Tax Implications

The Family Unit Presumption

Under Israeli tax law, married couples are considered a single "family unit." This means: if one spouse owns an apartment, any additional property purchased - even if registered solely in the other spouse's name - is classified as a "second property" and taxed at higher rates.

A prenup with property separation can break the "family unit" presumption for purchase tax purposes. If the agreement establishes full separation, and the spouses maintain separation in practice, the spouse purchasing a first apartment will benefit from "sole apartment" purchase tax brackets.

Purchase Tax Brackets (2025-2028, Frozen)

Purchase tax brackets have been frozen at 2024 values until January 15, 2028 (Efficiency Law).

Sole apartment:

• Up to 1,978,745 NIS: 0%
• 1,978,745-2,347,040 NIS: 3.5%
• 2,347,040-3,062,735 NIS: 5%
• 3,062,735-5,104,555 NIS: 8%
• Above 5,104,555 NIS: 10%

Additional property:

• Up to 5,872,725 NIS: 8%
• Above 5,872,725 NIS: 10%

Savings Example: Property Worth 2,500,000 NIS

Without a prenup (additional property):

Purchase tax: 200,000 NIS (8%)

With a prenup (sole apartment):

• Up to 1,978,745 NIS: 0 NIS
• 1,978,745-2,347,040 NIS: 12,890 NIS (3.5%)
• 2,347,040-2,500,000 NIS: 7,648 NIS (5%)
• Total: 20,538 NIS

Savings: 179,462 NIS

The "Ten Commandments" for Tax Separation

Signing a prenup with property separation is not sufficient on its own. The Tax Authority requires that the separation be genuine and substantive. Here are the "Ten Commandments" established by case law and execution directives:

1. Signed and approved prenup - notarial or court certification
2. Separate bank accounts - each spouse manages an independent account
3. No mutual guarantees - a spouse does not guarantee the other's loans
4. No cross-financing - one spouse's money is not used for the other's purchases
5. Separate registration - assets are registered in the name of the acquiring spouse
6. Separate income - each spouse manages their income separately
7. No joint use of assets - an asset defined as personal is used only by its owner
8. Separate tax reporting - filing separate tax returns when required
9. Consistent behavior - the separation must be consistent over time
10. Documentation - maintaining documents and records of the separation

Important: Failure to meet these conditions may cause the Tax Authority to disregard the prenup and tax the purchase as an "additional property."

Capital Gains Tax Exemption

A prenup with property separation may also affect capital gains tax when selling a property. If the selling spouse holds a sole apartment (by virtue of the separation), they may benefit from a full capital gains tax exemption under Section 49b(2) of the Real Estate Taxation Law.

Recommendation

The tax benefits of a prenup are significant, but it is important to consult a tax advisor before making decisions. Every case is unique, and the conditions for breaking the family unit presumption may vary. Noberu provides the legal agreement - for tax advice, consult a specialist separately.