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Married? Why you should own property via joint firm with your spouse

REAL ESTATE
By Graham Kajilwa | Jun 23rd 2022 | 5 min read
By Graham Kajilwa | June 23rd 2022
REAL ESTATE
An LLP is not subjected to corporate or company tax. [iStockphoto]

The plan by a man codenamed MKG in court documents was to sell his posh Sh70 million home in Loresho, Nairobi and share 60 per cent of the proceeds with his wife and children.

He was to use the remaining 40 per cent to buy a new home. However, his wife, codenamed EG would hear none of it. In fact, she went ahead and placed a caveat on the property to ensure the husband does not sell it.

Family Division High Court Judge Aggrey Muchelule dismissed the case by MKG in the dispute arguing that the case failed to enjoin the Attorney General who can give constitutional direction on sections 7 and 12 of the Matrimonial Property Act.

These are the sections that dictate how to dispose of wealth generated in marriage.

MKG’s reasons for wanting to dispose of the property from a layman’s perspective are indeed valid as he is a retiree, 76 years of age, who does not want to burden his children to take care of him.

This is even as his wife, EG, as well argued that they own other properties that she has no problem with the man selling - but not their matrimonial home in Loresho.

Such disputes are some of the challenges that make owning property as a couple a tedious affair. Their relationship rope in so many dynamics not only the unique complexities that surround their union but also how the matrimonial law is or will be interpreted.

Severally, whenever a couple divorces, it is a push and pull in the corridors of justice on who will take what property and why or if it is sold, who will have the majority stake.

The way to go

Development consultant Johnson Denge, advises that if a couple seeks to invest in the property, then a limited liability partnership (LLP) or limited company would be the most suited vehicle to consider.

“In fact, an LLP gives them the advantage of avoiding double taxation,” he says, as this will become a special purpose vehicle for investment and they will be taxed on individual income.

When it comes to divorce since a company has a clear indication of shareholding. [iStockphoto]

An LLP is not subjected to corporate or company tax. Denge says when it comes to limited companies, it is about the directorship that manages and not marriage.

As such, it avoids court cases when a relationship fails. “Everyone’s shares will be known and each and everybody can decide when or who to dispose to or give when out of the marriage. Or they can still keep (the shares) as an investment and share proceeds as usual as business partners even when they are divorced,” he explains.

Denge says that in case of divorce or separation, then it will be the company law that applies and not matrimonial law. The company law gives direction on how one person can exit or what will happen in case they are deceased.

“Marriage law will look at other aspects, including dependents,” he says.

He adds that articles can be drawn to direct to whom will inherit the person’s shares in case of an incident or death.

“It becomes easier for their exit, even when the worst does not happen and they do not divorce, it is easier to sell as it is not subjected to matrimonial property law,” he notes.

“It becomes easier to bring in investors since they want to put their money in a property that has some governance structures.”

Shadrack Wambui, an advocate of the High Court explains further saying a company, according to the law, is a person on its own.

“When you look at the Company Act, it has what is called a corporate entity and because it is an artificial person, then it essentially means it can buy, own and sell property,” he says.

He says many people have used company law to ensure they protect themselves against external things they have no control over. “When you die, issues about succession crop up, issues about other women may come in,” says Wambui.

When it comes to limited companies, it is about the directorship that manages and not marriage. [iStockphoto]

He however notes that in some cases, he has seen individuals coming up to claim shares in companies in a bid to own whatever has been left by the deceased.

He says, on one hand, you can argue that it is safe, especially when it comes to issues of divorce but the same cannot be said entirely on succession cases.

Wambui says when it comes to divorce since a company has a clear indication of shareholding, it becomes less of a challenge on how individuals part ways.

“You know the problem has always been when people are divorcing there is no certainty as to the share (of property) that is why people go to court and claim division of matrimonial property and they seek the courts to come in and help them interpret the share,” he says.

“But at least when you have a company there is clarity on the shareholding so that when you are separating; I am going with 90 and you are going with 10 per cent, and we do not need the interpretation of court,” says Wambui.

The complexities of property ownership and marriage have many facets that when partners in such a union call it quits, they themselves do not even know how to go about it.

When an asset becomes matrimonial

For example, what is a matrimonial property? Do assets one acquires in their name during the marriage become matrimonial property?

The complexities of property ownership and marriage have many facets. [iStockphoto]

Koya & Company Advocates on its website lists family home and goods therein and assets acquired jointly during the marriage.

“On the other hand, non-matrimonial assets are those acquired separately by you and your spouse before or during the marriage,” reads the law firm’s explanation of matrimonial law.

“It is important to note that your spouse may additionally, acquire a beneficial interest in separately owned property based on contribution like through improving that asset or through commingling.”

You need to be aware as well that business assets can be included as matrimonial property.

Additionally, if assets you acquire in your name during the marriage become matrimonial property, Koya & Company Advocates states that the Matrimonial Property Act preserves the legal principle of separation of property acquired before or after marriage subject to rules on commingling or improvement by your spouse.

“Thus, simply put, if you keep your separately owned property as truly separate from the jointly owned property, then you retain your interest 100 per cent in said assets,” it reads.

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