Selling a house in the event of divorce or separation

Since shared properties are often not yet paid off and neither party can usually afford to continue financing the home on their own, selling the house or apartment must be considered in many cases. In this article you will find out, among other things, what influence the chosen property regime has in a divorce, what needs to be taken into account when it comes to mortgages, what happens to the property during the separation phase and what alternatives there are to a sale.

Who gets the property in a divorce?

In order to answer this question, the agreed property regime is crucial: In Germany, a distinction is normally made between the three property regimes: community of property, separation of property and community of property, whereby community of property automatically comes into play if no marriage contract with a community of property or separation of property has been agreed. On the other hand, the form of ownership is also important for answering the question. There are three forms: sole ownership, co-ownership and joint ownership.

The three property regimes

If no marriage contract is concluded, community of gains applies in Germany. The assets consist of your own assets, which already existed before the marriage, and the gains made during the marriage. Your own assets include, for example, property that was brought into the marriage by a spouse. Important to know: An inherited apartment or house is also part of your own assets. However, if a property is purchased jointly during the marriage, it is considered a gain. In the event of a divorce, these are divided equally, whereas the assets brought into the marriage belong to the respective spouse.

For the community of property, a marriage contract is concluded, through which the assets of both spouses that were brought into the marriage and acquired during the marriage are merged and thus form the common property. However, certain assets from the overall estate can be separated out through separate agreements, for example as special assets. Since the entire property can only be disposed of jointly, the spouses must agree in the event of a divorce who owns the property and with what share. This can be easily regulated in the marriage contract.

A marriage contract is also required for the separation of property. The assets always belong to one of the spouses since there is no joint ownership. This means that even in the event of a divorce, it is clearly regulated who continues to own the property.

The three forms of ownership

In the case of co-ownership, the spouses share ownership of a property and each can dispose of the shares freely. The shares of co-ownership are entered in the land register. Although different arrangements and divisions can be made, a 50/50 ownership ratio is the most common choice. However, this is independent of the financing provided by the respective spouses. Depending on how the ownership share is divided, the mortgage and the profit from the sale will also be divided accordingly in the event of a divorce.

With joint ownership, however, the property always belongs equally to both spouses. Here, too, it does not matter how high the respective financing share was. For this reason, unlike joint ownership, there is no division into ownership quotas in joint ownership. In the event of a divorce, the division of assets from the sale of the property is often carried out according to the agreements in the partnership agreement.

In sole ownership, the property belongs to the sole owner; even a divorce does not change that. What is relevant, however, is whether the assets increased during the marriage, for example through the property, and whether there was an increase. In the case of real estate, this is the case if the property was purchased as sole property during the marriage or if the property was expanded or modernized during the marriage. Increases in the value of a property brought into the marriage are also a gain and are subject to compensation in the event of a divorce.

What alternatives to selling real estate are there in the event of a divorce or separation?

If there are reasons not to sell the apartment or house, then there are alternatives. On the one hand, the property can be transferred to a spouse. However, this assumes that the person in question wants to and can pay for the mortgage alone. However, the transfer is only possible if the bank agrees to it. If this is the case, an additional report is required that determines the market value of the property so that the other spouse can be paid out accordingly. The share can vary depending on the property regime and form of ownership, but in most cases it is 50%.

On the other hand, it is also possible to keep the property together after a divorce or separation and, for example, to use it as an investment property, whereby both the rental income and the management costs are shared. You also reserve the option to inherit the property later.

It is also possible – if only one person is registered as the owner – that a right of use can be agreed instead of a payment. This is often used when children are affected by the divorce. In this case, the sole owner has to leave the property, but is then compensated accordingly in the form of rental income.

What happens to the mortgage in a divorce?

In a divorce involving property ownership, both the marital property regime and the form of ownership are crucial. In Germany, the community of gains is the most popular property regime. This applies if nothing separate has been agreed upon by the spouses. If there is no marriage contract, community of gains automatically applies. In a joint venture, the spouses are jointly and severally liable for debts that they incur together. This can apply, for example, to mortgage debts.

Co-ownership is the most common form of ownership in Germany. In the case of co-ownership, in most cases both spouses own 50% of an item, regardless of how much was invested per person, for example in purchasing an apartment or house. However, by entering the ownership quota in the land register, it can also be clearly stated who owns how many percent of the home based on the financing.

The combination of community of gains (solidarity liability) and joint ownership means that both spouses are liable for the entire mortgage, regardless of their respective financial situation. The bank has the opportunity to choose which party should pay off the debt. However, it also holds the other person liable in order to have more security.

In most cases, couples no longer want to live together in the same property after divorce. For this reason, the person who does not wish to continue living in the property withdraws from the mortgage agreement. However, this decision depends on the bank and cannot always be implemented due to a lack of financial resources and security. If this happens, there are three options:

• Reduce the mortgage to also reduce the amount of debt.
• Offer the bank additional security such as life insurance as collateral.
• If the first two measures are not possible and the bank does not agree to take over the mortgage, the person who does not want to stay in the property will only be released from liability when the property is sold.

Five tips for dealing with real estate during divorce or separation

Would you like to take over the property? Then try to take over the current mortgage. If you exit the contract, you would otherwise incur high early repayment penalties.

Would you like to buy a new property? In this case, you can take over the joint mortgage after the divorce, although the bank will also re-examine the financial resources and securities.

Do you want to sell the shared property? In addition to a classic sale, you can also initiate an auction of the property, although the sales value is uncertain. So that you don't sell the property below its value, we recommend the bidding process, in which your property is advertised by an experienced broker.

Would you like to avoid possible problems in advance? Then it is advisable to conclude a contract before or at the beginning of the marriage. Also remember to have the ownership percentage entered in the land register. And ideally, you should deal with the various property regimes and forms of ownership before the wedding.

Would you like to replace ongoing financing? In this case, use the proceeds from the sale of the property. The amount that remains, for example, after paying the mortgage, additional costs or any early repayment penalty can then be divided between the spouses.