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Which law is to be applied?

Last week I wrote about how a person by moving to another State can decide where he/she is taxresident.

But just because a person has successfully managed to change his/her tax residency, does not automatically mean that the State, that has the right to tax him/her, also has jurisdiction over his/her divorce or inheritance issues. There are different criteria for each area of law.

A person that has lived in the same country all the time, and always paid taxes to the same State, does not have to bother with questions on applicable law and jurisdiction. But there are also people, who has wandered around quite a bit. Take for example actor Errol Flynn, who practically lived on his boat - sailing the seas without settling down in a specific State.

Due to the internationalization it is not uncommon for a person to have a close connection to more than one State. In fact the majority of my clients belong to this group of people. I had a client a couple of years ago that exemplifies this group of people perfectly. The setup was the following:

My client was a British citizen, who worked in the middle east, while the spouse (who was a Finnish citizen) lived in France, but commuted to Switzerland every day to work. The children had double citizenships (Finnish and British) and lived in France as well. They decided to apply for divorce in Finland, because this is where they got married. To make a long story short - Finnish law was applied to the divorce and the district court of Helsinki had jurisdiction. Questions in relation to the children (custody, maintenance and visitations) were also handled in Finland. How this came about is a matter for another blogpost. The point is that you have to have a strong enough connection to a State, in order to fall under it's laws and jurisdiction.

A common misconception is that it is the nationality i.e. citizenship that decides what law is applicable. For example many Finnish citizens moving abroad, believe that Finnish law is applicable on their inheritance. This is not the case and might come as a bad surprise.

Citizenship simply means that you are a "member" of a certain State. This membership comes with rights - such as the right to vote in political elections for example. It is possible to have multiple citizenships. Usually it is possible to apply for a citizenship but there are also States that will not accept you if you were not born there. If you are a Finnish citizen you are also a EU-citizen. Citizenship is not the decisive factor in the search for applicable law.

Over the years, States have developed their own type of "questionnaire" in order to establish what law is applicable on a person's legal questions. In view of the increasing mobility of citizens and in order to ensure justice States have been forced to come together in order to harmonize the system. Most of the member states within the EU has agreed that in cases when a person dies, it is the State where the person had his/her last habitual residence that has jurisdiction and this State's laws will apply.

What does habitual residence mean?

A person is considered to be habitually resident in the State where the center of his/her life is. In order to establish the center of someone's life, one must answer questions like:

- where has this person been living for the past years?

- where is this person's family?

- where is this person's social life?

- Where is this person's work?

If the name of the same State comes up in every, or most answers, you can be quite sure that you have located this person's habitual residence. This means that a person can have his/her habitual residence in a State, where he/she is staying illegally.

While habitual residence focus on past tense, common law countries like USA focus on the future in their test in order to decide a person's domicile. Questions in relation to domicile focus on the intention to stay permanently in a certain State. The ability to settle permanently has been held to arise only when one can become a permanent resident of the jurisdiction for immigration purposes. This differ from habitual residency.

A person can remain habitually resident or domiciled in a jurisdiction even after he/she has left it, if he/she has maintained sufficient links with that jurisdiction or has not displayed an intention to leave permanently.

In order to avoid the difficulties that may arise from you moving a lot, or having family in one country, but working in another country - you can chose the law applicable to your marital assets and inheritance etc. When drawing up a last will you have the possibility to chose applicable law. I recommend that you make sure your will contains a clause on applicable law.

More about this next week in my next blog!

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