Unmarried couples are acquiring property more and more frequently, whether to establish their main residence or to invest in rental property. Unlike married couples, who are protected by the Civil Code, cohabiting couples are subject to a system of joint ownership that does not take into account the particular needs of a couple.
This is why certain questions need to be raised when an unmarried couple decides to buy a property.
Protecting cohabitees in the event of death
Drawing up a will
If one of the cohabiting partners dies, his or her entire estate and the share of the property he or she owned will pass to his or her children or, failing that, to his or her parents and siblings. The surviving cohabiting partner will share ownership of the property with the children of the deceased or with his or her parents and siblings. The parents and siblings may ask for rent, or they may ask for the property to be sold.
This situation can be dramatic when the property is the main residence. That's why it's important for cohabitees wishing to acquire a property to prepare their inheritance to protect each other.
To do this, each partner should draw up a will in which he or she appoints the other partner as legatee by particular title to his or her rights in the property, or simply as universal legatee of the estate. This way, in the event of death, the surviving partner can inherit the property and avoid complicated joint ownership arrangements.
This solution is really effective when the cohabitees have no children. A will makes it possible to avoid joint ownership with the parents and siblings of the deceased. But if there are children, it will not be possible to avoid joint ownership with them because of their legal reserve.
Civil union
Under the terms of a will, the cohabitee will have rights in the estate of the deceased cohabitee. However, the tax authorities regard cohabitees as strangers to each other and tax them as such. As a result, when one of the cohabiting partners dies, the surviving partner will be taxed at 60% of the value that passes to him or her.
To avoid this onerous tax burden, cohabitees are advised to enter into a PACS (civil partnership agreement) to avoid paying inheritance tax: the deceased's PACS partner is fully exempt from inheritance tax.
In this way, the combination of a will and a PACS will protect the unmarried couple. However, this solution can only be temporary, particularly if there are children involved. The civil union should therefore be seen as a bridge to marriage, which offers much greater protection, where possible.
Quotas for acquisition
As the cohabitees have entered into a civil partnership and drawn up their wills, it is necessary for them to define the proportions in which they wish to become owners of the property.
In the case of civil partnerships, two systems are proposed by the legislator:
- the system of separation, which applies in the absence of choice and under which all property acquired before or during the civil partnership belongs to each partner;
- the regime of joint ownership, under which property acquired during the PACS is jointly owned by half, even if the partners' contribution to the acquisition is unequal, with the exception of property acquired by one of the partners with personal funds (e.g. received as a gift) and for which he or she has made a declaration of use.
The system of separation is strongly recommended, as it is less rigid than the joint ownership system and allows each partner to freely define his or her share of the acquisition.
Under the separation system, the ideal solution is to define each partner's share of ownership of the property on the basis of how much each has financed. If one of the partners finances 70% of the property, that partner will own 70% of the property. His or her partner will own 30%. This solution avoids misunderstandings in the event of the couple separating.
Of course, when it comes to financing, the price of the property and the legal fees will have to be taken into account.
The partners can choose to define different quotas without taking financing into account. For example, the partners may each own half of the property, while the financing is split 70/30. However, this should be avoided, as the tax authorities may reclassify the transaction as a gift in favour of the partner who financed the least, and tax the gift as such. This will be the case where there is a large disparity between the ownership shares and the financing.