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Matrimonial Property Regimes in France
The Council Regulation (EU) 2016/1103[i] on the applicable law and the recognition and enforcement of decisions in matters of matrimonial property regimes came into application fully on 29 January 2019. It’s a good reminder to us of how the assets of a married couple might be divided and devolve on death differently to what is expected.
The objective of this article is to give an overview of the different types of matrimonial property regimes existing in France and when it will be important to consider their application in a cross-border scenario. Focus is given to the key points which may be relevant to a British couple owning French assets.
What is a Matrimonial Property Regime?
Your clients, a married couple, British and living in England, have their offer accepted on a property in France. The Notaire drafting the preliminary sale contract asks them to confirm their matrimonial property regime. What answer do they give?
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There is no concept of matrimonial property regimes in English law – no proprietary consequences arise from marriage itself. Each spouse owns the assets held in their own name, and is a joint owner of jointly owned assets. Assets may be acquired during the marriage or beforehand, by purchase or on an inheritance. The couple may have joint debts (eg mortgage over the family home) for which they are both jointly and severally liable or a spouse may incur a debt in his/her sole name. Each spouse will receive his/her own income. A judge has jurisdiction to redistribute the couple’s assets between them on marriage dissolution if they cannot reach agreement between themselves.
In French law a matrimonial property regime exists either automatically by application of the law, or upon express declaration of the couple. It is a system of property ownership between spouses defining who owns what assets, how and by whom the assets are managed, and how they will be divided on separation, marriage dissolution and inheritance on death.
Standard rights of each spouse include:
- the prohibition of one spouse to dispose of the matrimonial home alone. So if, say, the title to the home is owned by one spouse, the consent of the other would need to be declared in the sale deed in order for a purchase to avoid the risk of the non-contracting spouse bringing an action to nullify the sale.
- the right of either spouse to incur household and family expenses (eg food bills, house outgoings such as utility bills, medical or dental costs) and costs of children’s education, which would bind both spouses jointly and severally, if incurred during the marriage.
Regardless of the regime applying, married couples are charged to tax (eg income tax and wealth tax) on a joint basis. In the case of non-payment, the tax authorities can pursue either spouse for payment and any penalties ensuing.
There are a number of regimes in France, being separatist or communal.
The most common regimes are:
- Communauté réduite aux acquêts – community of assets, whereby each spouse is deemed to own an equal share of all assets acquired by either spouse, or both spouses, during the marriage, regardless of the actual ownership of each asset and who provided the funds. An exception is inherited assets. This is the default regime applicable to all couples married since 1 February 1966, unless they have expressly agreed to another regime;
- Séparation de biens – separation of assets, whereby each spouse owns the assets in his/her sole name and jointly in respect of jointly held assets. The ownership of assets between a couple governed by English law is akin to separation of assets. This regime is useful for couples where one spouse has a professional activity that may be higher risk – it can provide some shelter from claims of creditors, or couples where there are children of a previous relationship ;
- Séparation de biens avec société d’acquêts – a hybrid whereby certain assets can be stated to be communal, whilst others remain separate;
- Communauté universelle – a community of assets regime, whereby all matrimonial assets are considered as jointly owned regardless of actual legal ownership, and if the regime is avec attribution intégrale, on the first spouse’s death the estate passes automatically to the surviving spouse.
Can a regime be changed?
No change can be made within the first two years of marriage, or within two years of the last change of regime. It must be by notarial deed in France. The judge is involved to authorise the change if the couple are not in agreement, or at the demand of a creditor who objects to a change of regime, or an adult child objects, or if there are minor children (in order for their interests to be protected).
The change takes effect as between the couple from the date of the deed (or court authorisation). It binds third parties three months after the registration of the deed.
When is a marriage regime dissolved?
The regime will be dissolved on divorce, when a couple separate, when the marriage regime is changed (and a new regime starts to apply), or on the death of a spouse.
