On 7 November 2018 the first civil chamber delivered two reported rulings on compensation between spouses (récompense, the sum owed between a spouse and the marital community for value moved from one to the other), both turning on value. In the first, a husband received in 1975, by gift-partition, the bare ownership of property whose usufruct his parents kept, and the community paid the equalising payment; having become full owner on his parents’ death, he divorces, and the court of appeal computes compensation of 339 127.37 € by relating the payment to the value of the property in full ownership, at the time of the gift and at liquidation. The Cour de cassation (the French supreme court for civil matters) states the method: “first compute the contribution of the creditor estate to the acquisition of the property given in bare ownership, then carry that fraction onto the value in full ownership of that property at the date of liquidation”; it dismissed the appeal, the court of appeal’s calculation “necessarily” giving the same result. In the second, spouses bought a building with reinvestment of each one’s separate funds and a loan; the early repayment fee on the loan, paid by the community, does not count among “the sums used to pay part of the price and costs of the acquisition”, and the property remains the separate property of the wife, whose contribution exceeds the community’s. For the valuer, two calculation rules to know.
The facts
In the first case, a spouse married under the community regime receives, by gift-partition of 16 April 1975, the bare ownership of real property whose usufruct his parents reserve for life; he pays the equalising payment charged to him with community funds. He becomes full owner on the death of the last of his parents. After the divorce, the Toulouse court of appeal, on 31 May 2017, holds him liable for compensation of 339 127.37 €, computed as follows: value borrowed, 27 441 €, multiplied by the updated value of the property given in full ownership, 715 931 €, divided by its value in full ownership at the time of the gift-partition, 57 930.63 €. The husband argues that only the bare ownership value should have been used.
In the second, spouses married in 1981 without a contract buy together, on 19 June 1986, real property, with a declaration of reinvestment by each and a loan for the balance. Out of a total price of 136 981.26 €, the wife contributes 60 979.61 €, the husband 15 244.90 €, and the community spends 60 756.75 €. The Bordeaux court of appeal, on 20 June 2017, holds the property to be the wife’s separate property, her contribution exceeding the community’s outlay, refusing to add the loan’s early repayment fee to that outlay.
The decision
First ruling (Cass. 1re civ., 7 November 2018, no. 17-26.149, reported): “it follows from article 1469, paragraph 3, of the Civil Code that, where community funds were used to acquire or improve an asset which is found, at the date of liquidation of the community, in the separate estate of one of the spouses, the subsisting profit, below which the compensation due to the community cannot fall, must be determined according to the proportion in which the funds borrowed from the community contributed to financing the acquisition; the subsisting profit represents the advantage actually procured to the borrowing estate”. Where the community paid the equalising payment for a bare ownership which is found, at liquidation, in full ownership because the usufructuary died, “one must first compute the contribution of the creditor estate to the acquisition of the property given in bare ownership, then carry that fraction onto the value in full ownership of that property at the date of liquidation”. The court of appeal valued “incorrectly” by taking full ownership at both dates, but “the result it reaches is necessarily identical” to that of the calculation, “equally inaccurate”, based on bare ownership alone; the husband has “no interest in the quashing”. Dismissed.
Second ruling (Cass. 1re civ., 7 November 2018, no. 17-25.965, reported): “it follows from article 1436 of the Civil Code that the community’s contribution comprises only the sums used to pay part of the price and costs of the acquisition”; the loan’s early repayment fee, “a cost of enjoyment borne by the community, could not be treated as such costs”. Property is separate when “paid for with separate funds whose amount exceeds the sum spent by the community to complete the purchase price”. Dismissed.
What this changes for valuation
The fraction is computed on the bare ownership, then carried onto the full ownership. The method set by the Court has two steps. First the proportion: the equalising payment made by the community, related to the acquisition cost of what the spouse received, that is, the bare ownership, valued at the date of the gift taking the reserved usufruct into account. Then the base: that fraction is applied to the value in full ownership of the property at the date of liquidation, since the usufruct has ended and it is the full ownership that is found in the spouse’s estate. The valuer therefore produces three figures: the value of the bare ownership at the gift, using the usufructuaries’ ages and the yield of the property at the time, the value in full ownership at the same date, useful as a check, and the value in full ownership at liquidation. The glossary describes the récompense and nue-propriété.
Why the result did not change here. The court of appeal had applied the fraction “payment over full ownership” to the current full ownership; the Court says that a “payment over bare ownership” calculation applied to the current bare ownership, in the initial proportion, would have given the same thing, and that both are inaccurate. The correct calculation, fraction over bare ownership carried onto the current full ownership, gives a higher result, since bare ownership is worth less than full ownership at the gift: the community benefits from the consolidation. The husband therefore had no interest in the quashing. For the valuer, this confirms that consolidation through the end of the usufruct benefits the estate that financed the bare ownership, as also shown, for reduction, in the article on gifted money used to buy a bare ownership.
The same logic as separate property partly sold. The article on separate property funded by the community and partly sold applies the proportion to a sale price and a current value; the one on the formula for compensation for works applies it to improvements. In every case, the report isolates the funding proportion, then the base at the date of liquidation, in the condition of the property at the date of the expenditure.
Reinvestment is measured on the price and acquisition costs, without loan charges. To know whether property bought during the marriage with separate funds is separate or common, the separate contribution is compared with the community’s contribution to the price and acquisition costs. Loan interest and the early repayment fee are costs of enjoyment: the community bears them for good, without their increasing its contribution. The report therefore reconstructs the funding table of the acquisition, price, deed costs, each spouse’s contributions, capital repaid by the community, leaving aside interest and penalties.
A forty-year-old liquidation. A gift of 1975, a purchase of 1986: these files require retrieving the deed, the prices of the time and the mortality table needed for the value of the reserved usufruct, and presenting each step so that the liquidating notary can take up the calculation. The guide on the matrimonial property liquidation and the valuation date describes these assignments.
What the valuer takes from it
- Where the community paid the equalising payment for a bare ownership received in a gift-partition, the subsisting profit is computed by a fraction related to the value of the bare ownership at the gift, carried onto the value in full ownership at the date of liquidation.
- Consolidation through the end of the usufruct benefits the estate that financed the bare ownership.
- The report gives the value of the bare ownership at the gift, with the reserved usufruct, and the value in full ownership at liquidation.
- For reinvestment, the community’s contribution comprises only sums paid on the price and acquisition costs; the early repayment fee is a cost of enjoyment.
- The property is separate if the separate contribution exceeds the community’s contribution to the price and costs.
Further reading
The Market value page describes the assignment, its timescale and its fee. The guide Matrimonial property liquidation: setting the valuation date and the glossary entries récompense, nue-propriété and usufruit complement this article. On the same theme: Separate property partly sold: the subsisting profit is shared and Gifted money bought a property: reduction bears on the property. The decisions are available on Légifrance: no. 17-26.149 and no. 17-25.965.
What next
A gift-partition equalising payment made with community funds, a partial reinvestment, and compensation to compute?
I establish the proportion financed by the community, the value of the property in bare ownership at acquisition and in full ownership at liquidation, and I present the subsisting profit calculation, for the notary or the court.
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