Business and Transfer Taxation
Week 1: Transfer Taxation
Transfer - refer to any transmission of property from one person to another.
Transfer taxes


are excise or privilege taxes
Taxes imposed for gratuitous passing of private owned properties to the heirs in case of death or to the
donee
 Tax is imposed on the act of passing the ownership of property & not on its value.
Types of Transfer
1. ONEROUS TRANSFER/ BILATERAL TRANSFER – involve transmission of property for a
consideration.
1.1) sale or exchange –subject to business taxes; e.g. VAT, % tax & excise tax
1.2.) casual transfer –capital gains tax
2. GRATUITOUS TRANSFER/UNILATERAL TRANSFER – involve the transmission of property by a
person without consideration.
2.1) Death –subject to estate tax
Succession is the gratuitous transfer of the properties of the deceased person upon his death to
his heirs.
- donation mortis causa
2.2) Donation –subject to donor’s tax
a gratuitous transfer of property from a living donor to a donee
- donation inter vivos
3. Complex Transfers (combination of transfer and income tax)
- Transfers for less than full and adequate consideration. *
* Are split into its components: transfer element and exchange element
Transfer element is subject to transfer tax
Exchange element is subject to income tax
Types of Transfer Tax
A. DONOR’S TAX – imposed on donation inter-vivos
B. ESTATE TAX- imposed on donation mortis- causa.
RATIONALE OF TRANSFER TAXATION
1. Tax evasion or minimization theory
2. Tax Recoupment theory
3. Benefit Received Theory
4. State Partnership Theory
5. Wealth Redistribution Theory
6. Ability to Pay theory
Nature of Transfer Taxes
1. Privilege Tax
2. Ad Valorem Tax
3. Proportional Tax
4. National Tax
5. Direct Tax
6. Fiscal Tax
General Rule in Transfer Taxation
SITUS OF TRANSFER
Transfers occur in the location of property
Properties Located in the Philippines (what are considered)
1. Interest in domestic business
2. Foreign securities, under certain conditions:
- shares, obligations or bonds issued by any foreign corporation 85% of the business of which is
located in the Philippines
- shares, obligations, or bonds issued by any foreign corporation if such shares, obligations or
binds have acquired business situs in the Philippines
3. Franchise exercisable in the Philippines
4. Any personal property, whether tangible or intangible, located in the Philippines.
RECIPROCITY RULE
The intangible personal properties of non-resident aliens are exempt from Philippine transfer taxes provided that
the country in which such alien is a citizen also exempts the intangible personal properties of Filipino nonresidents therein from transfer taxes.
Examples of Intangibles:
SUCCESSION AND TRANSFER TAXES
“Ownership is acquired by occupation and by intellectual creation. Ownership and other real rights over
property are acquired and transmitted by law, by donation, by testate and intestate succession, and in
consequence of certain contracts, by tradition. They may also be acquired by means of prescription”. Art. 712
(New Civil Code)
Under the NEW CIVIL CODE, ownership may be acquired through:
1. Occupation
2. Intellectual creation
3. Law
4. Donation
5. Tradition
6. Contract
7. Prescription
8. SUCCESSION
A mode of acquisition by virtue of which the property, rights and obligations to the extent of the
value of the inheritance, of a person are transmitted through his death to another or others either by will
or by operation of law. (Art 774, Civil Code)
-
The inheritance includes all the property, rights and obligations of a person which are not extinguished
by his death.
- The rights to the succession are transmitted from the moment of the death of the decedent.
- The amount of obligations acquired/inherited by an heir
Should not be more than the combined value of the properties and rights inherited.
Types of Succession
1. Testate or Testamentary Succession – which results from the designation of an heir, in a will executed
in the form prescribed by law.
2. Legal or Intestate Succession – when a decedent dies w/o a will or with an invalid one, the distribution
of the estate shall be in accordance with the default provision of the Civil Code on succession.
3. Mixed Succession – transmission of the decedent properties shall be partly by virtue of a written will
and partly by operation of law
Types of Will
Will- is an act whereby a person is permitted, with the formalities prescribed by law, to control to a certain
degree the disposition of this estate, to take effect after his death.
1. Holographic will- a will which is entirely written, dated and signed by the hand of the testator himself.
2. Notarial will – a notarized will signed by the decedent and witnesses.
3. Codicil – a supplement or addition to a will.
Elements of Succession
1. Decedent – the general term applied to the person whose property is transmitted through succession,
whether or not he left a will. If he left a will, he is also called the testator.
2. Inheritance (Estate) – includes all property, rights and obligations of a person which are not
extinguished by his death and all which have accrued thereto since the opening of succession.
3. Successors (Heirs) – a person called to the succession either by the provision of a will or by operation
of law
Heirs
Compulsory heirs
Primary heirs – legitimate children and their direct descendants
Secondary heirs – Legitimate/ illegitimate parents and ascendants
Concurring heirs – the surviving spouse and illegitimate descendants
Relatives up to fifth (5th) degree of consanguinity
Republic of the Philippines
Note: The secondary heirs shall inherit only in default of the primary heirs. Normally, only the primary heirs
and concurring heirs share in the hereditary estate. In the absence of primary heirs, the secondary heirs and
concurring heirs shall share in the hereditary heirs.
Legitime - A legitime is that part of the testator’s property which cannot be given away because the law has
reserved it for the following compulsory heirs:
(1) Legitimate children and descendants, with respect to their legitimate parents and ascendants;
(2) When there are no legitimate children and descendants, legitimate parents and ascendants;
(3) Surviving spouse;
(4) Acknowledged natural children, and natural children by legal fiction;
(5) Other illegitimate children. (Articles 886 and 887, Civil Code)
Other persons in succession:
o Legatee – a person whom gifts of personal property is given by virtue of a will
o Devisee - a person whom gifts of real property is given by virtue of a will
o Executors – a person named by the decedent who shall carry out the provisions of his will
o Administrator – a person appointed by the court to manage to distribution of the estate of the
descendent
Estate taxation – pertains to the taxation of the gratuitous transfer of properties of the decedent to the heirs
upon the decedent's death
CHAPTER 2: GROSS ESTATE
Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs
and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to
testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property
upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding
the postponement of the actual possession or enjoyment of the estate by the beneficiary.
Gross Estate- consists of all properties of the decedent, tangible or intangible, real or personal, and
wherever situated at the point of death.
COMPOSITION OF THE GROSS ESTATE
The gross estate of a decedent shall be comprised of the following properties and interest therein at the time of
his/her death, including revocable transfers and transfers for insufficient consideration, etc.:
1. Residents or Citizens - all properties, real or personal, tangible or intangible, wherever situated.
2. Non-resident aliens – only properties situated in the Philippines provided, that, with respect to intangible
personal property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section
104 of the NIRC.
Summary rules on gross estate
1.
2.
3.
4.
5.
-
Property
location
Real
properties
Personal
properties
Tangible
-
Intangible
Residents or Citizens
NRA without reciprocity
NRA with reciprocity
Within
Within
Within
Abroad
Abroad
Abroad



