The periodic setoff clause in practice

A common variant is the so-called “cold exclusion” in combination with a periodic setoff clause.

Periodic setoff clause

A periodic setoff clause includes the agreement that spouses share their remaining income at the end of each year. The remaining income is the income that remains after all household costs have been paid. The extent of the settlement depends on the definition in the prenuptial agreement of the concepts “income” and “household costs”.

Non-performance of periodic setoff clause

Most spouses don not settle out of fear of the other person’s reaction, because they do not feel like all the “fuss” and because it generally does not do a relationship any good. If you did not settle during your marriage, this must still be done in the event of divorce. The legal premise is that all assets present in a divorce are presumed to be “assets to be settled”, in other words assets financed with remaining income that you should have shared every year. The result is a 50/50 settlement of the assets as if you were married in community of property. That is exactly what you wanted to avoid with a prenuptial agreement. So settle annually.

Incorrect execution of the periodic setoff clause

It is not uncommon for spouses to sign an agreement each year – usually drawn up by their financial adviser – stating that they have settled. You can do this, however with this agreement you are not there yet. If you have not actually settled or you have not settled as agreed in the prenuptial agreement, it is assumed that no setoff has taken place (HR 30 August 2019, ECLI: NL: HR: 2019: 1292 and Hof ‘s-Hertogenbosch 9 June 2020, ECLI: NL: GHSHA: 2020: 1737). Pretending to have settled is therefore insufficient, even if you and your spouse have both signed the agreement. In that case, the aforementioned legal presumption also applies and in the event of divorce, you still have to settle with your spouse as if you were married in community of property.

Advice

Realise that if you include a periodic setoff clause in your prenuptial agreement, you should also do so every year to avoid arguments in case of a divorce. If you do not do anything, a setoff still needs to be done in the event of a divorce, even if the prenuptial agreement stipulates that settlement is no longer possible after a certain period. You cannot invoke such an “expiry clause”.

Please note, based on the legal presumption you must settle 50/50, unless you can refute this presumption. So settle if you want to avoid this misery and do it right!

Do you have a question about this topic? You can always contact me.

This blog previously appeared in De Telegraaf