Division of ownership (démembrement de propriété)

To divide ownership (démembrement) is to split it into two distinct rights: the usufruit (usufruct), which gives the use of the property and its income, and the nue-propriété (bare ownership), which keeps the capital. The two rights may belong to different people, be sold or given separately, and reunite automatically when the usufruct ends. The sum of the two values is, in principle, the value of the property in full ownership, even if the market sometimes applies a discount to each right taken on its own, for want of many buyers.

Division of ownership is at the heart of family succession planning in France: the surviving spouse who opts for the usufruct of the estate, parents who give the bare ownership of their house while keeping the usufruct, the sale under a life annuity with the seller remaining in occupation (viager occupé). It is also found in investment (purchase of bare ownership of dwellings for a fixed term) and in companies (divided shares).

Where the rule comes from

Articles 578 to 624 of the French Civil Code define usufruct, its burdens and its termination; article 621 governs the apportionment of the price when both rights are sold together. The scale in article 669 of the French General Tax Code fixes the tax value of each right according to the age of the usufructuary (the usufruct is worth 50 % of full ownership between 51 and 60, 40 % between 61 and 70, and so on in ten-year bands) or according to the term for a fixed-term usufruct. Article 1133 provides that the reunion of usufruct and bare ownership on death gives rise to no duty. The Charte de l’expertise en évaluation immobilière (French property valuation charter) ranks the valuation of these rights among the valuations of complex rights that call for a discounting calculation.

In a valuation report

The first step is always the market value of the property in full ownership, by comparison. The second is the choice of framework, which depends on the engagement: the tax scale for transfer duties, economic value for a partition, an apportionment of price, a liquidation or a dispute. For the economic value, I discount the net income of the property over the likely term of the usufruct at a justified rate, and calculate the bare ownership by difference. I document the mortality table, the rate and the rental value adopted, and present the two frameworks side by side, because the gap between them often explains the disagreement between the parties.

Example

Parents aged 68 and 70 give the bare ownership of a €350,000 house to their two children while keeping the usufruct. Tax scale (age of the older usufructuary, 70): usufruct 40 %, bare ownership 60 %, a taxable base of €210,000 shared between the two children. Ten years later, on the death of the survivor, the children become full owners without duty. If, in the meantime, the house is sold for €380,000 with everyone’s agreement, the price is apportioned according to the economic value of the rights at the date of sale: the usufruct of an 80-year-old, on a net rent of €12,000 per year and a term of nine years at 3.5 %, is worth €92,000 rounded; the bare ownership receives €288,000.

Not to be confused with

Indivision (joint ownership) is shared ownership of the same right by several people, not a split between use and capital. A long lease or a building lease confers temporary rights in rem distinct from a usufruct.