×

×



×

×



×
×
×
RECIPROCITY CLAUSE
The Tax Code excludes “intangible” personal property with situs in the Philippines from the gross estate of a
non-resident alien decedent if there is reciprocity.
The intangible assets with Situs “within” the Philippines:
Franchise which must be exercised in the Philippines
Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the
Philippines in accordance with its laws.
Shares, obligations or bonds issued by any foreign corporation, 85% of the business of which is located in the
Philippines.
Shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines.
Shares or rights in any partnership, business or industry established in the Philippines.
Examples of intangible properties
FINANCIAL ASETS
THE ACCOUTNING INTANGIBLE ASSETS
a. Cash
a. Patent
b. Receivables or credit
b. Franchise
c. Investment in bonds
c. Leasehold right
d. Shares of stock in a corporation
d. Copyright
e. Interest in a partnership
e. Trademark
VALUATION OF GROSS ESTATE
The properties comprising the gross estate shall be valued according to their fair market value as of the time of
decedent’s death.
Specifically, the following rules shall apply in determining the valuation of the estate:
1. In General

2. Real Property


Fair Market Value at the time of death
The higher value between:
FMV determined by the Commissioner
FMV as shown in the schedule of values fixed by the
provincial and city assessors (also known as assessed value
or FMV for real estate tax purposes)
3. Personal Property

Fair Market Value at the time of death
4. Shares of stock

Unlisted common share- book value per share of the issuing
corporation (Appraisal surplus shall not be considered, as
well as the assigned amount to preference shares, if any).
Unlisted preference shares – Par value per share
Listed shares – FMV shall be the arithmetic mean between
the highest and lowest quotation at a date nearest the date
of death if none is available on the date of death itself.


