To whom the yields and profits arising from divided properties under the spouses’ agreement belong during the marriage period? Who will be held responsible for the expenses arising from such divided properties?
The property division during the marriage period is not entirely new in the current property transactions of spouses. As a general rule, yields and profits arising from common or separate properties during the marriage period are considered as common properties of the spouses. However, once the common properties of the spouses have been divided into the separate properties of a spouse, the yields and profits arising from such separate properties shall be treated as the separate properties of each spouse, unless otherwise agreed by the spouses.
All expenses incurred from the divided properties, are accompanied by related expenses such as personal income tax, State management fees related to property ownership and use rights, as well as the common obligations of the spouses arising from the divided properties.
Personal income tax
- Vietnamese residents or non-residents must pay the personal income tax for the sources of income found on the list of taxable income in accordance with tax laws. According to Articles 3.9 and 3.10 of the Law on Personal Income Tax 2007, as amended and supplemented in 2012 and 2014, the types of income arising from spouses are subject to tax as follows:
- “9. Income being inheritance of securities, of capital portions in economic organisations or business establishments, of real estate and other properties for which ownership or use rights must be registered.
- 10. Income being the receipt for a gift of securities, of a capital portion in economic organisations or business establishments, of real estate and other properties for which ownership or use rights must be registered.”
According to Articles 4.1 and 4.4 of the Law on Personal Income Tax, the following income from spouses is exempt from personal income tax:
- “Income from the transfer of real estate between spouses; parents and their children; foster parents and their adopted children; parents-in-law and their daughters-in-law or sons-in-law; grandparents and their grandchildren; or between biological siblings.
- Income is the receipt of inheritances or gifts (which are real estate) between spouses, parents and their children; foster parents and their adopted children; parents-in-law and their daughters-in-law or sons-in-law; grandparents and their grandchildren; or between biological siblings.”
It can be seen that the income of the spouses arising from the division of their common properties are neither subject to nor exempt from personal income tax. The applicable Law on Personal Income Tax does not provide its rule for determining whether the type of income not specified in the law will be taxable or is a tax exempted income.
As guided by the Ministry of Finance, real estate created by a spouse during the marriage period is identified as the common properties of the spouses, and such properties whether divided under the agreement or by the Court’s judgement or decision in case of the divorce, is exempted from tax. The official ketter of the Ha Noi Tax Department guiding Vietnam Securities Depository in 2018 provides that: “…In case Ms. X and her husband have agreed to convert his amount of securities into separate properties (of Ms. X), she must pay the personal income tax corresponding to such securities or 50% of the securities if it is the division of common properties during the marriage period corresponding to the portion of the securities transferred by her husband…”. According to the regulations as quoted above, gifts which are securities given between the spouses are subject to personal income tax, but there is no provision which regulates that securities being the separate properties divided by the spouses during the marriage period are taxable or tax exempted.
Therefore, due to the shortcomings of the Law on Personal Income Tax as analysed above and with reference to by-law documents, personal income tax arising from the division of common properties of the spouses will be considered on the following principles:
- Income such as securities, capital portions in economic organisations, business establishments and properties registered for ownership or usage shall be subjected to personal income tax. Since the above properties are given by a spouse, inherited from a spouse to the other spouse, this kind of income comes without compensation and is subjected to personal income tax. A spouse’s gain from a separate property from the division of common properties is also not compensated for the other spouse. Therefore, any income which is generated, as above mentioned, from a separate property from the division of common properties of the spouses, from the view of State budget revenues, shall be considered as a taxable income; and
- According to the same opinion as above, for separate properties divided as real estate, during the marriage period the income will be tax exempted. Since when divorced – in other words, when the spouses are no longer married – the real estate which is divided from the common properties of the spouses is tax free, there is no reason for the common properties real estate divided during the marriage period not to be considered as a tax free income.
State management fees related to property ownership and use right
For some properties, as required by law, the owners or users of such properties must register their ownership, their use rights and pay fees to the competent State authorities in order to be granted a certificate and protected with such ownership and use rights. Such assets include: houses, land, ships, barges, canoes, tugs, push boats, yachts, super-yachts, airplanes, motorcycles, cars, trailers or semi-trailers towed by cars, and similar vehicles.
