimonial regime where the interests of the spouses are entirely independent of each other, there being a separation not only of assets but also of liabilities. Because their properties remain separate by law during marriage, the spouses have the right to own, possess, administer, and dispose of them without the consent of the other. During the marriage, they also retain ownership of the earnings and fruits from the separate properties.
More importantly, the spouses individually bear their indebtedness and liabilities. This is the essence of the separation of property. This makes the CSP consistent with the asset protection principles specialists practice here and abroad. This is in stark contrast to the unlimited liability concept intrinsic in ACP. Indeed, holding separate ownership interests leads to a large diminution of lawsuit exposure. If one asset takes a major hit, other property holdings may be spared from collateral damage, except claims of bona fide creditors’ interest, which remain to be protected under the law.
The failure to pick the right regime that considers asset protection scenarios may result in a catastrophic economic disaster for the future husband and wife. If you are unable to choose your preferred regime, the law will operate to pick the system for you — ACP.
But why settle for that when you can choose? Note that CSP should be intentionally chosen by the would-be spouses BEFORE their marriage by executing a pre-nuptial agreement, ideally assisted by your trusted, qualified legal professionals.