5. Units of
participation in any
association, recreation
or amusement club
(ie. Golf, polo, similar
clubs)
6. Right to usufruct,
use or habitation, and
annuity

The bid price nearest the date of death published in any
newspaper or publication for general circulation.

In accordance with the latest Basic Standard Mortality Table
taking into account the probable life of the beneficiary, to be
approved by the Secretary of Finance upon
recommendation of the Insurance Commissioner.
Examples:
a. Mrs. Geogracia died leaving a house and lot as part of her estate. The property which was encumbered
by a P1,000,000 mortgage had the following fair values:
- Zonal value per BIR website= P3,000,000
- Assessed value = P2,000,000
- Independent appraisal value = P4,000,000
The house and lot shall be included in the gross estate at P3,000,000. Also, the mortgage shall not be offset
against the value of the property.
b. Decedent owns 10,000 ordinary shares of Alpha Company at the time of his death. At that time, Alpha’s
outstanding shares were 1,000,000 with P10 par value and Retained earnings amounting to P5,000,000.
The shares are not traded in the stock exchange.
Answer: P1,500,000
Book value per share of Alpha Company multiplied by the number of shares held by the decedent at the time of
death.
P10M + 5M_____ x 10,000 shares
1,000,000 shares
c. A decedent left 10,000 Pinoy Telcom shares. The shares were traded in the local stock exchange. At the
time of his death, the following were available:
Highest quotation
P800 per share
Lowest quotation
P200 per share
Book value
P350 per share
Answer: P5,000,000 [10,000 shares x (800+200)/2]
EXEMPTIONS AND EXCLUSIONS FROM THE GROSSS ESTATE
The following shall be excluded from the gross estate of a decedent
A. Exclusions under Sections 85 and 104 of the Tax Code
1. Exclusive property of the surviving spouse
The gross estate in case of married decedents, is composed of:
- Exclusive property of the decedent
- Common properties of the decedent and the surviving spouse
Exclusive property of the surviving spouse should be excluded in the gross estate because these properties are
not owned by the decedent upon his death.
Capital- exclusive properties of the husband
Paraphernal – exclusive properties of the wife
2. Property outside the Philippines of a non-resident alien decedent.
3. Intangible personal property in the Philippines of a non-resident alien under the Reciprocity Law.
B. Exclusions under Section 87 of the Tax Code
1. The merger of usufruct in the owner of the naked title.
2. The transmission or delivery of the inheritance or legacy by the fiduciary heir (also known as the 1st heir) or
legatee to the fideicommisary (also known as the 2nd heir).
3. The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance, with the
desire of the predecessor (also known as “Transfer under Special Power of Appointment)
4. All bequest devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the
net income of which inures to the benefit of any individual: Provided, however, that not more than 30% of
the said bequest, devises, legacies or transfers shall be used by such institutions for administration purposes.
THE MERGER OF USUFRUCT IN THE OWNER OF THE NAKED TITLE.
Mr. A died in June 2011. In his will, he devised an agricultural land to B who shall use the property over 10
years and thereafter, to C.


A
PREDECESSOR
B
USUFRUCTUARY
C
OWNER OF THE
NAKED TITLE
The transfer of the devise from B to C is referred to in law as the “merger of the usufruct in the owner of the
naked title.”
The transfer from the usufructuary, B, to the real owner, C, upon the death of B does not constitute a
donation mortis cause as it is a mere return of the property to the real owner.
THE TRANSMISSION OR DELIVERY OF THE INHERITANCE OR LEGACY BY THE
FIDUCIARY HEIR (ALSO KNOWN AS THE 1ST HEIR) OR LEGATEE TO THE
FIDEICOMMISARY (ALSO KNOWN AS THE 2ND HEIR).
Mr. A died leaving an inheritance consisting of several real estates to his favorite grandson, C. Because C
was a minor, Mr. A appointed B, an older brother of C, as fiduciary of the inheritance. Before transferring
the property to C, B died.