It can also be dissolved on the demand of a spouse if that spouse’s interests are put at risk due to the actions (or inaction) of the other.
On dissolution each spouse retrieves his/her own and personal assets and those assets deemed to be communal are split equally.
What impact does a regime have on the death of a spouse?
The matrimonial regime is dissolved first before the terms of any Will (or the rules of intestacy) apply to distribute the estate. The dissolution of the regime will result in defining the extent of the estate which is then to be distributed as a result of the spouse’s death.
This process can be very complicated, and can lead to a split of assets not expected by the heirs, or indeed by the surviving spouse.
We acted for two relatives of a lady who died whilst living in France. She had remarried, and had taken some assets into the marriage, as did her husband. The French legal matrimonial property regime applied to the couple because their first matrimonial home was in France and they hadn’t made an express declaration of regime. The heirs had to prove that various UK bank accounts had existed prior to the marriage to show that they were the sole ownership of the deceased wife. The French IHT declaration showed some assets owned solely by the wife, and a division of other assets (owned jointly and in sole names) split 50/50 with the surviving husband. Investigations had to be made of the assets in the husband’s sole name too. It made for a very complicated calculation for the division of the estate between the surviving spouse and relatives, which was certainly not expected by the British heirs.
What is the importance of the Hague Convention and EU Council Regulation?
The EU Regulation 2016/1103 concerns the competence, applicable law, recognition and execution of decisions in respect of matrimonial regimes, and EU Regulation 2016/1104 concerns the same but for registered partnerships.
These Regulations apply in priority to internal law and the Hague Convention of 14 March 1978 on the law applicable to marriage regimes, but in order to ascertain which rules apply to a couple, you must look at the date of their marriage and the date of any modification to their matrimonial regime.
Regulation 2016/1103 will only apply to couples who are married on or after 29 January 2019, or those couples who were married before this date but who afterwards make a designation of applicable law.
Currently, for France, you have:
- French internal law for couples married before 1 September 1992;
- The provisions of the 1978 Hague Convention for couples married from 1 September 1992 until 28 January 2019; and
- The EU Regulation 2016/1103 for couples married from 29 January 2019
but with the need to consider any changes of matrimonial regime during the marriage and between 1992 and 2019.
The Hague Convention was ratified by France (not the UK). It only applies to couples married from 1 September 1992 and those couples who have declared the law applicable to their matrimonial regime after that date.
France is a participating member of the Regulation 2016/1103 . The UK is not (the same as with the EU Succession Regulation 650/2012).
The Hague Convention allowed married couples to adopt a French matrimonial property regime:
- if at least one of them was a French national; or
- if at least one of them was habitually resident in France; or
- with respect to all or some of their immovables situated in France, only to the extent that the declaration applied to those immovable properties [Article 6].
The option for a British couple resident in the UK to adopt a French community of assets regime over their French holiday home was common because it helped to delay inheritance rights of children of the couple, who would otherwise inherit by application of French law on the death of both parents.
For couples married from 1 September 1992 who made no designation of applicable law, the regime was governed by the internal law of the State in which they both established their first matrimonial residence after marriage.
Article 7 of the Convention could lead to an unexpected result, as habitual residence in a State for ten years or more could effect an automatic change of regime, in the absence of express designation. However the change of regime would only affect assets acquired in the future, leaving the regime applicable to assets prior to the change untouched (with the option to extend it to historically owned assets). It’s easy to see how a succession can get very complicated.
We now look to the EU Regulation 2016/1103 to ascertain the regime applicable to marriages from 29 January 2019, and those couples, regardless of date of marriage, who make a designation under the Regulation.
The applicable law under the Regulation is the law of the State:
- of the spouses’ first common habitual residence on marriage; or, failing that
- of the spouses’ common nationality at the time of marriage; or, failing that
- with which they jointly have the closest connection at marriage [Article 26].
Article 22 provides for a couple to be able to choose which law to apply provided it is the law of the State of the habitual residence of at least one of the spouses or the law of the State of which at least one of them is a national.
