The business was profitable, now his wife is afraid of bankruptcy. How to protect the family?<

"My husband and I have been together for over ten years, we have not adjusted the joint assets of the spouses. He has always been the more secure one in the relationship, he is in the hospitality business and has been doing well. We have never had a bad time as a family, my husband has worked hard for years, but due to the corona crisis, his business has been in the doldrums for a long time. I don't know if he has any debts. I am afraid that we will not have anything left from the property, not even for the children. How should I proceed in order to keep the property in the family even in bad times?" asks Mrs. Dana.

More and more families now find themselves in a similar situation. Bořivoj Líbal and Anežka Večeřová from the Noerr law office answer a specific question from an iDNES.cz reader.

"In the case of property protection in the common property of spouses, it is more true that when the first problems appear, it is often too late for an effective solution," explains Bořivoj Líbal. According to Líbal, in addition to assets, the joint assets of the spouses also include liabilities, and not only joint assets, but also liabilities assumed by only one of the spouses.

"Spouses are jointly and severally bound by the obligations incurred during the marriage, with exceptions. Even if, for example, only one of the spouses is a signatory under the loan agreement to support the business, the creditors can reach the property from the entire joint property when enforcing such a claim," adds the lawyer.

But if, when entering into obligations, one of the spouses acts outside the scope of normal family matters without the consent of the other, typically borrowing a large amount of money, such debt is borne by this spouse and the common property can only be affected by the creditor up to the amount of his potential settlement share. However, the neglected spouse must actively express his disapproval towards the creditor, which is not easy in practice and cannot be done without legal help.

The best protection is prevention

However, the division of obligations can be dealt with in a contract on the matrimonial property regime. It can be concluded at a notary, not only before marriage, but also during the marriage. The contract is a protection for how to adjust obligations so that the other spouse is not affected by them.

"There are still many unnecessary prejudices in society around contracts on marital property. Spouses are most often afraid of mutual distrust or that the economically stronger of the partners will gain an even greater advantage in the relationship and the other spouse will be left with no means in the event of a divorce," explains Anežka Večeřová.

At the same time, property contracts offer many options for adjusting the joint assets of the spouses so that they are adjusted to the property situation of each family and at the same time sufficiently ensure their risks.

"Spouses do not have to separate property completely and cancel and settle joint property. It is often enough to agree that the obligations do not become part of the joint property and that each spouse is responsible for them alone. If the spouses agree on the arrangement, drafting the contract is neither complicated nor expensive," adds Večeřová.

The contract can be registered in the public register of documents on the matrimonial property regime. The advantage is that none of the spouses has to prove the existence of such a contract to a third party - the latter is obliged to verify the possible existence of the contract in the list themselves. However, even after the conclusion and publication of such an agreement, the creditors of the spouses still have the right to be satisfied from the original extent of the property in the common property, if their claim arose no later than six months before the conclusion of the agreement.

Transfer to children may not be the solution

If spouses are in economic problems, it often happens, according to lawyers, that they try to protect the property from creditors by "getting rid" of it through a purposeful transfer. Gifts to relatives are the most common, and gift contracts for minor children of spouses are no exception. By donating property to their children, spouses have the peace of mind that their descendants will remain secure for entering adult life.

"The popularity of transferring property to children is mainly due to divorce. If the spouses cannot agree on the settlement of joint property, the transfer of typically joint real estate to the children is a practical and more easily acceptable compromise," says Večeřová.

However, the transfer of property to minor children must be approved by the guardianship court, which can extend the entire operation by up to several months. So this is by no means a quick fix. Even the transfer of property to relatives is not a sure protection against creditors. According to Večeřová, if the creditors would be shortchanged on the satisfaction of their claims by such a transfer, they have the right to challenge the ineffectiveness of such a transfer before the court.

Popularity of trust funds is increasing

The popularity of trust funds is now increasing to secure the family assets of entrepreneurs against problems. Bořivoj Líbal also has experience with the growing number of newly established family trust funds in recent years. "While in the first years, trust funds were largely unknown and corporations were more likely to establish them, now it is possible to describe a trust fund as a traditional tool for the management and protection of family assets," explains the lawyer.

A family trust fund is created by setting aside the assets of the founder for a private purpose. If the property deposited in the trust fund is in the joint property of the spouses, the spouses need the consent of the other partner to deposit it in the fund, as this is not a normal management of joint property.

The purpose of the fund may be to manage family assets and preserve them for future generations, i.e. real estate, business companies, but also shares or financial resources. In addition to the founder, the trust fund must also have an administrator. However, the founder and administrator can be the same person. The beneficiary of the fund can be the second spouse, children or other family members.

However, Líbal also points out their pitfalls: "Trust funds are still not a solution for everyone. The purpose of placing family property in the fund is its long-term stabilization and protection. The property in the trust fund ceases to be the property of the spouse-founder and becomes separate property. That's why the further management of assets allocated in this way is relatively inflexible, always with regard to the purpose of a specific trust fund," he concludes.