A
B
FIDUCIARY HEIR
C
FIDEICOMMISARY
The delivery of the inheritance upon the death of B (fiduciary heir), to C (fideicommisary) shall not be
included in the gross estate of B because the transfer does not involve a transfer of ownership from B to C.
B is merely a trustee. The delivery is a mere return of the property to the real owner, C.
THE TRANSMISSION FROM THE FIRST HEIR, LEGATEE OR DONEE IN FAVOR OF
ANOTHER BENEFICIARY, IN ACCORDANCE, WITH THE DESIRE OF THE PREDECESSOR
(ALSO KNOWN AS “TRANSFER UNDER SPECIAL POWER OF APPOINTMENT)
In his will, Mr. A devised a piece of land to B as the first heir and thereafter to C, as the 2nd heir. B
subsequently died transmitting the property to C in accordance with Mr. A’s will.


A
PREDECESSOR
B
1st heir
C
2nd heir
The transfer from B to C is referred to as transfer under a special power of appointment. The same is not
B’s donation mortis causa. The transfer from B to C is merely and implementation of the transfer which was
originally mandated by predecessor A.
1.
2.
3.
4.
5.
C. Exclusions under Special Laws
Proceeds of life insurance and benefits received by members of the GSIS (RA728).
Accruals and benefits received by members from the SSS by reason of death.
Amounts received from Philippines and US governments for war damages (RA227)
Amounts received from United States Veterans Administrations
Payments from the Philippines of US government to the legal heirs of deceased of World War II Veterans and
deceased civilian for supplies/ services furnished to the US and Philippine Army (RA136)
6. Retirement benefits of officials/ employees of a private firm (RA4917)
7. Personal Equity and Retirement Account (PERA) assets of the decedent-contributor
8. Compensation paid to private and public health workers who have contracted COVID-19 in case of death, the
said amount shall not be included as part of the gross estate of the decedent subject to estate tax as provided
under RA 11494 of the Bayanihan to Recover as One Act.
I.
II.
COMPOSITION OF THE GROSS ESTATE
Property owned by the decedent that are actually and physically present in his estate at the time of his death
such as land, buildings, shares of stock, vehicles, bank deposits and the like.
Property NOT PHYSICALLY IN THE ESTATE but are still subject to payment of estate tax.
a. Transfers in Contemplation of Death
- To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or
otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after death, or of
which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or
for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to
the income from the property, or (2) the right, either alone or in conjunction with any person, to designate
the person who shall possess or enjoy the property or the income therefrom; except in case of a bona fide
sale for an adequate and full consideration in money or money's worth.
- Note: there is no transfer in contemplation of death when the transfer of property is a bonafide sale for an
adequate and full consideration in money or money’s worth.
b. Revocable transfer
It involves transfers of possession over property during the lifetime of the decedent, but not transfer of ownership
over said property. At the point of death, the decedent owns the property; hence, it must be included as part of his
gross estate since the same is part of the donation mortis causa.
(1) To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case of a
bona fide sale for an adequate and full consideration in money or money's worth) by trust or otherwise, where the
enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever
capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without
regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or
where any such power is relinquished in contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the date
of the decedent's death even though the exercise of the power is subject to a precedent giving of notice or even
though the alteration, amendment or revocation takes effect only on the expiration of a stated period after the
exercise of the power, whether or not on or before the date of the decedent's death notice has been given or the
power has been exercised. In such cases, proper adjustment shall be made representing the interests which would
have been excluded from the power if the decedent had lived, and for such purpose if the notice has not been given
or the power has not been exercised on or before the date of his death, such notice shall be considered to have been
given, or the power exercised, on the date of death.
c. Transfers under a General Power of Appointment
Power of appointment refers to the right to designate the person or persons who will succeed to the property of the
prior decedent. The power of appointment may be “general” or “special”.
General – when the power of appointment authorizes the donee of the power to appoint any person he pleases.
Special – when the donee can appoint only from a restricted or designated class of persons other than himself.