This means that it’s no longer possible for, say, a UK resident British couple to designate a French regime over their French holiday home. Thankfully, all is not lost as they can now avoid French fixed inheritance rights by making a declaration of English law applicable pursuant to EU Succession Regulation 650/2012.
As with the Hague Convention, a designation of applicable law only applies for the future, with the option for the couple to agree otherwise.
Knowledge is good, but action is even better
Every couple with some interest in France (French national spouse, assets owned in France, resident in France) should review their position in respect of matrimonial property regimes. If it corresponds with their objectives, they may not need to make changes.
However, if the regime applying doesn’t leave things as expected, the couple will want to see whether they can improve the position and get closer to their objective. They may need to make an express declaration of applicable matrimonial regime, if they still can.
They will almost certainly also need to review their Wills. If the Wills were made before August 2015, or before they acquired the connection with France, there is a high likelihood that the EU Succession Regulation 650/2012 hasn’t been taken into account.
Let’s work through some examples:
Mr and Mrs Brown reside in England, married in England in 1995. After taking advice they bought a French holiday home in Mrs Brown’s sole name. She has one son of a previous marriage who they want to benefit on the survivor’s death and this ownership structure, combined with the right structure of Will, can avoid a 60% French IHT charge that would otherwise apply on a transfer from stepparent to stepchild. For the purposes of French law they will be considered to have a regime akin to the French separation of assets regime, and so Mrs Brown’s estate has the whole of the French property.
They move to France to live permanently in 2000. In 2011 they buy a second property, in Mrs Brown’s sole name, and rent it out. If they did nothing to expressly change their matrimonial property regime, then pursuant to the Hague Convention they will acquire the legal regime after 10 years’ residence in France, which would apply to the let property (bought after the ten years residence) but not to the matrimonial home. On dissolution of the marriage regime Mrs Brown will be deemed to own the matrimonial home. They will be deemed to own the let property 50/50. This will lead to an increased French IHT liability for Mrs Brown’s son if Mr Brown dies after Mrs Brown, as the 50% share in his ownership will be taxed at a flat rate of 60% in the stepson’s hands (after deduction of a nil rate allowance of only €1,594).
If instead Mr and Mrs Brown had signed a deed pursuant to the Hague Convention with an express declaration for a separation of assets regime to apply, they would find themselves in the same position as they were when resident in the UK, thus better for tax for Mrs Brown’s son.
Mr and Mrs Blue marry in England in February 2019. Their matrimonial home is in England. They have one daughter, who they want to benefit on the surviving parent’s death. However, neither of them has made a Will. They buy a property in France together in joint names indivision.
Under French law their marriage regime will be deemed to be that of the French separation of assets regime, their first matrimonial home being in England. As they haven’t made a Will, and so no express declaration of national law to apply to the succession on death, their daughter will have legal inheritance rights under French intestacy law on the death of the first of them, and she will become a joint owner with the surviving parent.
Looking at the EU Regulation 2016/1103 they no longer have sufficient connection with France to be able to declare a different matrimonial regime to apply under French law. Mr and Mrs Blue will need to consider the best structure for Wills. This will include, as a necessity, careful consideration of the EU Succession Regulation and the declaration of applicable law that they can make under it.
Mr and Mrs Blue’s options would be different if they moved immediately to France after marriage. They would be able to choose to adopt any of the regimes available in France, under EU Regulation 2016/1103 because at least one condition is fulfilled. What regime they choose will largely depend upon their family circumstances and how they want their assets to devolve on death. They will also have to look carefully at their Wills.
These case studies show how important it is to consider the implications of matrimonial property regimes, and on a case by case basis. We aren’t used to this in England, but heads cannot be stuck in sand over it. The most well thought out Will for a couple might not work out how you think if the marriage regime hasn’t been taken into account.
[i] The Council Regulation (EU) 2016/1104 in respect of property consequences in registered partnerships applies from the same date.
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