Often, the property is not yet fully paid off at the time of a divorce. Those who signed the loan agreement are liable for servicing the mortgage. This is frequently both spouses. The lending bank reduces the risk of default when two spouses, rather than just one, have signed. In this case, both are jointly and severally liable to the bank. This means that the partners are not each responsible for half of the outstanding loan amount; rather, each can be held liable by the bank for the entire loan sum.
If a property is sold before the end of the fixed interest period due to a divorce, the bank charges a fee for this contract termination in the form of a prepayment penalty. This amount is based on the loan amount, the term, and the conditions such as the interest rate. Since 2009, Germany has been experiencing a period of low interest rates, and many homeowners have therefore taken out long-term loans of 15, 20, or even 25 years. Consequently, there is a high probability that if a property is sold following a separation, the loan agreement will have to be terminated and a prepayment penalty will have to be paid.
If the property belongs to both spouses, they must agree on its future use (sale, rental, buying out one partner, etc.).
In most cases, the jointly owned property is sold because one partner cannot manage the financing and upkeep alone, or because it is too large for one person. If they can service the loan with their salary, they can take over the property as sole owner and buy out their ex-spouse. Then, an agreement must be reached with the bank to release the other partner from the loan agreement. The bank will only agree to this if income statements demonstrate that the spouse can repay the loan on their own.
Furthermore, tax aspects must be considered. If the couple has only lived in the shared apartment or house for a few years, capital gains tax may apply upon sale. This tax is waived if the property was occupied by both partners for at least the two years preceding its acquisition in the year of sale (§23 EStG). However, if the couple separated during this period because one partner moved out and the other lived in the property alone or with the children, capital gains tax may be levied on the sale.
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