THE KNOWLEDGE
TAX TROUBLES The third consequence of the tontine involves the taxes associated with it. When your spouse dies while still married or under a civil partnership with a will, your partner is the inheritor of your share in the property. In these cases, there will be no issue as there is no inheritance tax between spouses or civil partner. In the case of a civil
partnership, it is paramount that both partners make a will designating the surviving partner as the inheritor because in France, unlike the UK, in the absence of a will, the partner has no right to the inheritance. However, if you have
an unresolved tontine, are divorced and your ex-spouse dies, you are fi scally considered as inheriting from a stranger, even if the legal mechanism of the tontine means that you are considered the sole owner since the purchase. From a practical perspective, this means that you will pay 60% inheritance tax on the share you will receive. If this sounds cruelly
the divorce are a key element to a mutual consent divorce, the parties will have to mutually agreed to remove the tontine clause in order to sell or share the house, and there should be no more diffi culty. However, when the spouses
do not agree on the divorce, the procedure in France is that you only deal with the liquidation of assets once the divorce is fi nalised. As you can imagine, after what could be years of fi ghting for the divorce, breaking the tontine, which requires the cooperation of both ex-spouses, can be quite tricky or even impossible to obtain. The beauty and the curse of the tontine are that it is unbreakable unless both parties agree otherwise. With an ‘indivision’, if one
party wishes to terminate the joint ownership and the other party refuses to cooperate, one can always petition the court to request the termination of the joint ownership and the sale of the property at a legal auction. Even if this process is not
ideal due to the legal costs and the fact that a lot of properties sell for less at legal auctions
than they would on the market, it still off ers you the possibility to regain your freedom. This is not the case with
the tontine: if the other owner refuses to sell the property or buy you out, there is no legal recourse for you to terminate it, or pressure the other to terminate the tontine as you do with a joint ownership. With a joint ownership, the
person who has sole use of the property owes the other a form of rent. Moreover, if the situation has lasted for years, this rent is owed for the fi ve years until the property is fi nally sold or shared. This cumulating rent can be a useful negotiating tool to speed up the end of an indivision but unfortunately, no such form of rent or possibility to force the termination with a court procedure exist for a tontine. If you have a property with a
tontine and your former spouse/ partner refuses to end it, then the only thing you can do is wait for their death… or yours. The tontine clause is a
purely French construct, but international couples need to be aware of its consequences.
For example, if you are British you may wish to have your divorce in the UK and have the UK judge rule on the attribution of the assets, with the main UK residence going to one spouse and the second home in France going to the other, to balance out the divorce. But what happens if the
spouse who has received the UK property does not cooperate to terminate the tontine on the French property? Or if the spouse who has been awarded the French property never starts the process in France to terminate the tontine and put the property in their sole name? Would this nullify the
divorce? Would the ex-spouse who hasn’t received the cooperation of the other to terminate the tontine and fully receive the property be entitled to compensation? Would their inheritors be
entitled to compensation from the former ex-spouse because they were supposed to receive a property but did not because, with the tontine still in place, the property belongs to the spouse who refused to cooperate to terminate it?
unfair, and cripplingly costly, don’t worry, it gets worse! Inheritance tax must be paid within six months of the death, even if the property is not sold and even if there is not cash in the inheritance to settle the tax. Moreover, if the tax is not paid, late payment interests are added to the money owed.
HAPPY ENDING In conclusion, the tontine is a wonderful legal tool to protect your spouse or civil partner, but it is the clause of the happy couple, the couple who stay together until one dies. If the tontine validity is
‘hedging a bet on death’, its benefi t is a bet on peace of mind and the life you will have with the person you are buying the property with. So, before you take a fl utter
and sign the tontine clause, ask yourself if the risks in the not-too-distant future may outweigh the gains. ■
Sarah Bright is an avocat with Bright Avocats in Toulouse Tel: 0033 (0)5 61 57 90 86
brightavocats.com
FRENCH PROPERTY NEWS: July/August 202385
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