A separation or divorce can be very emotional, but also have serious financial consequences. It can get particularly complicated if you and your partner own real-estate that is under mortgage. In this case, there are several options, and where you go from here will depend on your individual situation. Your main options are as follows:
Sell your property
Selling your house or apartment can be a sensible solution. It reduces financial obligations and makes it easier to start again. The proceeds are split between both partners after all liabilities and costs, such as broker and notary costs, have been paid. Of course, any pre-nuptial agreement or distribution of surplus will be taken into account.
Important: if you cancel your mortgage early due to selling your property, the bank has the right to claim damages. This is known as a prepayment penalty. Contact your bank to find out how much you will be required to pay. Depending on how much the prepayment penalty comes to, it may turn out that selling the house is not the best solution.
One partner keeps the property
If one partner decides to keep the property, the person staying in the home usually has to buy out the person moving out. The person staying then takes over the share of the value of the property owned by the person moving out. Get an independent evaluation of the value of the property to make sure you are taking any increases in value into account and ensure the buy-out is fair.
If one of the partners takes over the property, buying out the other, it is important that the buy-out be notarised, especially if there is a transfer of title or change in the debtor on the mortgage. In addition, it is important to ensure that all necessary changes are made in the land register (Grundbuch), to ensure that the new ownership is legally sound.
Changing debtor and contracts
If one of the partners plans to take over the mortgage on their own, for example because they plan to continue living in the property, this is known as a change of debtor or release from liability. The bank will have to agree to these changes, and in most cases this will also involve adjusting the relevant contract. Often, a new financing arrangement is added to the existing loan, which can lead to additional costs. Of course, the bank will also check the creditworthiness of the person taking over the loan. It is best to contact your bank as soon as possible to find out what requirements you have to meet and which documents you will need.
It is also important to check whether existing insurance policies connected to your mortgage, such as mortgage life insurance, need to be adjusted or if you need an entirely new policy.
Renting the property
If neither partner wants to keep living in the property, there are still options for keeping it. One obvious one is to rent it out, provided doing so is financially viable. The rental payments can then be used to cover the mortgage costs. However, if you choose this path, you need to take the risks into account. What if the rent is not paid, or repairs are needed?
The advantage of renting out the property is that there will be no need to make changes to the land registry and there is no prepayment penalty on the mortgage. Of course, it also requires that the ex-couple come to an agreement with one another. The best way to do this is to determine, in writing, who is responsible for finding tenants, taking care of repairs and paying invoices.
Advice and support
Careful planning and clearly defined agreements are essential to ensure that your finances remain stable after a separation. Take advantage of your bank’s consultation services to find the best solution for your mortgage. It can also be helpful to seek legal and financial advice. If you cannot agree on what to do with the property, it may end up subject to compulsory sale by auction (Zwangsversteigerung), which can have serious legal and financial consequences.
