Act 60 and Divorce: What Happens to Your Decree in a Puerto Rico Family Law Case?

When Act 60 decree holders go through a divorce, they face a collision between two complex legal frameworks: Puerto Rico's community property regime and the individual residency requirements that sustain their tax benefits. No one talks about this intersection, but the consequences of getting it wrong are severe — you could lose your decree, face unexpected federal tax liability, or give up community property rights you did not know you had.

This guide walks through the key legal issues that arise when an Act 60 decree holder faces divorce in Puerto Rico.

Community Property Under Puerto Rico Law

Puerto Rico operates under a community property system known as the sociedad de gananciales. Under the Puerto Rico Civil Code of 2020, property acquired during the marriage generally belongs to the marital community, regardless of which spouse earned the income.

This means that income earned by an Act 60 decree holder during the marriage — even income sheltered by the decree's favorable tax rates — is community property. Both spouses have an equal ownership interest in that income and in any assets purchased with it.

There are exceptions. Property owned before the marriage, gifts, and inheritances remain separate property (bienes privativos). But the income generated by separate property during the marriage can become community property depending on the circumstances and the specific provisions of the Civil Code.

For Act 60 holders, this creates a critical planning issue: the tax savings generated by the decree during the marriage belong to the community, not just to the decree holder.

The Decree Is Personal — But the Income Is Not

One of the most misunderstood aspects of Act 60 in the divorce context is the distinction between the decree itself and the income it shelters.

The Act 60 decree is personal and non-transferable. It belongs to the individual who applied for and received it. In a divorce, the non-decree-holding spouse cannot claim a right to the decree itself, cannot use it, and cannot transfer it to a new relationship.

However, the income earned under the decree during the marriage is community property under Puerto Rico law. This means:

• Salary and service income earned by the decree holder during the marriage is subject to division.
• Investment returns sheltered by the decree, if earned during the marriage, are community property.
• Business income generated by an Act 60 export services decree is community income if the business operated during the marriage.
• Capital gains that qualify for preferential treatment under the decree, if realized during the marriage, are community property.

The practical effect is significant. A non-decree-holding spouse is entitled to their share of the economic benefits the decree produced during the marriage, even though they have no right to the decree itself.

How Divorce Affects the Presence Test

Act 60 residency requires satisfying the presence test under Section 937 of the Internal Revenue Code. You must be present in Puerto Rico for at least 183 days per year, among other requirements.

Divorce can disrupt presence test compliance in several ways.

If the decree holder leaves Puerto Rico. Some decree holders relocate to the mainland after a divorce, particularly if their spouse and children were the primary reason for living in Puerto Rico. Leaving Puerto Rico means failing the presence test, which can trigger loss of the decree and retroactive tax consequences.

If the spouse and children leave Puerto Rico. Even if the decree holder stays, a spouse and children relocating to the mainland can complicate the closer connection test (discussed below) and create practical difficulties. Custody arrangements may require the decree holder to spend significant time outside Puerto Rico, potentially threatening the 183-day requirement.

Shared custody complications. If a court orders shared custody with a parent on the mainland, the decree holder must carefully track their days. Every trip to the mainland for custody exchanges, school events, or extended visitation periods counts against the 183-day presence requirement.

Decree holders going through divorce should begin tracking their days immediately and work with counsel to structure custody arrangements that preserve residency compliance.

The Closer Connection Test

Beyond the presence test, Act 60 residency requires that the decree holder not have a closer connection to any US state than to Puerto Rico. The IRS evaluates this based on the totality of circumstances, including where your family lives, where your personal belongings are located, where your social and professional ties exist, and where you are registered to vote.

Divorce can fundamentally alter the closer connection analysis.

Family ties shifting to the mainland. If your spouse and children move to Florida, New York, or Texas after the divorce, the IRS may argue that your strongest personal connections are now on the mainland. This is especially true if you spend significant time visiting your children, maintain a residence near them, or keep personal belongings at a mainland location.

Social and community ties. If your social life in Puerto Rico was primarily built through your spouse's connections — a common situation for decree holders who relocated as a couple — divorce may weaken your documented ties to Puerto Rico.

Practical steps to maintain the closer connection. After a divorce, decree holders should take affirmative steps to demonstrate their connection to Puerto Rico: join local organizations, volunteer, register to vote in Puerto Rico, maintain a Puerto Rico driver's license, keep a Puerto Rico mailing address as the primary address on all accounts, and build an independent social network on the island.

Trust Assets and Divorce

Many Act 60 holders use Puerto Rico trusts under Law 219-2012 as part of their estate and asset protection planning. The interaction between these trusts and divorce proceedings raises important questions.

Irrevocable trusts and community property. If a decree holder created an irrevocable trust during the marriage and funded it with community property, the non-decree-holding spouse may have a claim to the value of the community property that was transferred into the trust. The irrevocability of the trust does not automatically extinguish the community property interest.