To the extent of any property passing under a general power of appointment exercised by the decedent: (1) by will,
or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his
death, or (3) by deed under which he has retained for his life or any period not ascertainable without reference to
his death or for any period which does not in fact end before his death (a) the possession or enjoyment of, or the
right to the income from, the property, or (b) the right, either alone or in conjunction with any person, to designate
the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for
an adequate and full consideration in money or money's worth.
d. Transfers for Insufficient Consideration
When a sale or transfer (other than a bonafide or valid sale) was made for a price less than its fair market value at
the time of sale or transfer, the excess of the FMV of the transferred property at the time of death over the value of
the consideration received should be included in the gross estate.
RULES ON INSUFFICIENT CONSIDERATION
Consideration ≥ FMV at the time of
transfer
Bonafide sale.
Excluded from the decedent’s gross
estate
Consideration ≤ FMV at the time of
transfer.
Insufficient consideration.
Include in the gross estate the excess of
FMV @the time of death over the
consideration received.
Sale was made in the ordinary course of
trade
Bonafide sale regardless of the amount of
consideration.
No consideration received
Either donation mortis causa or donation
inter-vivos
III.
MISCELLANEOUS ITEMS
a. Claims against insolvent persons
An insolvent person whose properties are not sufficient to satisfy, whether fully or partially, his debts. As a rule,
regardless of the amount the debtor is unable to pay, the full amount of claim against the insolvent person should be
included in the gross estate of the decedent. The portion of the claim which is not collectible should be allowed as
deduction from the gross estate.
b. Proceeds of Life Insurance
To the extent of the amount receivable by the estate of the deceased, his executor, or administrator, as insurance
under policies taken out by the decedent upon his own life, irrespective of whether or not the insured retained the
power of revocation, or to the extent of the amount receivable by any beneficiary designated in the policy of
insurance, except when it is expressly stipulated that the designation of the beneficiary is irrevocable.
Proceeds of Life Insurance (taken out by the decedent)
BENEEFICIARY
DESIGNATION
GROSS ESTATE
Estate
Revocable/
Irrevocable
Included
Executor
Included
3rd Party (i.e. wife)
Revocable/
Irrevocable
Revocable/
Irrevocable
Revocable
3rd Party (i.e. wife)
Irrevocable
Excluded
Administrator
Included
Included
If the policy does not expressly say that the designation of the beneficiary is irrevocable, then it is presumed to be
revocable.
Proceeds of life insurance under a group insurance taken out by the employer are not subject to estate tax.
ESTATE Tax Rates
(The rate applicable shall be based on the law prevailing at the time of decedent’s death)
Effective January 1, 2018 to present [Republic Act (RA) No. 10963]
There shall be an imposed rate of six percent (6%) based on the value of such NET ESTATE determined as
of the time of death of decedent composed of all properties, real or personal, tangible or intangible less
allowable deductions.
FILING OF ESTATE TAX RETURN AND PAYMENT OF ESTATE TAX DUES
Who Shall File
1. The executor, or administrator, or any of the legal heir/s of the decedent, whether resident or non-resident
of the Philippines, under any of the following situations:
a. In all cases of transfers subject to estate tax;
b. Regardless of the gross value of the estate, where the said estate consists of registered or registrable
property such as real property, motor vehicle, shares of stock or other similar property for which a clearance
from the BIR is required as a condition precedent for the transfer of ownership thereof in the name of the
transferee; or
2. If there is no executor or administrator appointed, qualified, and acting within the Philippines, then any
person in actual or constructive possession of any property of the decedent.
When and Where to File and Pay
The Estate Tax Return (BIR Form 1801) shall be filed within one (1) year from the decedent's death. In
meritorious cases, the Commissioner shall have the authority to grant a reasonable extension not exceeding
thirty (30) days for filing the return.
The return shall be filed with any Authorized Agent Bank (AAB) of the Revenue District Office (RDO)
having jurisdiction over the place of domicile of the decedent at the time of his death. If the decedent has no
legal residence in the Philippines, the return shall be filed with the Office of the Commissioner (RDO No.
39, South Quezon City).
In case of a non-resident decedent with executor or administrator in the Philippines, the return shall be filed
