For many people, real estate is not merely provision for retirement. It represents a self-determined life in their own house or apartment. Couples in particular imagine this in beautiful terms: living together in a dream property and being happy into old age. The classic dream of owning a home. But then disputes arise. Sometimes a divorce is ultimately pending. Such a separation changes not only the interpersonal relationship. Assets are also affected. This applies especially to real estate. After all, properties have enormous value. Disputes over apartments and houses therefore frequently become bitter.
If you are shortly before a divorce or would like to protect yourself, you will have questions about this. What happens to your property in a divorce? Who receives the apartment or house? Do you have to pay off the other partner? What happens to the property loan? How can a forced sale be prevented?
Real estate has great value
When a divorce occurs, it is often not particularly harmonious. The reasons for the separation lead to disputes on secondary fronts, and both sides sometimes fight bitterly for their rights. With real estate, there is also an emotional component: A house or apartment is often home and perhaps even the family home or the children’s house. Therefore, those involved feel connected to the property and also want to secure it for the period after the separation.
Against this background, it is difficult to decide objectively and amicably on a financial settlement between both partners. Nevertheless, this is precisely a key issue in the official separation. Since properties can quickly reach a six-figure value, they become the focus of the dispute. As apartments and houses are difficult to divide, a financial equalization is generally determined, resulting from the so-called equalization of accrued gains.
Equalization of accrued gains
There are two ways to avoid a dispute in a divorce. One is to agree on separation of property. The other is to sign a divorce consequences agreement. In it, partners can agree, either at the time of the wedding or later, on details regarding how they wish to proceed in the event of separation and divide their assets.
The typical case, however, is that such agreements do not be available. Then both partners must reach an agreement in or out of court. Often, one party files an application for an equalization of accrued gains. This leads to an inventory of assets and an equalization payment.
Legal basis: According to Section 1363 of the German Civil Code, both partners form a community of accrued gains. This ends with the divorce. Accordingly, assets are not pooled during the marriage or registered civil partnership, but increases in assets must be equalized in the event of a divorce.
Calculating the equalization of accrued gains
The equalization of accrued gains involves an assessment of assets. Both partners determine the increase in assets (money, tangible assets, etc.) they generated during the marriage or registered civil partnership. The respective amounts are compared when determining the equalization of accrued gains. The partner with the lower increase can demand half of the difference thus determined as equalization.
To clarify once again: You only consider the change in your assets during the marriage or registered civil partnership. This is not about your current actual total assets!
Note: The legislature provides for a deviation for marriages that were entered into while the GDR still existed. Here, the starting point for the calculation is not the wedding date. It is the date on which the eastern German states acceded to the Federal Republic, i.e. October 3, 1990.
What influence do properties have?
If real estate is included in calculating the value of the assets, one question is of central importance: Who is the owner and registered in the land register? Ownership conditions have a major influence on how the property is included in the equalization of accrued gains and who can retain the property.
- If you brought the property into the marriage or partnership, you remain the owner. However, you must include any potential increase in the property's value in the calculation of the equalization of accrued gains.
- If you acquired the property alone during the marriage or registered civil partnership, you also remain the owner. However, you must take the property into account when calculating the equalization. If the other partner contributed financially to the purchase or modernization measures, an individual legal assessment is required.
- If you acquired the property jointly and are joint owners, the property must be divided. In the equalization of accrued gains, the respective share in the property is taken into account. For the calculation, this usually results in an even split, unless one party alone has paid off the loan or contributed more equity when purchasing the property. However, the further ownership arrangements remain “bargaining chips” in the divorce settlement. A partition auction is also possible as a last resort.
Attention: Even if you are the sole owner, you may not sell your assets during the divorce proceedings without your partner’s consent. Doing so could make it more difficult or impossible to assess the increase in value. A court may likewise order that, until the divorce is final, only your partner has the right to live in your property.
The significance of real estate in a divorce and for the equalization of accrued gains is illustrated by an example calculation. You brought a house into the marriage that was worth 200,000 euros. However, this property is worth 260,000 euros on the date the divorce petition is filed. Without taking other assets into account, you would then have to pay your partner half of the difference in value. In this example, that would be 30,000 euros. The problem of the property’s value now also becomes apparent. Such sums often cannot be raised without accessing other assets or taking out another loan.
Another problem may arise if you renovated or modernized the property during the time you lived together. On the one hand, this increases the appreciation in value. On the other hand, it must be examined who financed what share of the work. This may also be taken into account. As a result, the relatively straightforward statement of assets may become very complicated.
