Completing the process
When writing a legal opinion column, we usually try to avoid drilling down into the minute detail of a point of law, or a particular case, as the more detailed an article becomes in relation to a specific set of circumstances, the greater the likelihood that it will become less relevant to a general readership. Occasionally the details are of particular interest, though, and so merit consideration.
We wrote in the February 2020 edition of French Property News about the procedures to be put in place to ensure the correct transfer of a French property following a divorce in the UK. Where a British couple undergoing a divorce include a house in France within their matrimonial assets, it is clear that the process for ensuring that the French property will be transferred to only one of them is quite complex, requiring input from both French and English lawyers. Indeed, we showed in that article that the judgment to be issued by the UK court in relation to the division of the assets should be prepared in a particular manner, to ensure that it does not cause tax problems or other complications when produced to a notaire in France.
Inevitably, this will add a greater level of legal fees. There is no doubt that when each party in the divorce instruct their own solicitors for legal representation, the costs will be notable; yet it is generally accepted that it is preferable for each party to have their own experienced solicitor to advise them on their rights. So why add on top the costs of a notaire and, possibly, an extra firm of solicitors with suitable knowledge of French law? Surely that will only increase the costs even further…
While declaring an obvious bias here, I am going to clarify why it is important to follow the procedure correctly. Hopefully, referring to the detail of a couple of actual recent cases will be an effective way of clarifying the point.
It is a relatively common misconception that once a court order is handed down by a judge ordering that party one must transfer their half of a property to the other party, this court order itself will constitute the actual transfer. That is not so: the order must then be implemented by a transfer deed. In France, that, therefore, requires the involvement of a notaire, and maybe the extra solicitors. Failing to complete this costly extra step can, however, lead to marked complications.
In a first case, a married couple included a tontine clause in the purchase deed when they originally bought their French holiday home. The tontine clause is intended to ensure that the survivor of a couple would inherit the property absolutely. Given legislative changes across Europe in 2015 (which still apply to the UK despite Brexit), there is less call for tontine ownership, although it was previously a relatively common method of avoiding the fixed inheritance laws that apply in France. In future articles, we will review the various options for structuring one’s property ownership in the light of inheritance law and tax.
The English court order required that the property would be owned absolutely by one only of the divorced couple, but they did not follow up with the notaire to ensure this was done. Unfortunately, the ex-husband died soon after. While he had written a Will to leave everything he owned to the divorced couple’s children, the French property was not governed by that Will. The tontine clause worked to ensure that the whole property passed automatically to the survivor.
The biggest problem with this is the fact that as the couple had divorced, they no longer had any legal family tie, and as such were treated as ‘strangers in blood’ for the purposes of calculation of French inheritance tax. While as a married couple the survivor would not have paid any tax on the half-share left by the deceased, once they had divorced the tax was calculated as 60% of that half share.
This problem would have been avoided had they followed through on the requirements of the court order.
In another case, the starting point was a little different. We were contacted to assist in the sale of her French property. The client had been happily dealing with the sale herself but reached a stumbling block when she was told that she did not own the property in her own name. Again, she had divorced, and the court order relating to the distribution of the matrimonial assets had required that the French house would pass to her.
It is possibly the case that the divorce lawyers did not explain properly the importance of completing the transfer following the divorce. They probably did not check that the order to be issued by the court was going to be suitable for France. That is all rather academic now.
The important point, though, is that she found that she was not able to sell in her own name, since she was not the sole owner. She needed her ex-husband’s agreement: still being a registered joint owner, his signature would be required on the deeds.
One can easily imagine that following a divorce, the ex-married couple might not be on speaking terms, and so addressing a question like this might be difficult. That difficulty was rendered impossible since – just as in the previous example – the ex-partner had died previously.
Here comes the extra little detail that would only arise in very rare cases. Where a deceased person did not fulfil their legal obligations – here being the obligation to transfer his half-share as required by the court – the personal representatives administering their estate (their executors) can generally be required to complete that task as well.
So it can be seen from this that there are ways of overcoming the problems that arise, but they can be burdensome: imagine trying to contact the executor of one’s deceased ex-spouse to ask for help…
But such problems do not only arise where one of the parties has died. It can be equally difficult to deal with ongoing matters for a French property following the divorce if it is not transferred correctly. The parties remain jointly liable for its maintenance and upkeep and would be due to share any income that may derive from the rental of the property (on which they would be separately taxed in France as well as the UK).
There is any number of further examples we could refer to, in which one ex-spouse has been an impediment to the good management of a property in France. While it does involve more cost, it must be better to finalise the matter properly at the time, rather than wait until it may be too late.
It is not just in divorce cases that there is a benefit to completing the process. We do often encounter scenarios where a property owner has died, but a surviving spouse and other beneficiaries have not taken the steps required to administer the deceased’s estate properly. A common result in such instances is an accumulation of legal problems.
If the beneficiaries want to sell, they will have to finalise the succession first. And if there was any inheritance tax payable, then it is likely that the tax bill would be increased by the addition of late payment penalties and interest.
There really is every interest in seeking suitable cross-border legal advice at an early stage and ensuring that the advice is fully implemented.
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