Property purchase: how to invest wisely as a couple?

A property purchase within marriage naturally secures both buyers: the community of property applies, or the rules set out in the marriage contract where applicable. As legally regarded as strangers, cohabiting partners or flatmates making a joint acquisition benefit from no particular protection. They are therefore free to make specific arrangements to protect their individual assets in the event of separation or the death of one of them. Let us examine what solutions exist for securing a property acquisition outside marriage.

Establishing a co-ownership agreement

The principle of co-ownership

This involves purchasing a property between two or more people, each becoming owner to the extent of their financial contribution precisely set out in the agreement. In co-ownership, all decisions must be taken unanimously. If a resale is contemplated and one owner does not wish to sell the property, there are however two possibilities. A co-owner is free to buy out the share of another (or several as the case may be) in order to retain the property. If no compromise is reached, the court may order the sale as the Civil Code provides at article 815 that “no one may be compelled to remain in co-ownership”.

Furthermore, to guard against a possible death, it is possible to include in the co-ownership agreement a priority redemption clause for the deceased’s share. Reserved heirs will thus not be able to oppose the redemption, on condition that the beneficiary of the clause is actually in a position to acquire it and compensate them.

A will can also be drawn up in favour of the cohabiting partner to leave their share or the life interest, except if this were to compete with the rights of other heirs. Caution is advised however regarding inheritance taxes, which are high between cohabiting partners.

Civil Solidarity Pact (PACS)

There are two scenarios: those who entered into a PACS before 1st January 2007 automatically fall under the co-ownership regime, which means each partner has a share of the property, by default 50%, but as stated above, each person’s contribution can be specified.

Persons who entered into a PACS after 1st January 2007 are subject to the separation of property regime: they own the property to the extent of their financial contribution and remain sole owners of assets acquired before the PACS. They may however choose to opt for the co-ownership regime.

In the event of separation with dissolution of the PACS, it is possible to decide by mutual agreement to sell the property, each party recovering their share of the sale proceeds. The ex-partner’s share can also be bought out, the other becoming sole owner of the property. Finally, the property can be maintained in co-ownership, by payment of compensation to the former PACS partner: the amount may be agreed mutually or determined by a judge at the tribunal de grande instance.

It is strongly advisable to draw up a will with a notary to protect the partner and leave them the share of the property in the event of death. Otherwise, the disappeared person’s share will be left to their heirs (children or parents) unless specific provision is made in the PACS contract. If the PACS was established after 1st January 2007, the surviving partner nevertheless benefits from a life interest of 12 months on the property. A will also allows for a donation that is cheaper than for simple cohabiting partners (but more expensive than for a married couple).

SCI: for building a property portfolio

Establishing a Société Civile Immobilière (SCI) allows you to become partners with other persons, through acquiring shares in a company that owns the property. Each person holds shares to the extent of their financial investment, with an unlimited number of partners.

The SCI makes it possible to establish, at its formation, the measures to be taken according to the various scenarios affecting its subsequent life (wishing to leave the SCI or death primarily, but also modification of the number of shares). The obvious aim is to protect the interests of the various buyers and ensure a shared vision of the project. In this respect, creation has a cost (€200 to €2,500) and requires rigorous management regarding the drafting of articles of association or holding of meetings.

As a couple, the SCI facilitates the management of property assets in the case of investment in a secondary residence, studio, or mountain chalet. It will then be possible to evolve the division of assets, simply, through the donation or sale of shares.

For tax purposes, it is possible to undervalue the SCI shares by 10 to 20% without fear of a tax assessment. Furthermore, the SCI allows, through cross ownership dematerialisation, the opportunity to carry out a financial arrangement strengthening the surviving cohabiting partner’s rights regarding the heirs. Each will thus own half the shares in bare ownership and the life interest on the shares held in bare ownership by the other cohabiting partner.

In the event of death, the survivor therefore recovers their shares and the life interest on the deceased’s shares, becoming sole life interest holder without however prejudicing the heirs regarding the share reserved for them. If separation is contentious, the court cannot however force the division of the SCI.

The tontine: when there are no children

The tontine makes the last survivor sole owner of the property. Also called the accretion clause, it thus records in the title deed the retention of the property by the survivor, a clause to which reserved heirs (parents for example) cannot object. The tontine however cannot be used to exclude children from a succession.

The drawback is that if the property is not the main residence and/or its value exceeds €76,000, succession duties will amount to 60% of the value of half the property. Below €76,000, the survivor need only pay duties on onerous transfer (i.e. the maximum legal rate of 5.81%). In the event of separation, both parties may terminate the tontine, only by mutual agreement.

A property purchase outside marriage should not be taken lightly and it is essential first and foremost to determine, in advance and with all parties involved, under which regime you wish to become owners. This will influence the possibilities for protecting one or the other in the event of separation or death. It is also advisable to discuss this with the notary, in order to determine the solution most advantageous for all.