Tontine clause: Pros and Cons

Sarah Bright reviews the pros and cons of using a ‘tontine’ clause when buying a French property…

Imagine you are buying a house with the person you love, cherish and want to spend the rest of your life with, for better or for worse. For personal reasons, if death do you part, your wish is that the house be left exclusively to your spouse/partner. Your spouse/partner has the same generous wishes for you. Maybe you’ve had an irredeemable feud with your children, or maybe, simply, you just don’t want the person with whom you shared your life, to have to share the house after you die. Whatever your reasons. you need to know how the law can help you achieve your goal. This is where the “tontine clause” can come into play.

Notaries both love and fear the tontine, but whatever their feelings, there is no denying that it is a powerful legal tool. As with any power tool, however, the key to safety is to know how to handle it.

The principle behind the clause is simple: if there is a tontine in the purchase contract of a property, the surviving spouse/partner is retroactively considered as having been the sole owner since the day of the purchase.

This means that a property bought with a tontine clause falls outside the scope of the inheritance, which presents a clear advantage for the surviving spouse/partner.

Unlike England and Wales, where there is no forced heirship, allowing people to freely leave their property to whomsoever they wish through a last will and testament, in France (like Scotland), a surviving spouse and children have a statutory claim to parts of the estate. With this in mind, the legislator installed a failsafe to make sure that the tontine is not a disguised donation, purposefully made to deprive the protected inheritors of their rights on the property.

This is why there are two conditions to the validity of the tontine clause. Firstly, both purchasers must have contributed financially towards the purchase; secondly, the tontine clause is a ‘bet’ on death, or a slightly macabre, blind hedging bet, not knowing who will pop off first.

This means that at the time of purchase, it has to be impossible to determine which owner will die first. Therefore, if there is a great age difference or one spouse is terminally ill, the tontine clause would not bold in court if the children/ heirs disputed it.

And if there’s any doubt in the sincerity of the clause, they will dispute it. Nothing creates animosity within a step-family more effectively than depriving them of their inheritance.

You may have included a tontine clause in the purchase deed with the most virtuous and altruistic intentions, but If you do not comply with the two conditions, you will have to deal with the consequences. Because there really are consequences for getting it wrong, and they shouldn’t be taken lightly.

The first consequences the potential dispute with the other inheritors and the option they have to petition the court to ask that the tontine clause be requalified as a disguised donation. This alone should set you up for a bitter relationship with them until the day you die-which is probably not in the spirit of what your spouse/partner wished for. If their claim is successful, the surviving spouse/partner would be forced to compensate them for the value of their share in the property which is under the tontine clause.

You have the house, but you may not have at your disposal the cash to compensate the other inheritors. Meaning you would then have to quickly sell the property to allow you to pay them their share, plus the legal interest that has multiplied.

The second and most important consequence you should be aware of is that a tontine cause is fundamentally different from a joint ownership (known in French as an ‘indivision).

Provided that the tontine clause is valid, it is completely and utterly binding, in that unless both parties agree to remove it and liquidate the property by selling it or having one buy the other out, then you are bound to remain co-owners until one of you dies. This is the reason why a tontine clause is particularly dangerous in a divorce, especially with a French divorce.

In France, there are two types of divorces mutual consent and litigation. When you have a mutual consent divorce, both spouses agree to all the various aspects of the divorce beforehand, including the fate of a property with a tontine. This means that you liquidate your assets (sell the house, buy the other out, share the furniture…) at the same time as you divorce.

As the consent of both spouses to the future of the assets and the consequences of the divorce are a key element to a mutual consent divorce, the parties will have to mutually agreed to remove the tontine clause in order to sell or share the house, and there should be no more difficulty.

However, when the spouses do not agree on the divorce, the procedure in France is that you only deal with the liquidation of assets once the divorce is finalised. As you can Imagine, after what could be years of fighting for the divorce, breaking the tontine, which requires the cooperation of both ex-spouses, can be quite tricky or even impossible to obtain. The beauty and the curse of the tontine are that it is unbreakable unless both parties agree otherwise.

With an indivision’, if one party wishes to terminate the joint ownership and the other party refuses to cooperate, one can always petition the court to request the termination of the joint ownership and the sale of the property at a legal auction.

Even if this process is not ideal due to the legal costs and the fact that a lot of properties sell for less at legal auctions than they would on the market, it still offers you the possibility to regain your freedom.

This is not the case with the tontine: if the other owner refuses to sell the property or buy you out, there is no legal recourse for you to terminate it, or pressure the other to terminate the tontine as you do with a joint ownership.

With a joint ownership, the person who has sole use of the property owes the other form of rent. Moreover, if the situation has lasted for years, this rent is owed for the five years until the property is finally sold or shared. This cumulating rent can be a useful negotiating tool to speed up the end of an indivision but unfortunately, no such form of rent or possibility to force the termination with a court procedure exist for a tontine.

If you have a property with a tontine and your former spouse/ partner refuses to end it, then the only thing you can do is wait for their death… or yours.

The tontine clause is a purely French construct, but international couples need to be aware of its consequences. For example, if you are British you may wish to have your divorce in the UK and have the UK judge rule on the attribution of the assets, with the main UK residence going to one spouse and the second home in France going to the other, to balance out the divorce.

But what happens if the spouse who has received the UK property does not cooperate to terminate the tontine on the French property? Or if the spouse who has been awarded the French property never starts the process in France to terminate the tontine and put the property in their sole name?

Would this nullify the divorce? Would the ex-spouse who hasn’t received the cooperation of the other to terminate the tontine and fully receive the property be entitled to compensation?

Would their inheritors be entitled to compensation from the former ex-spouse because they were supposed to receive a property but did not because, with the tontine still in place, the property belongs to the spouse who refused to cooperate to terminate it?

The third consequence of the tontine involves the taxes associated with it. When your spouse dies while still married or under a civil partnership with a will, your partner is the inheritor of your share in the property. In these cases. there will be no issue as there is no inheritance tax between spouses or civil partner.

In the case of a civil partnership, it is paramount that both partners make a will designating the surviving partner as the inheritor because in France, unlike the UK, in the absence of a will, the partner has no right to the inheritance.

However, if you have an unresolved tontine, are divorced and your ex-spouse dies, you are fiscally considered as inheriting from a stranger, even if the legal mechanism of the tontine means that you are considered the sole owner since the purchase. From a practical perspective, this means that you will pay 60% inheritance tax on the share you will receive.

If this sounds cruelly unfair, and cripplingly costly, don’t worry, it gets worse! Inheritance tax must be paid within six months of the death. even if the property is not sold and even if there is not cash in the inheritance to settle the tax. Moreover, if the tax is not paid, late payment interests are added to the money owed.

In conclusion, the tontine is a wonderful legal tool to protect your spouse or civil partner, but it is the clause of the happy couple, the couple who stay together until one dies. If the tontine validity is hedging a bet on death, Its benefit is a bet on peace of mind and the life you will have with the person you are buying the property with.

So, before you take a flutter and sign the tontine clause, ask yourself if the risks in the not-too-distant future may out weigh the gains.

Sarah Bright is an avocat with Bright Avocats in Toulouse Tel: 0033 (0)5 61 57 90 86.

Looking for more like this?

French Property News is the go-to title for anyone considering a French property purchase, either now or in the future. Packed full of expert advice from property professionals including estate agents, lawyers and tax advisors, it is the ultimate househunter’s guide to the French property market.