Determining the value
There are various ways to determine the current value of a property. You can determine the current market price through a price comparison or market observation. However, calculations that take into account not only general market conditions but also the local standard land value, location and substance or condition, and the fittings and furnishings are more precise.
If legal proceedings arise, the court may commission an expert opinion to determine the market value. You can anticipate this or submit your own calculations. In case of doubt, the opposing party and the court will give precedence to official calculations.
If there isIf the property still has outstanding debt, this reduces its asset value. This means: Debts must be deducted from the value before they are included in the equalization of accrued gains. But caution: As the debt burden is reduced over the years, your net worth increases. If, for example, you repay 30,000 euros in debt during five years of marriage, your assets increase by this amount if all other parameters remain constant, and this must be taken into account in the equalization of accrued gains!
Pitfall: Loans for jointly owned properties
If the property is still mortgaged, this may have consequences for both partners. When a marriage takes place, many banks require, to secure the outstanding debt, that the partner also be added to the loan agreement as a debtor.
If such a constellation exists, both partners are liable for the remaining loan regardless of ownership. The bank would even be entitled to demand payment from only one of the partners—including the one who is not registered in the land register! Therefore, the names under the loan agreement should always also be the names listed as owners in the land register.
Caution: If the loan agreement is changed to one name as a result of the divorce, this usually requires refinancing. The banks charge an early repayment fee for the old loan to compensate for the interest lost. In individual cases, this can result in an additional financial burden. If this is not part of the divorce agreement, the owner must bear the cost.
Divorce affects loans
Divorce can also have further consequences. Until ownership arrangements have been clarified, both partners are responsible for repayment under a joint loan agreement. If one party refuses, this can lead to irregular payments and even foreclosure.
Divorce is another risk for individual borrowers. Following separation, financial circumstances can change significantly, for example due to an obligation to pay maintenance. It may even no longer be possible to service the loan installments. Here, too, foreclosure may be threatened.
Ways of using the property
If the property belongs solely to you in the event of a divorce, it remains in your possession. However, you may be required to make equalization payments. This can lead to a considerable burden. Additional loans or refinancing can be a good way out. As a last option, the Sale of the property.
It becomes significantly more complicated when it is a jointly owned apartment or house. In this case, a decision must be made during the divorce proceedings regarding its future use. The following options are available:
- Sale: Unless one party insists on remaining, selling the property can be an elegant solution. After deducting the remaining loan, both parties then receive a certain sum of money that they can reinvest. But beware: Taxes may be due, reducing the profit. With this approach, both parties should agree on an orderly process without time pressure. An apparent forced sale reduces the possible sale price.
- Buying out the partner: You can buy out your partner or be bought out. This requires changing the land register entry and involving a notary. The equalization payment can be part of a comprehensive settlement and is generally included in the equalization of accrued gains. However, this solution requires a substantial amount of cash and refinancing of existing residual debts.
- Right of residence: In principle, it is possible to retain the property and grant one partner a right of residence. In return, that partner pays compensation or rent. Such solutions should be supported by a contract. This also applies to operating costs and maintenance measures.
- Rental: If the apartment or house is to remain jointly owned, for example to make it available to the children later, both partners can rent out the property jointly. This even generates regular income, but requires jointly organized management.
- Gift: You can give the property away jointly. This route makes sense, for example, if you have adult children who would benefit from ownership. Observe the tax-free allowances above which gift tax is due. This approach only makes sense if the property is debt-free.
- Division in kind: In principle, it is possible to convert a property into two halves – for example, two condominiums -. In practice, however, structural obstacles cause problems. One disadvantage: Management remains a joint responsibility.
- Partition auction: One party can apply for a partition auction even before the divorce is final. The other partner then has two weeks to, with a financial offer, the Preventing the auction. If this is unsuccessful, the court must auction the property and pay both parties their respective shares. This step generally results in low proceeds below market value and harms both parties.
Conclusion: Make provisions!
It makes sense for property owners to consider a possible divorce before or during a marriage. No one likes to think about separation. But when it comes to real estate and other assets, it is advisable for both parties to prevent disputes at an early stage through appropriate arrangements. This safeguards assets and ultimately prevents a necessary sale below value. For example, a divorce agreement can be useful to regulate how a property is handled in the event of separation. After all, fair agreements are easier to reach in good times than during a separation.