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Marriage,
Divorce and Taxes |
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In France there are various types of marriages, known as marital regimes. A
marital regime is essentially a 'marriage contract', which is very important in
terms of division of property during and after the marriage.
The choice of marital regime is important as it affects the allocation of assets
in the case of divorce and also is extremely important in determining
inheritance rights and inheritance taxes. Note that the marital regime affects
not only French property, but potentially all assets worldwide.
Because of the importance of the type of marriage (for inheritance, taxes,
and divorce settlements), it is important to choose a marital regime that suits
your circumstances.You can choose your marital regime at the time of marriage or you can change
it after marriage. If you have been married outside of France and have not
selected one of the French marital regimes, it is probably advisable to do so
prior to buying property or becoming resident in France. This will enable you to
determine the framework for division of assets upon death and divorce. It will
also enable you to minimise (or in some cases completely avoid) inheritance taxes.
There are some restrictions on changes to marital regimes. For example, if
you have chosen one regime at time of marriage, there is a minimum waiting
period before you can change it. Also, both parties need to agree to the change.
The importance of marital regimes to inheritance is discussed below and also
in Inheritance Tax.
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Marital
Regime: En Indivision |
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If a property is purchased without taking special actions or arranging a
marriage contract, it will likely be purchased jointly "en indivision".
This means that each person owns a share (e.g. in the case of husband and wife,
they each own one half), but cannot sell it without the permission of the other
person, except with a court order.
If no special steps are taken,
then upon the death of one spouse, other family members will automatically
inherit a portion. This is true even if the deceased spouse had a will
specifying that the surviving spouse should inherit everything (for explanation,
see Inheritance Law).
The surviving spouse cannot sell the property without the permission of the
family members who have inherited (unless a court order is obtained). If one of
the family members is an under-age child, then the child may not be legally able
to give permission, in which case a court order would need to be obtained on the
child's behalf (more time and cost).
To make matters worse, the family members who are inheriting (including the
spouse) will be liable to inheritance tax on the property and other assets
(including potentially worldwide assets). In the worst case, it would be
necessary to sell the property or other assets in order to pay for the property
(which may in fact be the family home).
Fortunately, there are two broad mechanisms to avoid this issue. One is to
use a form of purchase more suitable (see section
Inheritance Law) than 'en indivision' and
the other is to use a suitable marriage contract (see below).
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Marital
Regime: Communauté
Universelle |
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In the marital regime “Communauté universelle avec
attribution de la communauté conjoint au survivant”, all assets of the
two spouses (with possible exception of some personal items) are considered to
be jointly held. In this case, the surviving spouse would not need to pay
inheritance tax on the assets as he/she is deemed to have already jointly owned
them. Furthermore, as the surviving spouse already owns the assets (although
jointly), the problem of Reserve Legale
is avoided.
As the assets are jointly owned, in the event of divorce they must be legally
divided (either my mutual agreement or by the courts). If, in the case of
divorce, one wants to protect personal assets or assets brought into the
marriage, another regime may be more appropriate.
If one has remarried and there are children from a previous marriage, one
should be aware that in this case the children from the previous marriage would
still have a Reserve Legale.
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Marital
Regime: PACS |
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Technically, PACS is not a form of marriage.
It is a legal recognition of a couple in a stable relationship, which provides much the same recognition
and rights as a marriage. The partners are taxed as a family unit, can take
advantage of each other social security benefits and are treated as a family
unit from the purpose of employment rights (e.g. time off for family matters).
PACS is available both to people of different sexes and people of the same sex.
However, although the general intent of PACS is to provide the same rights as
a married couple, in fact there are a number of differences. For example, they
are not taxed as a family unit until three years after they signed the PACS
contract. Also, inheritance tax allowances do not exactly match those available
to those allowed to the surviving spouse of a traditional marriage. Likewise,
PACS does not meet the criteria for adoption that the couple be married.
Despite these and other limitations, many couples (in particular, homosexual
couples) have chosen to sign a PACS contract. Meanwhile, there is considerable
discussion on modifying PACS to bring its rights and duties more in line with
those provided by marriage.
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Marital
Regime: Other |
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Following are two other standard types of marital regimes:
- Communauté
de biens réduite aux acquêts. Assets acquired before marriage are
separately owned, assets acquired during the marriage are jointly owned.
- Séparation
de biens. All assets are individually owned, including both assets
obtained before the marriage and assets obtained during the marriage.
In addition to the standard marital regimes, one can modify any marital
regime in almost any way one wants. Advice on this subject can be obtained from
various sources, including French notaires.
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