with the AAB of the RDO where such executor/administrator is registered or is domiciled, if not yet
registered with the BIR.
When the return is filed with an AAB, taxpayer must accomplish and submit BIR-prescribed deposit slip,
which the bank teller shall machine validate as evidence that payment was received by the AAB. The AAB
receiving the tax return shall stamp mark the word “Received’’ on the return and also machine validate the
return as proof of filing the return and payment of the tax by the taxpayer, respectively. The machine
validation shall reflect the date of payment, amount paid and transaction code, the name of the bank, branch
code, teller’s code and teller’s initial. Bank debit memo number and date should be indicated in the return
for taxpayers paying under the bank debit system.
Payments may also be made thru the epayment channels of AABs thru either their online facility,
credit/debit/prepaid cards, and mobile payments.
In case the available cash of the estate is insufficient to pay the total estate tax due, payment by installment
shall be allowed within two (2) years from the statutory date for its payment without civil penalty and
interest upon approved by the concerned BIR Official.
The due date on filing and payment of the return/tax shall depend on the applicable law at the time of the
decedent’s death.
Extension to File and Pay
When the Commissioner of Internal Revenue finds that the payment on the due date of the estate tax or of
any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time
for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through
the courts, or two (2) years in case the estate is settled extra-judicially. In such case, the amount in respect of
which the extension is granted shall be paid on or before the date of the expiration of the period of the
extension, and the running of the Statute of Limitations for assessment as provided in Section 203 of the
National Internal Revenue Code shall be suspended for the period of any such extension.
Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud
on the part of the taxpayer, no extension will be granted by the Commissioner.
If an extension is granted, the Commissioner of Internal Revenue or his duly authorized representative may
require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount,
not exceedingly double the amount of tax and with such sureties as the Commissioner deems necessary,
conditioned upon the payment of the said tax in accordance in the terms of extension.
The application for extension of time to file the estate tax return must be filed with the Revenue District
Officer (RDO) where the estate is required to secure its Taxpayer Identification Number (TIN) and file the
tax returns of the estate. The application shall be approved by the Commissioner or his duly authorized
representative.
CHAPTER 3: GROSS ESTATE OF MARRIED DECEDENTS
The gross estate of a married decedent is composed of:
1. The decedent’s exclusive properties
2. The common properties of the spouses
The gross estate of a decedent is reported as follows in the estate tax return:
Art. Family Code (EO 2009)
Marriage is a special contract of permanent union between a man and a woman in accordance with
law. It is not subject to stipulation, except that marriage settlements mat fix the property relations
during the marriage within the limits provided by law.
PROPERTY RELATIONS
The system of property relationship is applicable only to married persons. It is used to distinguished a
conjugal or community property from an exclusive property. For married decedents, the boundary
between separate properties and common properties of the spouses is important in the
determination of the gross estate of the decedent spouse
.
COMMON TYPES OF PROPERTY REGIME
1. Absolute Separation of Property/ Complete Separation of Property
2. Conjugal Partnership of Gains (CPoG)
3. Absolute Community of Property (ACoP)
ABSOLUTE SEPARATION OF PROPERTY/ COMPLETE SEPARATION OF PROPERTY
The spouses shall be governed by complete separation of property if the future spouses agree
in the marriage settlements that their property relations during the marriage shall be governed by the
regime of separation of property. Technically, all properties of the spouses are separate properties,
except those properties which they may acquire jointly.
CONJUGAL PARTNERSHIP OF GAINS (CPOG)
All properties that accrue as fruit of their individual or joint labor or fruits of their properties during
the marriage will be common properties of the spouses.
The properties of the spouses including fruits before the marriage are their exclusive properties. All
fruits of labor and fruits of properties of the spouses during the marriage starting from the date of
celebration of the marriage are considered common properties.
Exclusive Conjugal/Communal Total
Gross Estate Pxxx Pxxx Pxxx
Less: Deductions
Since common properties begin to accrue only from the date of marriage, this property regime is best
described as prospective.
