How bankruptcy reform affects entrepreneurs married in community of property regime

The Repealing Provision of the latest Insolvency Reform has rendered Articles 6 to 12 of the Commercial Code null and void. And although this change has gone rather unnoticed, the truth is that it may have very important consequences for entrepreneurs married in community of property regime, since it directly affects the employer’s liability regime.

In most of Spain the default matrimonial property regime is that of community of property. So this development may affect many entrepreneurs in the event that their companies go into insolvency proceedings.

Until now, liability has been limited to the common assets obtained from the business activity

Until now, Articles 6-12 of the Commercial Code, which have been repealed by the Insolvency Reform, provided that in the case of a married person carrying on a commercial activity, he or she should be liable both with his or her own assets and those of the spouse. However, this required the consent of both spouses.

When was such consent understood to exist? Articles 7 and 8 of the Commercial Code established some situations in which tacit consent was understood to exist. For example, when the trade was exercised with the knowledge and without the express opposition of the spouse who should provide it. Or when the entrepreneur spouse was already engaged in trade at the time of the marriage and continued to do so thereafter without any opposition from the other spouse.

All common assets are now likely to be subject to the results of the company’s activity

Until a few months ago it was possible to limit the liability of the community of property only to the common assets obtained from the entrepreneurial activity. However, with the passing of the Insolvency Reform, from 26 September 2022 all joint assets will be subject to the results of the entrepreneur spouse’s activity. And the other party to the marriage cannot express any opposition.

With the latest Bankruptcy Reform, Article 1365 (2) has been added to the Civil Code. This provides that “community property shall be directly liable to the creditor for debts incurred by a spouse in the exercise of a profession, art or craft or in the ordinary administration of his/her own property”.

The  Civil Code also stipulates that the community of property must meet the expenses and debts arising from the business

On the other hand, Article 1344 of the Civil Code makes the profits or gains obtained by either of them common to both partners. Following the same reasoning, Article 1362(4) provides that the community of property must meet the expenses arising from the regular operation of the business or the performance of the profession, art or trade of each spouse.

How to protect the assets of the community of property if the company gets into difficulties

There is a way to prevent the community of property from being held liable for the payment of debts arising from the economic activity exercised by one of the spouses. The easiest way is to change the matrimonial property regime to one of separation of property. In this way, unless the spouses expressly agree, the assets of each spouse become separate property.

In order to change from community of property to separation of property, it is sufficient to sign a notarial deed called a marriage contract before a notary.