A spouse receives, by lifetime gift-partition (donation-partage), the bare ownership (nue-propriété) of property whose usufruct (usufruit) his parents keep, and the equalising payment (soulte) charged to him is paid with community funds. By the date of liquidation, his parents have died: he is full owner, and the community claims compensation (récompense, the sum owed by the spouse whose separate property the community funded). Is the subsisting profit (profit subsistant, the share of the property’s value attributable to that funding) computed on the bare ownership acquired or on the full ownership found in his estate? In a reported decision of 7 November 2018, the First Civil Chamber of the Cour de cassation (the French supreme court for civil matters) answers: on the one, then on the other.
The facts
Two spouses married without a prior contract. By deed of 16 April 1975, the husband received by gift-partition the bare ownership of real property whose usufruct his parents reserved for their lifetime; he paid the equalising payment due from him with community funds. He became full owner on the death of the last of his parents. The spouses divorced.
On 31 May 2017 the Toulouse Court of Appeal held the husband liable to the community for compensation of €339,127.37 in respect of the equalising payment. According to the appeal, which restates its reasoning, the court held the reserved usufruct irrelevant to the calculation and set the current full ownership value of the property at €715,931, based on disposal prices and the current value of the plots the husband still owned. Its formula: value borrowed from the community, €27,441, multiplied by that current value, divided by the value in full ownership of the property at the time of the gift-partition, €57,930.63.
The husband appealed: only the bare ownership value should have counted, regardless of the fact that he had become full owner by consolidation after the donors’ deaths.
The decision
The Cour de cassation dismissed the appeal (Cass. 1re civ., 7 November 2018, appeal no. 17-26.149, reported).
It restated the rule drawn from article 1469, paragraph 3, of the French Civil Code: “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 said community contributed to financing the acquisition”; “the subsisting profit represents the advantage actually procured to the borrowing estate” (translated from the French).
It derived the method where the community paid the equalising payment on property received in bare ownership by gift-partition and found in full ownership at liquidation, the usufructuary having died: “it is appropriate first to calculate the contribution of the creditor estate to the acquisition of the property given in bare ownership, then to carry that fraction over to the value in full ownership of that property at the date of liquidation”.
By taking the value in full ownership of the gifted property “both at the date of their acquisition and at that of the liquidation”, the Court of Appeal “wrongly assessed the compensation due to the community”. But “the result it reaches is necessarily identical to that which would have been obtained from the equally inaccurate calculation based solely on the value of the property in bare ownership, in its initial proportion”. The husband therefore “has no interest in the quashing of this provision, which does not prejudice him”; the ground was held inadmissible.
What this changes for valuation
A fraction measured on bare ownership, applied to full ownership. The proportion is measured at acquisition, on what the spouse received: the bare ownership, whose value reflects the reserved usufruct. It is then applied to what is found in his estate at liquidation: the full ownership, since the usufruct has ended. That is: sum paid by the community × value in full ownership at liquidation ÷ bare ownership value at the date of the gift-partition.
Why the husband had no interest in the quashing. The Court of Appeal divided by the 1975 full ownership value; the Court’s method divides by the bare ownership value at that date, which is necessarily lower. The result of that method therefore exceeds €339,127.37: it equals €339,127.37 divided by the share of the bare ownership in the full ownership in 1975, a share the decision does not quantify. The calculation based solely on the value in bare ownership, in its initial proportion, which the Court considers in answer to the appeal, reaches the same result as the Court of Appeal’s, €339,127.37: numerator and denominator are reduced in the same proportion. That calculation would have gained the husband nothing, and the Court’s method leads to a higher amount: hence no prejudice. Consolidation of the usufruct thus benefits the community for the share it financed.
Three values to establish. The report provides the value of the bare ownership at the date of the gift-partition, which requires valuing the usufruct reserved by the two donors until the last one’s death, according to their ages at the deed and the income from the property; the value in full ownership at the same date, which serves as a check; and the value in full ownership at the date of liquidation. The decision does not say how to value the usufruct: the report sets out the method used and its parameters. Works later financed by the community would fall under the formula for compensation for works.
Plots disposed of, plots kept. The €715,931 figure combined disposal prices and the current value of the plots kept, a point on which the Cour de cassation does not rule. Article 1469, paragraph 3, values the profit on an asset disposed of before liquidation at the date of disposal; the article on separate property partly sold applies a single proportion to the sale price and the value of the remainder.
The same calculation elsewhere. Between spouses with separate property, the claim arising from paying a gift-partition equalising payment follows the same proportion, limited to the creditor spouse’s funds (claim between spouses under separation of property). In the abatement of gifts (réduction des libéralités), a sum given then used to buy a bare ownership is likewise added back at the value of the property acquired (gifted money used to acquire a property). The same-day decision on the early repayment penalty, excluded from the community’s contribution to a reinvestment purchase, is covered in a separate article.
What the valuer takes from it
- Equalising payment on a bare ownership paid by the community: the fraction is computed on the bare ownership at the date of the deed, then applied to the full ownership at the date of liquidation.
- Using the same type of right at both dates, full ownership or bare ownership in its initial proportion, is inaccurate; in the case decided, it produced a lower amount than the Court’s method.
- The report values the reserved usufruct at the date of the deed and sets out its parameters: usufructuaries’ ages, income from the property.
- Plots disposed of and plots kept are valued separately, each at its own date.
- Each step is quantified and sourced, so that the liquidating notaire (French civil-law notary) can follow the calculation.
Further reading
The Market value page describes the assignment, its timescale and its fee. The guide Matrimonial property liquidation in France: which valuation date? and the glossary entries récompense, nue-propriété and usufruit complement this article. Delivered the same day on a different point: Reinvestment: early repayment penalty is not an acquisition cost. On the same theme: Compensation: separate property partly sold, the profit is shared and Gifted money bought a property: reduction bears on the property. The decision is available on Légifrance.
What next
Community funds paid the equalising payment on a bare ownership received by gift-partition, and compensation must be computed?
I establish the value of the bare ownership at the date of the gift-partition, taking the reserved usufruct into account, then the value in full ownership at the date of liquidation, and I present the subsisting profit calculation for the notaire or the court.
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