Divorce entails the liquidation of the matrimonial regime. What are the consequences of liquidation on most financial products that may be the spouse’s heritage? These can include: PEP, PEA, PEL, and life insurance. How do the spouses have return their taxes? What are the consequences of divorce on retirement?
A) The liquidation of the matrimonial property
Some rules specific to divorce may be valid for both DIY divorce and with the regular one.
As for death, divorce entails the liquidation and division of the community. The liquidation will follow the rules of the matrimonial regime initially chosen by the spouses. Thus, the personal property considered by the matrimonial regime attributable to each of the spouses and undivided or joint property is divided between them.
However, the law stipulates that donations can be revoked in respect of the guilty spouse when the divorce is granted for misconduct or in respect of those who filed for divorce in divorce cases because of a breach in their common life.
The same applies to matrimonial benefits: clauses in marriage contracts often specify that the marital advantage is removed to the recipient spouse upon divorce. Some include these aspects with the divorce cost, while others think of them separately.
B) Divorce and Financial Implications
1. The popular savings plan (PEP)
This investment is for long-term savings and it may take the form of a deposit account (PEP bank) or a contract of insurance (PIP insurance).
There can only be one PEP per taxpayer and one for each spouse subject to joint taxation. Furthermore, the initiation of PEP as a joint account is not possible. PEP can be closed at any time (especially in case of withdrawal earlier than 10 years) or following the death of the owner of the plan... but the divorce does not cause the closure of the plan.
2. The stock savings plan (PEA)
The PEA allows you to build a portfolio of shares qualifying for tax exemption on capital gains. A single plan can be opened by the taxpayer or one for each spouse subject to joint taxation. As for PIP, opening a joint account is impossible.
The plan may be closed in case of withdrawal before the age of 8 or when the holder dies ... but the Divorce is not part of the causes of a mandatory closure plan.
3. The savings scheme (PEL) and savings accounts (CEL)
These two investments allow an investor to obtain loans at favorable rates in certain situations. A person can hold one and only one CEL ELP.
Again, divorce is not a question of closing the plan or the account.
4. The life insurance contract
Life insurance is an investment intended for long-term savings. It enjoys a privileged tax regime. The consequences of taking out a life insurance contract during the marriage are more complex than for the previous products.
Take the case of a life insurance contract with joint funds, signed during the marriage. In case of divorce, the agreement is not unraveled, the surrender value of the life insurance policy must be integrated into community assets. Indeed, the community has been "impoverished" by paying the premiums of the insurance contract.
By cons, if the sums paid by the purchaser on the contract were personal to them (if they can prove that it is not the community that has paid premiums), then there will be no need to reinstate the value of redemption in community assets.
Writing the beneficiary clause of a life insurance contract:
A divorce can affect the designation of the beneficiary of a contract. If the beneficiary clause of the life insurance contract refers to "spouse", only the person having this status at the end of the contract will be a beneficiary. Thus, the ex-spouse is no longer beneficiary if they got divorced.
If the clause refers to "my spouse, Mrs. XXX" and if the couple divorce, the benefit of the contract will not go to Mrs. XXX because she has no such capacity at the time of finalizing the contract. Finally, if the clause naming "Mr. (or Ms.) XXX", then this is Mr. (or Ms.) XXX is the beneficiary of the contract, regardless of whether there has been a divorce or not.
It is therefore advisable to change the beneficiary clause after the divorce if the contractor wishes to change the beneficiary.
Note: It is essential for divorcing spouses to declare their insurance contract.
5. Using the life insurance policy after a divorce
Divorce involves various financial consequences. Most of the times, for example, one spouse must pay the other spouse a compensatory allowance or support (The support is intended to cover the food needs of one spouse and the duty of support between spouses is maintained by the payment of the pension. The compensatory allowance is intended to compensate the disparity that the breakdown of marriage creates in each spouse’s life.
The compensatory allowance paid by one spouse is now the subject of a lump sum (or spread over 8 years). The use of a life insurance contract may be appropriate for the debtor-spouse, who cannot pay off their debt immediately. Taking out a life insurance contract guaranteeing the payment of capital may be considered. The judge may also impose a guarantee of payment through the life insurance contract.
On the other hand, the debt burden is transmissible to the debtor’s heirs. As a precaution, they may sign a contract to cover the heirs in case they die. The latter would then have the capital necessary to pay the debt.
6. Joint accounts
Joint accounts are essentially community property. They are divided at the end of the divorce.
7. Availability of savings schemes: participation and ownership plan
The amounts paid by the company to employees generally cannot be checked after a specified period of time. There are exceptions and divorce is one of these events which allow you to recover your rights.
C) Effect on tax return
1. Declaration of Income Tax
When spouses are divorced and they live separately, they must make a separate declaration during the year with the divorce. Practically, during this year, the tax is as follows:
- A first joint declaration is made for the period between 1st January and the date of separation.
- Each former spouse makes a separate statement for the period between the date of separation and 31st December of that year.
The following year, both spouses make their own statement.
2. Declaration of solidarity tax on wealth
When a divorce occurs, each spouse is subject to the ISF and must personally make a separate levy, if permitted by the court to live apart. Then, each of the two makes a statement referring to their own property rights and taxable values, as well as those of younger children. The administration admits that when divorced parents of minor children have the legal administration together, the children's assets are to be divided equally between the two homes.
D) Implications for the reversion of the pension
1. For the general scheme of Social Security, the pension is granted
in certain conditions. You must be at least 55 years old, married for at least two years or to have had a child born in wedlock and you also have to have certain resources.
The survivor's pension is equal to 54% of the deceased person's pension.
The divorced spouse who has not remarried is considered the surviving spouse. If they meet the other conditions, they will be entitled to a widow's pension.
When the insured person was divorced and remarried, the pension is shared between spouses of the deceased, in proportion to the duration of each marriage. Upon the death of a beneficiary of the pension reversion, the share of the other beneficiaries increases.
2. As for the supplementary pension schemes, the conditions for a widow's pension are the following: the spouse has to be a widow or divorced and must have the age of 60 (or 55, but then the reversion rate will be reduced). The survivor then gets up to 60% of the deceased's pension.
Former spouses are treated as divorced surviving spouses if not remarried. If there is a surviving spouse and several ex-spouses, everyone is entitled to a portion of the survivor's pension in proportion to the length of the marriage. Deleting a payment of reversion has no effect on the amount of the other payments.
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