Last week, we explained why a well-prepared will is essential. In part 2 of our trilogy, we focus on the civil and tax implications of the following relationship types: living together, marriage, and registered partnerships.
In the Netherlands, there are several types of partnerships: marriage, registered partnerships, and cohabiting couples, with or without a cohabitation agreement. While these relationship forms may seem similar, each one has its own important civil and tax implications. This article explores the differences between these relationship types and the importance of setting up solid agreements to ensure that both civil and tax aspects are properly arranged.
Civil: Marriage, registered partnership, and cohabiting partners
Marriage and registered Partnership
When you marry or enter into a registered partnership, you are automatically recognized as partners by law. This brings with it both legal rights and obligations, both during the relationship and upon its dissolution. The main difference between marriage and registered partnership lies in the formalities involved in entering into and ending the relationship.
Cohabiting partners
Cohabiting partners are not legally recognized as partners. This means that, in principle, they do not have any rights or obligations regarding each other’s assets or debts. In the event of a breakup, there is no automatic division of property. Additionally, you are not automatically an heir if your partner passes away. If you want your partner to be an heir, this must be explicitly stated in a will.
Cohabiting partners can enter into a cohabitation agreement, which allows them to establish rights and obligations regarding issues such as household costs and the division of property and debts when the relationship ends.
Tax: Marriage, Registered Partnership, and Cohabiting Partners
Inheritance and gift tax
Partners in a marriage or registered partnership are considered partners for inheritance and gift tax purposes, which offers advantages when distributing assets upon death or during gifting. Cohabiting partners can also be considered partners for inheritance and gift tax, but the conditions for this differ from those under civil law.
Gift tax may be due on gifts between partners. It’s advisable to be aware of this and seek advice before making a gift to ensure you can maximize tax benefits and avoid potential risks.
Income tax
In terms of income tax, partners in a marriage or registered partnership are treated as fiscal partners, which allows them to optimally distribute assets and liabilities on their tax returns. Cohabiting partners can also become fiscal partners, but the conditions for this differ from those related to inheritance and gift tax.
Division of assets in the event of divorce
In a divorce, the division of assets plays a key role. It is important to understand the tax implications of dividing property, such as alimony, the family home, and deductible interest, before finalizing the divorce. In some cases, tax advantages can be obtained, such as by deferring the tax claim on a shared business.
Additionally, what has been agreed upon in the partnership conditions will affect the size of the inheritance and, therefore, the inheritance tax owed.
The importance of good agreements
Creating a solid agreement—whether it is a marriage contract, a registered partnership deed, or a cohabitation agreement—is essential for properly managing both civil and tax matters. Without clear agreements, ambiguities can arise regarding the division of property, debts, and tax benefits, both during the relationship and after its dissolution.
A well-drafted agreement protects your assets and ensures clarity regarding rights and obligations. If your situation changes, such as when you acquire a business, it may be necessary to review your agreements.
Conclusion
Whether you marry, enter into a registered partnership, or cohabit, it is important to clearly understand the civil and tax consequences. This also applies to changes in your situation, such as death, divorce, or gifts between partners. What was originally agreed upon in an agreement may no longer align with your current situation.
Do you have questions about drafting or updating an agreement, or would you like us to help assess the (tax) implications of your situation? Contact Sharon van Vuren at sharon.vanvuren@vanloman.com. We’re happy to assist you.