Probably any lawyer would warn a client that the courts are likely to follow previous case law, even if it is unpersuasive and contrary to the text of the statute. However, if it would be to the client’s advantage, the lawyer should be prepared to challenge and overturn such weak case law.
It is in this article that we will discuss one well-established, but in my view incorrect, decisional practice of the courts that answers the question: Whose money is the money received for the sale of an item that was the separate property of the spouse?
This question is particularly important after divorce, when the matrimonial property is divided. In order to divide it, we first need to know what belongs to the community property and what does not.
What belongs to the BSM, i.e. to the matrimonial property?
Spouses may own property in two regimes:
- things that belong to their community property (called BSM – community of property),
- things that belong to only one spouse.
The Civil Code answers the question of which property is community property and which is the separate property of each spouse (Art.143):
“Thecommunity of property of the spouses shall comprise everything which may be the subject of ownership and which has been acquired by either spouse during the marriage, with the exception of things acquired by inheritance or gift, as well as things which by their nature serve the personal need or profession of only one of the spouses, and things issued under the rules on restitution of property to one of the spouses who had possession of the issued thing before the marriage or to whom it was issued as the successor in title of the original owner.”
The Explanatory Memorandum to the 1964 Civil Code (when the basis of Section 143 was formulated) states:
“The community of property is regulated as community of property, namely as joint ownership without share, which best expresses the property relations between the spouses, as it is an expression of the unity of the marriage and the equal status ofthe spouses in it, also ineconomicterms. This community of property applies to all things (including money) which may be the subject of personal property and which have been owned by either spouse during themarriage in any waylawfullyacquired by any othermeans, with the exception of property acquired by inheritance or gift. The sole personal property of one of the spouses shall also include property acquired by him/her before the marriage as well as property which, by its nature, serves his/her personal needs or the exercise of his/her profession and of whichthere is thereforenoreason for it to be held in community ofproperty.”
Both the law and the explanatory memorandum deal with the answer to the question posed quite clearly, using well-established concepts. They state that property acquired during the marriage belongs to the BSM , with the following exceptions:
- Donation,
- Inheritance,
- Restitution,
- items serving a personal need or the exercise of a profession. It is these exceptions and property acquired before marriage that belong to the separate property of each spouse.
Case law and literature came up with another exception
However, case law (court decisions) and some legal theorists are inclined to believe that there is one more exception, which is not mentioned in the law: according to them, BSM does not include an object acquired by one of the spouses during the marriage if it was acquired for an object (money or other thing) which was in his/her separate property. This is a very well-established theory which must be respected. However, it does not change the fact that it is at the very least “highly problematic”, especially because it contradicts the text of the law (section 143).
Proponents of this theory state that if a spouse sells an item of his or her property, that item is “merely transformed” into the money received, which continues to be his or her separate property. The word “transforms” may sound interesting, but the law does not mention it, and “transforming the thing” is essentially unknown in legal theory; the term seems to have been coined on purpose just to construct another exception. The word ‘transformation’ also seems unnecessary, since the process of ‘transformation’ is already known in legal language as ‘purchase’ or ‘exchange’.
Very weak is also the main argument of the above theory, which states that the “purchase” or “exchange” only “changes the economic nature” and is not a reproduction of property. Even if we disregard the vague and indefinite term ‘change in the economic nature of the thing’, the conclusion that there is no multiplication of property by exchange or purchase cannot be accepted. A margin (or profit) is normally added to the value of the thing when it is bought, so the claim that the sale of a thing (by trading) cannot increase the wealth is nonsense, contrary to everyday human experience. It is very easy to multiply and enlarge property by bargain purchase, otherwise there would be no self-service shops and no traders. Finally, it is not even clear why this theory is concerned with the question of whether or not property is multiplied.
Let us recite what the proponents of this additional exception state in the literature:
“The exchange of separate property for other property is only a change in its economic nature and not a multiplication of property, therefore it does not result in the creation of the community of property of the spouses in relation to this property (R 19/1960)” (FABIANOVÁ, Zuzana. In: ŠTEVČEK, Marek, DULAK, Anton, BAJÁNKOVÁ, Jana, FEČÍK, Marián, SEDLAČKO, František, TOMAŠOVIČ, Marek et al. Občiansky zákonník I. 2. vydání. Prague: C. H. Beck, 2019, p. 1127, marg. no. 21.)
What is remarkable about this exception is that it has no support in the text of § 143 Civ. and, conversely, directly contradicts it. According to the text of the law (and the Explanatory Memorandum), the community property is to include all property acquired during the marriage (except for statutory exceptions such as donations). Even § 150 CC denies this unlawful exception when it says that in the settlement of the community property, what either spouse has spent from his/her own property on the community property is to be taken into account. Under that theory, however, this would not be possible because the separate property is to remain separate after the “transformation”.
What is remarkable about this theory is how the words in a statute can conflict with legal practice. This approach makes the law unpredictable and essentially unknowable to the ordinary citizen (non-lawyer). And here the theory also comes into conflict with the principle of legal certainty as one of the basic principles of the rule of law. For this reason, I see this theory not only as illegal but also as unconstitutional (Article 1(1) of the Constitution of the Slovak Republic).
The purpose and arguments of the theory
The available arguments for the “transformation of matter” theory are very weak. For example, Vojcik, in his commentary on Civ. Code of 2010 (IURA EDITION, s. r. o., Bratislava) does not base this theory on any reasoning, but merely states it.
Nor does the case law indicate why a further exception would be necessary. If the legislature really intended that the property should continue to remain in the separate property of the spouse after “transformation,” what purpose is served by such a rule? Is it not a negation of the purpose of BSM, which is to ensure the sharing of community property and an equal standard of living for both spouses? And if the legislature wanted to introduce such a rule, why did it not simply state it in the text of the law?
If the husband would like to protect his separate property, he has the tools to do so. He can conclude an agreement with the other spouse to reduce the scope of the BSM (Art.142a(1) CC) and is also protected by the rules on the settlement of the BSM, which state that the settlement of the BSM is to take into account how much he has contributed from his own to the community property (Art.150 CC).
Despite the fact that this theory has long been respected by a part of the legal community, it has serious flaws, and its origin is seen more as an attempt to favour one spouse than as a serious argument. In particular, the contradiction between this theory and the text of the law is difficult to defend.
Conflicting case law
I set out below some related case law that partially contradicts that theory. The first case-law(22 Cdo 1658/98) creates a kind of exception to the exception… (see the premium content available for purchase here to learn more).