Trusts created before marriage. If the trust was created and funded before the marriage with separate property, it is generally not subject to division in divorce. However, if community property was later contributed to the trust, those contributions may be subject to claims.

Trusts created after separation. Creating or funding a trust after the breakdown of the marriage but before the divorce is final can be viewed as an attempt to dissipate community assets. Puerto Rico courts can set aside such transfers.

The trust as a planning tool. For decree holders contemplating marriage or already married, properly structured trusts can serve as a legitimate planning tool to define the character of assets. However, this planning must be done transparently and ideally in conjunction with a prenuptial or postnuptial agreement.

Prenuptial and Postnuptial Agreements for Act 60 Holders

Given the complexity of Act 60 benefits and community property, prenuptial and postnuptial agreements are essential planning tools.

What a Prenuptial Agreement Should Address

For Act 60 holders entering a marriage, the prenuptial agreement (capitulaciones matrimoniales) should address:

• Classification of decree-related income. The agreement can specify that income sheltered by the decree remains the separate property of the decree holder, subject to the limitations of Puerto Rico law.
• Treatment of tax savings. The parties can agree on how tax savings attributable to the decree will be characterized and divided.
• Trust contributions. If the decree holder plans to fund trusts during the marriage, the agreement should address whether those contributions come from separate or community property.
• Residency commitments. While not enforceable as a tax matter, the agreement can address the parties' expectations regarding continued residence in Puerto Rico.

Postnuptial Agreements

For decree holders already married, a postnuptial agreement can achieve similar objectives. Under Puerto Rico law, spouses can modify their property regime during the marriage through a properly executed agreement.

A postnuptial agreement is particularly important for decree holders who received their decree after marriage. Without an agreement, all income earned under the decree during the marriage is presumptively community property.

Enforceability Considerations

Puerto Rico courts will enforce prenuptial and postnuptial agreements if they meet certain requirements: both parties must have had independent legal counsel, the agreement must be voluntary, and the terms must not be unconscionable. Full financial disclosure at the time of execution is critical.

Custody Arrangements and Residency Compliance

Custody is often the most emotionally charged issue in any divorce, but for Act 60 holders it also carries significant tax implications.

Primary custody in Puerto Rico. If the decree holder retains primary custody and the children remain in Puerto Rico, this strengthens the closer connection test and supports continued residency.

Primary custody with the other parent on the mainland. If the non-decree-holding spouse receives primary custody and relocates to the mainland, the decree holder must be careful about how much time they spend visiting. Extended stays on the mainland for parenting time can jeopardize the presence test.

Negotiating custody with residency in mind. While a court will always prioritize the best interests of the child, the parties can negotiate custody arrangements that accommodate the decree holder's residency requirements. For example, longer periods of custody during the summer in Puerto Rico, rather than shorter but more frequent trips to the mainland, may better serve both the child's interests and the decree holder's compliance needs.

Documentation is essential. Decree holders going through custody proceedings should maintain detailed records of their physical presence in Puerto Rico, including travel logs, flight records, and evidence of community involvement on the island.

Planning for the Worst: Steps to Take Now

If you hold an Act 60 decree and are facing divorce — or if you want to protect yourself in case of future marital difficulties — take these steps:

1. Consult with a Puerto Rico attorney experienced in both Act 60 and family law. These two areas of law rarely overlap, and most practitioners specialize in one or the other.
2. Inventory your community and separate property. Understand which assets are subject to division and which are protected.
3. Review your trust structures. Determine whether community property was used to fund any trusts and assess the implications.
4. Begin tracking your presence in Puerto Rico. Maintain contemporaneous records of your days on the island.
5. Strengthen your Puerto Rico connections. Take affirmative steps to demonstrate your closer connection to Puerto Rico.
6. Consider a postnuptial agreement. If divorce is not imminent but you want to plan ahead, a postnuptial agreement can clarify property rights.
7. Do not make hasty decisions about relocation. Leaving Puerto Rico before consulting with counsel can trigger tax consequences that are difficult to reverse.

The Bottom Line

Divorce is difficult under any circumstances. For Act 60 decree holders, it carries the additional risk of losing tax benefits that may represent millions of dollars in savings. The intersection of Puerto Rico's community property regime, federal residency requirements, and trust law creates a uniquely complex legal landscape.

The key insight is this: the decree is personal, but almost everything else in a marriage is shared. Planning for that reality — before, during, and after a divorce — is essential.

Schedule a Free Strategy Call

If you hold an Act 60 decree and are navigating a divorce or planning for the possibility, you need legal counsel who understands both frameworks. Attorney Hans E. Riefkohl advises Act 60 decree holders on the intersection of tax incentive law, family law, and estate planning in Puerto Rico.

Hans E. Riefkohl Riefkohl Law Phone: (787) 236-1657 Email: hans@riefkohllaw.com

Learn more about Act 60 Tax Incentives | Estate Planning Services

This article is for informational purposes only and does not constitute legal advice. Every situation is different. Consult with a qualified attorney before making decisions about your Act 60 decree or divorce.