The property is often not yet paid off at the time of the divorce. Those who signed the loan agreement are responsible for servicing the property loan. This is often both spouses. This is because the financing bank minimises the risk of a loan default if two spouses have signed the loan agreement instead of just one. In this case, both parties have a joint and several liability to the bank. This means that the partners are not each liable for half of the current loan, but both can be held liable by the bank for the entire loan amount.
If the property is sold before the fixed-interest period expires in the course of a divorce, the bank charges a fee for cancelling the contract in the form of an early repayment penalty. This amount is based on the loan amount, the term and the conditions such as the interest rate. Low interest rates have prevailed in Germany since 2009, which is why many house builders have taken out long terms of 15, 20 or even 25 years. It is therefore highly likely that the loan agreement will have to be cancelled and an early repayment penalty paid if the property is sold following a separation.
If the property belongs to both spouses, they must agree on its further use (sale, letting, payment to one partner, etc.).
In most cases, the joint property is sold because one partner is unable to finance and maintain the property alone or because it is too big for one person. If he can service the loan with his salary, he can take over the property as the sole owner and pay off his ex-spouse. It must then be agreed with the bank that the second partner is released from the loan agreement. The bank will only agree to this if it is clear from proof of income that the spouse can pay the loan alone.
There are also tax aspects to consider. If the couple has only lived in the shared flat or house for a few years, speculation tax may be payable on the sale of the property. If the property was occupied by both partners in the year of the sale for at least the two previous years after the purchase, this tax does not apply (§23 EStG). However, if there was already a separation during this phase because one partner moved out and the other lived in the property alone or together with the children, speculation tax may be levied on the sale.
Are you unsure how to deal with ongoing financing? Contact us now. We will be happy to advise you.
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