Partners often agree in their prenuptial agreement to share everything equally between them. However, it is also possible to agree on a division other than 50/50. Much to the frustration of the tax authorities, a Dutch couple decided, shortly before the husband’s death, to agree on a 10/90 division in their prenuptial agreement. The husband passed away and the wife was entitled to 90% of the assets under matrimonial property law. No inheritance tax was payable on this.
The situation
A man and a woman had been in a loving relationship for 33 years when, two years before the man’s death, they decided to get married. Two months before the husband’s death, they drew up a prenuptial agreement stipulating that the husband was entitled to 10% of the total estate and the wife to 90%. At the time of the man’s death, his estate consisted of only 10% of the total assets. As the man’s sole heir, the woman therefore paid inheritance tax on 10% of the assets rather than on 50%.
The Tax and Customs Administration
The Tax and Customs Administration did not agree with the adjusted shares of the estate as determined by the spouses. The tax inspector took the view that this constituted a deathbed gift from the husband to the wife. The court, however, would have none of it. As early as 1959 and 1971, the Supreme Court, the highest court in the Netherlands, ruled that entering into a marital partnership does not constitute a gift. Not even if this takes place on one’s deathbed.
The judge also dismissed the inspector’s other arguments. Even the claim of ‘fraus legis’, or abuse of rights, was unsuccessful. It is permissible to save on tax within the limits of the law.
Risk
The judge would most likely have reached a different conclusion if the division of assets had depended on which spouse died first. In this case, the spouses took a risk. Even though the husband’s health was considerably worse at the time the marriage contract was amended, the wife could still have died first. The husband would then have inherited 90% of his wife’s estate and would have had to pay inheritance tax on it. This is the other side of the coin.
Marriage is a way of transferring a large fortune to another person tax-free. If the legislator does not consider this desirable, action will have to be taken.