Examples of fruits during the marriage
a) Salary, profits, or gains of labor or industry of either spouse
b) Income of properties acquired by the spouses during the marriage
c) Income of separate properties of either husband or wife.
Exception to prospectively: Acquisitions by gratuitous title
The properties received by the spouses by way of gratuitous acquisition such as donation or
inheritance during marriage are separate properties of the recipient spouse, unless the donor or the
decedent, as the case may be, designated the transfer to both spouses.
CPG Applies:
1. When the future spouses agree to it in the marriage settlement, or
2. To conjugal partnerships of gains already established between spouses before the effectivity
of the Family Code (August 3, 1988), without prejudice to vested rights.
EXCLUSIVE PROPERTY UNDER CPG
1. That which us brought to the marriage as his her own.
2. That which each acquires during the marriage by gratuitous title.
3. That which is acquired by right of redemption or by exchange with property belonging to only
one of the spouses.
4. That which is purchased with the exclusive money of the wife or of the husband.
ABSOLUTE COMMUNITY OF PROPERTIES (ACoP)
All present properties owned by the spouses at the date of celebration of the marriage shall become
common properties of the spouses including future fruit of their separate or joint industry or fruits of
their common properties.
Under ACoP, marriage is viewed as a union of the present property of the spouses including fruits of
labor and industries of the spouses during marriage.
In general, property will be presumed to belong to the community, unless it can be proven to be
exclusive property.
Special Features of ACoP
1. Retrospective Feature – Properties into the marriage will become common properties. All
properties of the spouses present at the date of celebration of the marriage which they acquired
before marriage will become common properties.
2. Prospective feature – All properties which the spouses may acquire during the marriage from their
separate or joint labor or industry shall be common.
Exclusive Properties
1) Properties received by way of gratuitous title during the marriage
2) Fruits of separate properties of the spouses
3) Properties for the exclusive personal use of either of the spouse, except jewelry
4) Properties brought into marriage by either spouse with a descendant by a prior marriage.
Note on Exclusive personal use or personal effects:
Properties for exclusive personal use of either spouse, other than jewelry, are separate property
even if:
- They are acquired from fruits of labor or industry of either spouse or from fruits of
common properties
- They are acquired before or during the marriage.
Exceptions to prospective feature:
1) Properties received by gratuitous title
2) Fruits of separate properties during marriage
Note: Properties inherited during the marriage are still separate properties, even if they are jewelry.
Fruits
Fruits of labor and industry
Fruits arising from the labor or industry of either or both spouses are common properties of the
spouses.
Fruits of properties
The fruit of separate property is a separate property. It follows therefore that the fruit of common
property is a common property. In short, “FRUITS FOLLOW PRINCIPAL.”
EXCEPTION TO RETROSPECTIVITY
Properties acquired before marriage by a spouse with descendants in a prior marriage.
The ACoP does not retroact if there are affected descendants from a prior marriage. Properties
accumulated before the marriage by a spouse with descendants from a prior marriage are reserved
by law as separate properties. This is apparently intended to protect the interest of descendants which
could be prejudiced by the new marriage.
PROPERTY REGIME OF UNIONS WITHOUT MARRIAGE
(Title IV, Chapter 7 of the Family Code)
The Family Code, however, provides that acquisitions made by common law spouses are governed
by the rules of co-ownership.
Capacitated to Marry
When a man and a woman who are capacitated to marry each other, live exclusively with each other
as husband and wife without the benefit of marriage or under a void marriage, the following rules
shall apply:
a. Wages and salaries shall be owned by them in equal shares.
b. Property acquired by both of them through their work or industry shall be governed by the
rules on co-ownership.
c. Neither party can encumber or dispose by act inter-vivos his or share in the property
acquired during cohabitation and owned in common, without the consent of the other, until
after the termination of their cohabitation.
INCAPACITATED TO MARRY
1. Only the property by both of them through their actual joint contribution of money,
property or industry shall be owned in common in proportion to their respective
contributions. (if silent assume equal shares)
2. The share of any party who is married to another shall accrue to the absolute community or
conjugal partnership, ash the case may be, if existing `under the valid marriage.