Separation of Assets and Taxes in Germany

Under German law, spouses without a prenuptial agreement automatically live in the matrimonial property regime of community of accrued gains. A community of property must be expressly agreed in a notarized form. What is a community of property, for whom is it best suited and are there alternatives to it? You will learn all this in today’s article.

Separation of property and joint taxation 

The separation of property between spouses is a form of marital property regime. Each spouse is the sole owner of their property acquired before or after marriage. If the marriage ends through divorce or death, the spouse whose wealth was less than the other’s during the marriage does not receive any compensation. In the case of separation of property, married individuals can manage their wealth without their spouse’s consent. This includes:

• all items belonging to the joint household,
• the assets of two people as a whole.

Many couples consider such questions already during their wedding planning. Although the actual wedding ceremony is not tax-deductible, getting married has significant tax implications – from choosing the tax class to joint filing. Therefore, it is worthwhile to understand the tax aspects of marriage before the wedding.

Tax refund with separation of property – Separation of property vs. community of accrued gains

In a community of accrued gains, it is possible to balance it out if the spouses wish to divorce. How does it work? The spouse who amassed more wealth during the marriage than the other is entitled to claim and balance half of the difference in accrued gains. The community of accrued gains does not, however, require the assets of two people to be combined by the marriage.

Tax separation of inherited wealth – Prenuptial agreement

Separation of property in a marriage must be expressly agreed. This is done through a notarized prenuptial agreement. The agreement between the spouses on the separation of property can be documented there. The agreement can be declared invalid if the court determines it is against public policy. This is the case, for example, if:

• it excluded the adjustment of accrued gains,
• it excluded other divorce consequences (equalization of pension rights or maintenance after the end of the marriage)
• at the time of the agreement there was a structural imbalance between the spouses.

Easement of inheritance tax with separation of property 

The inheritance rights of the spouse are limited by the separation of property agreement and depend on the number of children.

• If no descendants are present, the spouse inherits half.
• If one child is present, the spouse inherits half.
• If two children are present, the spouse inherits one-third.
• If three children are present, the spouse inherits one-fourth.

The spouse is the sole heir and their share amounts to half of the statutory inheritance portion. In the event of a community of accrued gains, this amount is increased by a flat-rate gain of one-fourth of the estate value. However, this does not apply to separation of property. Furthermore, in the event of a testamentary disinheritance regulation, the spouse can, in addition to the compulsory share, claim the actual gain of the community of accrued gains. Such a claim is not possible in the case of separation of property.

Inheritance tax with separation of property – what to do instead of separation of property?

The separation of assets often comes with unfavorable tax consequences. It is therefore no wonder that German taxpayers think about alternative solutions. One of them is a modified community of accrued gains, which can be agreed in a prenuptial agreement. For whom is it best suited? It can certainly be considered when hereditary and compulsory portions should be kept at the lowest level. An example would be securing the succession of a business that is to be inherited and continued by our child. In this case, the compulsory portions of the disinherited spouse are completely or partially reduced.

Inheritance tax with separation of property – Summary

In the above post, we explained what separation of property is and what the difference to the community of accrued gains is. We also described how separation of property between spouses affects tax accounting. The final calculation of such amounts is not quite simple, therefore we recommend using the free app for tax declaration in Germany. With the PREMIUM package from Taxando, you can quickly and safely calculate your tax return with separation of property.