Joint obligations of spouses arising from divided properties
Once the effective time of the division of the common properties of the spouses has passed, the divided properties become a spouse’s separate properties. Therefore, in general, the obligations arising from the possession, use, and disposition of such separate properties are his or her private obligations and are paid from such person’s separate properties. The obligations related to the properties which have been decided between the husband, the wife, and a third party shall be preserved. When transacting the properties with a spouse, the third parties shall not be responsible for knowing when the spouses have divided their common properties during the marriage period. However, in order to avoid the case of a transaction with a spouse who has already divided the common properties of the spouses, such third parties should clarify whether the properties are currently his or her separate properties or their common properties to determine who will be responsible.
Cases of spouses not being allowed to divide their properties or properties not being divided as required by the applicable law
The agreement on common property division during the marriage period is the right of the spouses on a voluntary basis. However, to protect the living conditions of the family in some special cases or to ensure that the obligations related to their common properties are fully implemented, this right is limited by law as follows:
Firstly, cases of the spouses not being allowed to divide their common properties, including:
- It seriously harms the family’s interests; or lawful rights and interests of minor children, and adult children who have lost civil act capacity or have no working capacity and no property to support themselves; and
- It aims to avoid obligations such as raising and support obligations; compensation obligations for loss and damage; debt payment obligations or payment obligations when being declared bankrupt by a Court; tax payment obligations or other financial obligations towards the State; and other properties obligations as prescribed by law.
At that time, the agreement on division of common properties of the spouses during the marriage period is invalid.
Secondly, properties which cannot be divided: these properties may be formed during the marriage period but are legally qualified as spouse’s separate properties, including:
- The property right to intellectual property objects as prescribed by the Law on Intellectual Property;
- Properties under the separate ownership of a spouse according to the judgement or decision of a Court or another competent State authority;
- Allowance or incentives receivable by a spouse as prescribed by the law on preferential treatment toward persons with meritorious services to the revolution; other property rights associated with the personal identification of a spouse; and
- The properties which cannot be agreed to divide by the spouses is not specifically prescribed by law. However, it can be applied similarly as the property division upon divorce. Land use rights for annual crops and aquaculture are only granted to a spouse who meets all the required conditions to use the land in accordance with the Land Law. For example, Mr. A – husband – is a trader in the business of agricultural and fishery machines and equipment while his wife, Ms. B, is a farmer specialising in cereals crops. Ms. B is assigned land by the State before getting married to Mr. A, but the spouses agree to put the land use right for annual crops into their common properties after marrying. Although Ms. B agrees to divide it with Mr. A, he does not live on agriculture and thus is not eligible for the division of such right since his primary occupation is a trader and not living on agriculture as prescribed by the Land Law.
The form of the agreement on common property division of the spouses during the marriage period
An agreement on common property division of the spouses does not require the presence and confirmation of witnesses but must be made in writing. This agreement is notarised at the spouses’ request or as prescribed by law. In general, for real estate, the movable properties which must be registered such as ships, cars, motorbikes, etc., such agreement must be notarised.
 Article 40 of the Law on Marriage and Family 2014 and Article 14.2 of the Decree 126/2014/ND-CP.
 Article 3.1.(a) of the Circular 111/2013/TT-BTC dated 15 August 2013 of the Ministry of Finance, amended and supplemented in the Circular 92/2015/TT-BTC dated 15 June 2015 of the Ministry of Finance.
 Official Dispatch No. 8377/CT-TTHT dated 5 March 2018 of Ha Noi Tax Department.
 Articles 44.3 and 45.2 of the Law on Marriage and Family 2014.
 Article 40.2 of the Law on Marriage and Family 2014.
 Article 42 of the Law on Marriage and Family 2014.
 Article 11 of the Decree 126/2014/ND-CP.
If you would like more information on how we can assist you with divorce issues, please contact us at: +84 (28) 36223522 or email us at email@example.com