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The Property Fund and the restriction of destination

The Property Fund and the restriction of destination

Two instruments that Italian law makes available to meet the needs of the family are the “property fund” and the so-called “deed of destination”.

A property fund may be set up by each spouse, by both spouses, or even by a third party (e.g. the parent of one of the spouses) in order to meet certain family needs such as the education and medical care of children.

Only immovable property, movable property entered in public registers, debt securities, shares in companies, but not money, may become part of the fund. Unless otherwise provided for, ownership of these assets belongs to both spouses.

Unless expressly provided for in the deed of constitution, the assets of the fund may not be disposed of, pledged or encumbered in any way, except with the consent of both spouses and, if there are minors, with the authorisation of the court.

An important aspect of the matrimonial property fund is that the assets of the fund, and the fruits thereof, may not be subject to enforcement “for debts incurred to fulfil interests outside the family’s needs, when such circumstance is known to the creditor”.

This aspect of the property fund has led to it being defined as “separated assets” or assets “earmarked for a purpose”.

The deed of destination, governed by article 2645-ter of the Italian Civil Code, is a more general instrument, aimed at a wider range of interests to be protected, not necessarily related to the family.

A fundamental characteristic of a restriction on the destination of assets is the ability to assign them to a specific purpose with effects that are enforceable against third parties, and therefore this restriction is also imposed on any subsequent owner of the assets.

This creates a “separation” of the assets which are made functional to a specific purpose and are therefore removed from the general guarantee of creditors. In fact, the deed of destination, duly transcribed, is enforceable against creditors.

It should be noted that article 2645-ter of the Italian Civil Code does not describe a precise negotiating structure of the deed of trust but speaks generically of “deeds of destination”.

Therefore, a professional is needed to identify the specific acts of negotiation that may give rise to this restriction of destination.