What happens after the divorce
Divorce and home: what happens to the property and the loan?
What happens to the house in the event of a divorce?
There are several ways couples can deal with their shared house or condo in the event of a divorce. The most common measures are:
- Paying off a spouse
- House sale and distribution of the proceeds
- Division of the property into two units
- Transmission to common children
- House rental and income sharing
- Division auction
In the following we describe the individual options and their effects on the ownership structure and ongoing home financing.
1st possibility: payment of a spouse
One spouse wants to stay in the house or apartment after the divorce and buys his share of the property, the "co-ownership share", from the other. The amount of the disbursement results from a current property valuation, however an existing remaining debt for an ongoing house loan must be deducted.
Info: The following formula is used to calculate the payout:
Property value - remaining debt
For example, if the value of the property is € 450,000 and the remaining debt at the bank is € 250,000, then the difference is € 200,000. That amount is now divided by two. The total of the payout is thus € 100,000.
There are a few points to consider when making a payout:
- Use reviewer: If no agreement can be reached on the value of the house, an independent appraiser should be employed to draw up an appraisal of the house at the time of the divorce.
- Change land register entry: If the property is paid out and transferred after a divorce, the partner moving out of the house must be deleted from the land register. This will be done with the help of a notary at the land registry. So you have to pay notary and land registry fees.
- Rewrite credit: If the house loan is also to be transferred in full to the remaining partner, the approval of the bank concerned is required. She will check whether the partner who wants to continue living in the house has the necessary creditworthiness to pay off the loan.
2nd possibility: house sale in the event of divorce and distribution of the proceeds
The common house or apartment can be sold and the proceeds shared. However, the house loan still has to be repaid from the sales proceeds. A prepayment penalty may be due at the bank for this. These and other costs, for example a broker's commission, reduce the proceeds to be distributed.
The house can already be sold during the year of separation. The prerequisite for this is the consent of both spouses. After the year of separation, either of the two may request the sale. If the other partner refuses, legal action can be taken. Then a court decides.
3rd possibility: Divide the house with real division in the event of divorce
Real division means that the property is divided into two structurally separate units after the divorce. Both partners each receive the right of residence for one area. They can live there or rent or sell their part.
For this possibility, the structural conditions of the property must be given. For example, with a granny flat in a house or because a condominium can be divided into two residential units. Further requirements are the consent of both partners and a notarized declaration of division.
4th possibility: transmission to common children
The entire property or part of a spouse can be transferred to one or more children together. This gives the child all rights and obligations associated with home ownership. This also includes financial obligations such as renovation costs, insurance and taxes. In the case of underage children, both parents and the guardianship court must agree.
5th possibility: House renting and sharing of income
If both spouses no longer want to live in the house but still want to remain the owners, you can rent out the property. With the rental income, the house financing can continue and the loan can be paid off. However, an agreement between the two partners is necessary. It is also helpful to agree on the specific procedure for renting. This should clarify who takes on which tasks (accounting for rental income, repairs in the event of damage, drawing up the utility bill). Advantages of this variant are:
- No changes need to be made in the land register, so there are no land register costs.
- If rental income is left after deducting the regular costs, both partners can make a profit.
- Since the loan is still being repaid, no early repayment penalty has to be paid to the bank.
6th possibility: division auction
A division auction is carried out after the divorce if both partners cannot agree on a common procedure for the further use of the property. Each of the parties who are entered in the land register can apply for a division auction at the local court. If there are no admissible objections, the house will be auctioned off to the public. The sales proceeds will be divided among the divorced spouses after deducting all costs.
This solution has the disadvantage that real estate is often sold well below the usual market value at auctions. This creates a significant financial loss for the previous owners.
Who has to repay the real estate loan after a divorce?
The bank takes the loan back from those who signed the loan agreement. Regardless of whether there is a marriage or not. For you as a borrower, this means:
- If only one of the spouses has signed, the bank will only contact him.
- If both have signed, both are obliged to repay the home loan. It does not matter whether one of the borrowers moved out after the separation and who is in the land register. In this case, it is important that each of the spouses is liable for the entire loan amount. So the debt is not split halfway between both borrowers.
