Investment in capital companies by spouses in a marriage under an economic regime where marital property is held in common is a source of legal disagreement and dispute.
Recent Supreme Court judgment 158/2020 of 3 February 2020 addresses the issue of whether the profits obtained by a company that have not been distributed as dividends, but rather are intended to be placed in reserves, should be deemed to form part of the joint marital fund.
In the factual situation which was the object of the Supreme Court ruling, the shared marital fund was dissolved upon the death of one of the spouses, and the dispute was regarding those assets that should form part of the estate.
Among the assets of the deceased spouse were shares from a corporate entity acquired prior to the formation of the joint marital fund and which, therefore, belonged exclusively to that spouse. The subject-matter of the suit does not dispute the exclusive ownership of those shares, rather the debate was restricted to the reserves which the corporate entity, whose shares were held by the spouse during the term of the existence of the shared marital fund, had paid into.
This is a contentious issue not resolved by existing legislation. In fact, as the Supreme Court pointed out, there is conflicting case law between different provincial courts. It is therefore of interest, because of its practical relevance, to analyse the decision adopted by the Supreme Court.
There can be no doubt, as confirmed by the Supreme Court in said judgment, that the profits accrued from the company’s dividends while the joint marital fund was in existence are joint property.
For its part, the Supreme Court points out, the profits earmarked for reserves remain part of the company’s equity, the company “which has its own legal personality independent of that of its members”. Reserves are therefore the company’s yield obtained in the course of implementing the company’s business purpose, and remain part of the company’s equity, while dividends, on the other hand, are without doubt the yield of its members, since the decision is taken to split them off from the company’s equity, generating a specific right in favour of those members.
The fate of any profits is decided in accordance with the will of the members, who, if they do not agree with paying them into the reserves and provided that the regulatory provisions for this purpose are in place, may exercise their right to split them off. On the other hand, if members deem that they have sustained an unjustified injury to their right to their share of the company’s profits, they may challenge the agreement of the general meeting.
Consequently, the Supreme Court concludes that, insofar as the will of the members is to allocate any profits to the company’s reserves and therefore to retain them within the company’s equity, reserves cannot be considered to form part of a joint marital property fund.
A different matter is where there is fraudulent conduct by the spouse holding the company’s stocks or shares. For example, in the case of a single-member company whose sole member is the spouse, where they take the unilateral decision to make payments into the reserves with the malicious intent of depriving the joint marital property fund, of which the non-member spouse is entitled to a share, of the right to receive any profits that would correspond to it.
As the Supreme Court points out, such conduct could be construed as an abuse of law and thus determine the application of the provision it is sought to circumvent, with the undistributed profits being allocated to the joint marital fund.
In conclusion, unless there is evidence of fraud, reserves, insofar as the decision has been taken not to distribute them, remain part of the company’s equity and are therefore not deemed to be included within the joint marital fund.