Berlin/Munich — When a married couple buys a home with a mortgage and later divorces, two issues must be separated: the property and the loan. Markus Steiner from Verbraucherservice Bayern im KDFB and Eva Becker, a Berlin family law attorney and chair of the family law committee in the German Bar Association, outline three options.
The first option is for one partner to take over the home and pay the other out. Initially, the loan and the property are to be viewed separately, as Steiner says. If only one partner signed the loan contract, that partner must continue paying the monthly installments. If both partners signed, both are fully liable for the remaining debt. If one wants to take over the loan alone, the bank must release the other from liability. The bank will only agree if the remaining partner alone has sufficient income and collateral for the loan.
A transfer of the property from two owners to one requires a change in the land register and a notary. The payout is based on the current market value of the home minus the remaining loan debt. Experts or real estate agents must first determine that market value. If the difference is 500,000 euros, the partner who is bought out receives 250,000 euros.
Then it must be checked whether either partner has a claim to equalization of accrued gains. In Germany, this statutory regime applies automatically when couples marry without a prenuptial agreement. The partner who achieved the larger increase in wealth during the marriage must give half of the difference to the other. If the difference is 100,000 euros, the better-off partner owes 50,000 euros. This equalization can be offset directly against the payout and can reduce or increase it. Tax issues also arise: the transfer of a co-ownership share to the ex-partner in exchange for compensation can count as a taxable disposal. Those affected should have tax advisers review it, says Becker.
The second option is to sell the property and repay the loan early. Steiner describes this as the cleanest solution for both partners. However, if the mortgage is canceled before the fixed-interest period ends because of the sale and the remaining debt is settled, the bank may demand compensation for lost profit. Borrowers should ask their bank about the amount of the early repayment penalty. Ten years after the loan is disbursed, borrowers have a statutory special right of termination with six months' notice, without such compensation.
After a sale, the proceeds first go toward the remaining debt. Notary and broker fees and other ancillary costs are then paid. The rest is split between the partners. Equalization of accrued gains must also be considered if there was no prenuptial agreement, Becker says.
The third option is for the divorced couple to keep the property and rent it out. Steiner says both parties remain legally and economically closely tied and effectively form a community of co-owners. To avoid disputes, clear rules are important. The couple should put in writing who manages the property, commissions repair workers, and prepares the utility billing. They can also appoint a property manager. Both ex-partners should be named as landlords in the lease.
A separate account should receive the rent. From it, the ex-partners pay all costs, including loan installments, property tax, energy, and repairs. Gains and costs are split according to the ownership shares in the land register, usually half, Steiner explains. For the bank, both ex-partners usually remain joint debtors. If one does not pay his or her share under a joint financing arrangement, the bank has the right to demand the entire amount from the other.
On taxes, both partners must report rental income in their respective tax returns. Both must submit an annual declaration for determination to the tax office, Becker says. The tax authority then determines the total surplus or loss and allocates it to their personal tax returns.
Sources: Handelsblatt.