Real estate loan in divorce proceedings

In a divorce, the question of what to do with the shared home isn't the only one that arises. Since mortgages often run for decades, it's common for a debt to remain outstanding at the time of the divorce. What options are available to the ex-partners?

Most married couples choose the legal form of community of accrued gains when they get married. This means that in the event of a divorce, property acquired during the marriage, such as real estate, but also debts, belong to both partners.

What if the mortgage is not yet paid off at the time of the divorce?

If a mortgage is not yet paid off at the time of a divorce, there are several options. If the mortgage is in both partners' names, it is usually transferred to the spouse who takes over the property as the sole borrower. However, this requires the bank's approval. If the bank considers the sole property owner not creditworthy, it can refuse the transfer.

What options are available if the bank considers the sole borrower to be not creditworthy?

1. The ex-partners continue to pay the loan jointly: In this case, the person who does not own the property can then have their share of the repayment reimbursed by their former spouse in another way – for example, through separation maintenance.
2. Early loan termination: If both parties do not wish to continue making joint payments on the loan, they can terminate it early. The sole owner will then need a new loan agreement to pay off the remaining debt.
3. Shared occupancy: In rare cases, spouses decide to continue living together in the house, at least for a transitional period. Clear agreements regarding usage and financial obligations must be made to avoid disputes.

Sale of the property

Often, ex-partners ultimately decide to sell the property to pay off the remaining debt. This prevents either partner from becoming financially overburdened. The proceeds from the sale are then divided between the spouses after the remaining debt is paid off. However, it's important to be aware that a prepayment penalty may apply if the loan is paid off early.

Avoid increasing division

To avoid a sale under time pressure and thus a potentially low selling price, it is advisable to sell during the separation year. If both partners absolutely cannot reach an agreement, a partition auction can be requested. In this case, the property is publicly auctioned by the court, and the proceeds, after deducting court costs, are divided. However, this option often results in lower proceeds compared to a private sale and should be carefully considered. An amicable settlement is, in the vast majority of cases, the best solution to minimize financial and emotional strain.

Do you want to sell your property? It's worth consulting an experienced real estate expert. A quality real estate agent will handle the valuation and sale of your property, so you don't have to worry about a thing.

Do you have questions about your property in your divorce? Contact us! We're happy to help.

Notice

For the sake of readability, this text uses the generic masculine form. Female and other gender identities are explicitly included where relevant to the statement.

Legal notice: This article does not constitute tax or legal advice for any specific case. Please consult a lawyer and/or tax advisor to clarify the facts of your individual situation.

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