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Friday, February 23, 2024

Marital Assets in Corporations in Costa Rica: A good idea?

Marriage in Costa Rica is a fantastic idea, but it’s always better to consult a family law attorney before committing. Costa Rica´s great weather and beautiful beaches make your wedding a wonderful experience. We have volcanoes, hot springs, and an exuberant natural environment. Getting married in Costa Rica is undoubtedly an unforgettable experience. 

This article covers marriage in Costa Rica and the pros and cons of placing marital assets in corporations. We also cover the importance of having a family law lawyer to advise you. What happens in case of divorce? Can the assets be considered divorce assets? I am Christopher Pirie, a Doctor of Laws, and an attorney in Costa Rica.

You decided to invest in your happiness, get married, and found property in Costa Rica:

You planned everything with your fiancé and hired a marriage lawyer in Costa Rica.  The ceremony took place, you got married, and fell in love with this country. It happens! Now you have decided to buy your dream house. And why not? It’s beautiful!

Since Costa Rica has all climates (except snow), there is a space for every taste. After searching for the property of your dreams, you finally find one and wish to proceed.  You get advised to incorporate a corporation and put the property in its name.   

The standard legal advice by family law attorneys in Costa Rica:

Attorneys usually recommend that you constitute a holding corporation for the property to be placed. And indeed, you should! We typically suggest that both of you form the corporation in equal partnership.

As a result, you will both own fifty percent of the shares. The incorporation articles should stipulate that you must sign jointly to mortgage, sell, or dispose of the corporation´s assets. Thus, the corporation grants joint powers of attorney to both of you. 

The usual recommendation will be to constitute either a standard stock corporation (S.A), Limited Liability Corporation, or “Sociedad de Responsabilidad Limitada.” If you constitute a stock corporation in Costa Rica, you both receive shares; if you form an LLC, you will receive quotas.

Why do law firms recommend this?

The idea behind doing this is that the asset will be protected from any personal obligations you may have. This is standard legal advice.   Having a corporation will also cover the investment from being sold or mortgaged by any of you since a joint signature is required. All of this makes sense.

On the other hand, if the asset is placed in a co-property, each of you will personally have an “ideal” portion of the asset.  For example, you decide to own the property jointly.  Each of you ends up owning 50 percent of the asset.  This means that in the Public Registry, the property will appear jointly owned by each of you personally: you will own an ideal or “not localized” right of the asset.  Each right can be mortgaged, sold, or disposed of.   A corporation prevents this, for better or for worse!  Your family law lawyer must inform you of these possibilities.

Positive Aspects of owning marital assets in Costa Rica, in corporations:

This legal service has many positive prospects for clients. If your attorney has done everything correctly, the stock corporation hides the actual shareholder. Hence, its standard practice by us attorneys to recommend the constitution of stock corporations.

This can also give you overseas taxing protections. If an overseas company in Panama owns the company in Costa Rica, the shareholders’ identities are protected. If the holding company in Panama has bearer shares, it’s difficult to determine who the shareholder is. This remains true today, despite regulations.

Another positive prospect of creating a corporation in Costa Rica is the “dismemberment of the legal personality.” This means that the shareholders are not personally liable for anything the corporations do. The corporation is likewise not responsible for any obligations the shareholders may have. If both of you create a corporation and place the marital asset in its name, the asset belongs to the corporation.

The holding company can be a problem in case of divorce

There is a problem with all of this.   Nobody gets married, thinking of being divorced later on. So the question is, if the assets placed in the corporation, are considered to be marital?  Logically, you wish to get your share of the divorce assets in the corporation.  But you find that you cannot. What you own are just the shares or quotas of the corporation itself, not the assets. Remember that the corporation owns the asset. So how do you get it out?

In a divorce, assets are distributed in halves by both spouses. Each one gets fifty percent of the assets acquired during your marriage.  The exception is a prenup agreement, but that´s another story.  The detail here is that the assets are not in your name. They are the corporation´s assets, not yours! Keep in mind that marital assets are those that are acquired during the marriage with mutual effort. Assets acquired by a winning lottery ticket, donations, and inheritances, are not marital assets due to a lack of joint effort to obtain them. Technically, a corporation’s assets are not matrimonial since they do not belong to the couple but to the corporation.

Assets in a corporation are not marital assets per se:

As stated, if the marital assets are in the corporation, they technically do not constitute matrimonial assets. They belong to a third party, the legal entity or corporation, not the couple. Thus, the marital assets are the shares or quotas of the corporation. And if both of you already own fifty percent of the shares or quotas, there is nothing to distribute. You already own them.

As a family law attorney, I may recommend putting the asset in your name, fifty percent each. This is called co-property. You become part-owner of a non-localized percentage of the property. You can sell your co-property anytime, mortgage it, or donate it. No person is obligated to remain in co-property, and both of you can get out of this joint ownership at any time. If not voluntarily, either of you can file a civil action to get your half.   What will happen is that your percentage will be physically localized and divided in a simple civil procedure. The once-only property gets split into two separate ones.

If legal or physical reasons make this impossible, the Judge will have the property sold in a public auction. The auction proceeds are divided according to the corresponding percentages each co-owner has. However, this is not a solution per se since it defeats the purpose of protecting the asset in a corporation that serves as an “egg´s nest.”

Another solution: the articles of incorporation:

There is another solution I can recommend. This can be done during the corporation´s constitution or after.  You should indicate that all the corporation’s current or future assets are marital. It should also stipulate that they must be distributed and placed in each other´s names in case of divorce in a fifty-fifty manner. Many expensive litigations can be avoided with a solution as simple as this one.

The incorporation of a shareholder agreement is an elegant solution to the problem. When buying a house, or any other asset in Costa Rica, it’s vital to have a family law lawyer that will listen to your situation and foresee any future problems. You will thank me later.  Once the corporation has been registered, you will receive a “Book of Shareholder´s Acts” and a “Book of Shareholder Registry.”  So you can hold the assembly at any time. 

If divorce is inevitable, what will happen to the divorce assets in the corporation? Do you lose them?

Divorce in Costa Rica can be amicable.  If that´s the case, we can do the shareholder´s act and amicably distribute the corporation´s assets between you.  

This may not be possible for various reasons, and divorce ligation may be the only solution.  Remember that corporations are legal entities in the eyes of third parties.  If divorce litigation is inevitable, and the divorce assets are in a corporation in Costa Rica, you don´t have to panic.   In litigation, we must prove that the corporation was enacted as a marital asset holding company.  

The idea is for the Judge to pierce the corporate veil and disregard the corporate figure.  The request is so that he will judge that the corporation´s assets are divorce assets. Hence, they must be divided and distributed in both of your names.  If all else fails, remember that you own the corporation’s shares.  As a shareholder, you must comply with corporate and commercial law.  This, of course, is another topic.

Contact Dr. Christopher Pirie Gil as your lawyer in Costa Rica

Many people end up in expensive litigations due to erroneous recommendations by family law attorneys in Costa Rica. Even though this article offers sound advice, there is no general rule; one must study each case individually. Contact me if you have questions or for legal services in Costa Rica.  Get the proper legal counseling you deserve.

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