What does discharge from custody mean in the event of a separation?
If there is agreement on how to proceed with the real estate loan after the divorce, the loan agreement can be adjusted accordingly. Then, for example, it can be regulated that only those who stay in the house can continue the loan agreement alone. In this case, an application can be made for the releasing partner to be released from criminal liability. However, as a contractual partner, the bank is not obliged to accept this and rewrite the financing. She will check whether the sole payer has the necessary creditworthiness.
What happens to the home loan in the event of a divorce?
There are three options for dealing with real estate finance in the event of a divorce.
- Both partners repay the loan early and in one piece.
- Both partners continue to pay off the loan together after the divorce.
- One of the two is responsible for paying back the home loan.
With each of the three possibilities there are certain aspects to be considered, which are described below.
Variant 1: Pay back the loan debt as a one-off payment
This variant is often used when neither of the two wants to stay in the shared property. If, in this case, the house or the condominium is sold, the remaining loan debt can be settled with a one-off payment as a special repayment with the sales proceeds.
However, the approval of the lending bank is necessary for this, because banks accept a financial loss through the immediate repayment. You lose part of the interest income previously calculated when the contract was signed. For this loss, they usually have a prepayment penalty paid by the borrower. With high loan amounts, five-digit sums can come together. You can use our prepayment calculator to get an overview of possible costs.
Variant 2: Continue to pay off the home loan together after the divorce
Both partners can agree to continue repaying the home loan after the divorce as stipulated in the loan agreement. This is easily possible if both the husband and wife have signed the loan agreement and are entered as debtors in the contract. For this variant, it is irrelevant who lives in the house or whether it is rented out. It also doesn't matter who is entered in the land register.
This variant is often used when dividing up real estate, but also when the divorced do not want to completely separate from the common house and therefore rent it out. Then the rental income is used to pay the installments on the ongoing loan.
It is important for the divorced to have a good relationship with one another after the separation, after all, many things have to be discussed and settled together. For example, the amount of rent and the distribution of pending administrative tasks.
Option 3: One of the divorced will repay the loan
If only one of the spouses was the borrower in the loan agreement from the start, the divorce does not change the fact that the spouse is responsible for the loan repayment. The obligation to pay in installments exists regardless of whether the borrower stays in the house or not.
It becomes more complicated when both spouses are in the loan agreement as borrowers. Even if they agree that one of the partners wants to take over the financing, the home loan and continue to pay off on his own, the bank as the lender must agree to this. She is not obliged to do so. The bank may insist on a new loan agreement, which can result in the payment of an early repayment penalty on the old loan. And it will take a very close look at the creditworthiness of the only borrower. If there are any concerns, the bank could insist that additional people be included in the contract as collateral. These can then be parents or siblings, for example.
Marriage contract: this is how you arrange the future of the property before the divorce
Married couples have the opportunity to independently determine the division of their assets after a separation. In a marriage contract, for example, before the marriage is entered into, it can be laid down how the property will be handled in the event of a divorce, who will keep the common house and what compensation payments are to be made for it. As part of this amicable separation of property, other assets such as household items can also be divided up. Regulations on maintenance payments and custody are also possible in a marriage contract. If there is no marriage contract and the partners cannot agree on a division of assets in the event of a divorce, the profit sharing takes effect.
What is a gain sharing and community of gains?
Married couples live in a community of profit if they do not agree otherwise through a marriage contract. That means everyone keeps their own wealth. Only if both acquire assets together, for example when buying a property, are both owners.
If the marriage ends, the community of gains ends and a gain adjustment is carried out, which also includes the house. The gain, i.e. the increase in wealth, is divided between both. For this, the gain of both spouses must be calculated and compared. A house inherited during the marriage is not included after the divorce. Whoever inherits it can keep it. Whoever achieved a higher profit has to give up half of his surplus.
A marriage contract is only effective if it is certified by a notary. Notary fees are due for this, which are based on the value of the property. In most cases, however, these are lower than legal and court costs if there is no marriage contract and there is a dispute with a legal dispute.
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