When a marriage or partnership breaks up, it is always a dramatic situation and a major turning point in life. It becomes even more complicated if you have invested in a property together. So what exactly does the sale of an apartment or house look like in the event of a separation? In this article, we give you a complete overview of the options. You will find out what you need to consider when selling and how an amicable agreement can be reached. Professional advice is always advisable in such a situation.
Legal basis for the sale of real estate upon separation
The legal basis for dispositions of assets by spouses in the marital property regime of community of accrued gains – i.e. also for dispositions of joint real estate – is regulated in Section 1365 of the German Civil Code (BGB). This section stipulates that both parties must explicitly agree to the sale of a house or apartment – even if only one spouse is listed as the owner in the land register.
If, on the other hand, the divorce is finalized, all rights are transferred back to the sole owner and he or she can sell the house or apartment without consent. However, this requires an equalization of gains, in which the assets at the beginning and end of the marriage are compared. Gains are defined in Section 1373 of the German Civil Code (BGB) and are understood to be the increase in assets that each individual partner has achieved during the marriage. Whoever has gained more must generally compensate the other partner up to half in the event of divorce. The property valuation is therefore important for determining the spouses’ accrued gains. It is therefore important to seek advice from a professional estate agent or other qualified valuer in this regard.
If you are in a community of accrued gains and both persons were entered in the land register when the property was purchased, the value is to be counted equally as part of the couple’s assets and will be halved exactly after the divorce. In reality, however, such a division is only possible when the property is sold and the corresponding proceeds are received. In this respect, it often makes sense to include certain provisions in a prenuptial agreement from the outset.
The role of the priority notice of restitution in the event of divorce
Conveyance generally refers to the transfer or transfer of ownership of real estate, regardless of whether this takes place between spouses or other persons. The entry of a priority notice of conveyance in the land register serves as security so that the purchaser of a plot of land or property is reliably entered in the land register as the new owner.
In a marriage, the transfer of property between spouses is usually based on the expectation that the marriage will last. If spouse A (transferor) transfers half of their house to spouse B (transferee), both become co-owners. In order to explicitly link the co-ownership of the acquiring spouse B to the continuation of the marriage, both spouses can stipulate that, in the event of divorce, a priority notice of conveyance is entered in the land register in favor of A, which secures his claim against B for the retransfer of his share of the property.
However, if there is no such agreement, A and B remain co-owners of the house even in the event of divorce. They would then have to decide jointly on the future of the property. They are free to sell or rent it out. There is also the option of one partner paying out the other, i.e. transferring one partner’s co-ownership share to the other in return for a corresponding compensation payment. However, if no agreement is reached, a partition auction can be carried out as a last resort, in which the property is auctioned off publicly by the local court and the highest bidder becomes the new owner.
Valuation and sale of the property in the event of divorce
If the separating couple decides to sell the property, its current value must usually be determined by a professional property valuation. Such a property valuation can be carried out by a professional real estate agent, for example. They can determine how much money the house or condominium can be sold for based on its location, features and development potential.
Ideally, you should come to a decision together and commission a real estate agent for an expert property valuation. The basis for this is, of course, that both partners are interested in selling. However, the valuation itself is an advantage in any case, because if one of the partners is to become the sole owner of the property, he or she must pay the other party their share.
The valuation is also the basis for selling the property and then sharing the proceeds. After the valuation, the estate agent, for example, can prepare an exposé and offer the property on the market. In the meantime, the selling couple or ex-couple should collect all the documents and papers for the sale of the condominium or house. This includes an extract from the land register, energy certificate, floor plan, building description, living space calculation and list of existing loans.
The next step is to organize an appointment to view the property with the potential buyer. If the prospective buyer accepts the offer, a notary appointment is scheduled for the property sale and a priority notice of conveyance is entered in the land register in their favor. Once the money has been transferred, the buyer is entered in the land register as the new owner of the property and the proceeds of the sale can be divided between the former partners.
Financial aspects and dealing with the real estate loan in the event of separation
To finance the purchase of a property, a loan is often taken out and covered by a mortgage. But what happens if you split up and the real estate loan is still in place when you separate? Is there possibly a prepayment penalty if the loan is settled before the end of the term?
Dealing with the real estate loan in the event of separation
A loan to finance the purchase of a house or apartment usually has a fixed term. If you want to cancel the contract for the upcoming sale or pay off the remaining installments in one go, in most cases the lender will demand a prepayment penalty.
This is common practice in Germany because there are no variable interest rates in real estate financing. In the event of early repayment by the borrower, the lender therefore loses out on potentially rising interest rates. If the loan ends prematurely, this is therefore seen as a refinancing loss that must be compensated by the borrower. The amount of the early repayment penalty is calculated from the assumed interest loss and interest margin losses, less the risk and administrative costs. In very general terms, it can be said that the amount of the early repayment penalty for a property loan can be assumed to be around five to ten percent of the outstanding debt.
How you can avoid the early repayment penalty
If you are working together towards the same goal despite the separation, you can use a few tricks to avoid the early repayment penalty. Property swaps and debtor swaps are very popular. In a property swap, you would simply purchase a new property and then use it as security for the loan. This remains in place while you put the old property up for sale.
In the case of divorce, however, debtor exchange is much more typical. In this case, you agree with the person who buys the apartment or house after the separation to take over the real estate loan as the new debtor.
According to Section 502 (2) No. 2 BGB, the lender also loses its claim to early repayment compensation if there are errors in the calculation in the contract. In practice, this happens more often than you might think. It is therefore worth going through the information on the right of termination, the early repayment penalty and the contract term with an expert to uncover any inconsistencies.
This also applies to the right of withdrawal in the contracts. It often happens that this right is incorrectly stated and the revocation period was never legally set in motion. This means that you could get out of the loan agreement very cheaply even years later.
Nevertheless, you should not plan for these two options as guaranteed. However, it is right and important to address the issue. Nevertheless, the focus should be on issues such as debtor or property assumption or which of the two partners will ultimately cover the compensation amount.
You may also decide to simply rent out the property together. The loan will then continue to run as normal and you can pay off the loan installments via the rental income. This is an excellent interim solution so that you can still be reasonably amicable after the separation. However, be aware that you may have to pay tax on the rental income.
The options at a glance:
- Property swap: loan is transferred to new property, which then also serves as security
- Debtor exchange: buyer of the property takes over the loan
- Errors in the contract: claim to early repayment penalty may be excluded
- Error in the right of objection: objection may still be possible
- Letting the property: ownership and loan remain untouched
Early repayment penalty is due: who has to pay?
From a purely legal point of view, the person who is party to the loan agreement as the borrower must always pay off the loan. This person is therefore also responsible for paying the early repayment penalty. When concluding the loan agreement, it is therefore advisable to clarify possible issues for the future and, ideally, to assume equal responsibility for the loan repayment.
If one partner remains living alone in the house, the other will receive compensation and the bank will probably suggest a debt rescheduling. Repaying the loan alone as a separated person will naturally take longer, which is why the lender is often prepared to adjust the term or the repayment rate. Compensation is then not due.
Tax considerations for the sale of real estate on divorce
If you want to sell a property very quickly, you may have to pay speculation tax. This can lead to a number of problems, especially for separated couples. Under certain circumstances, the sale can even be a loss-making transaction, meaning that the former partners can no longer recover anything from the original purchase. However, if you decide to use the property yourself after the divorce or separation, you can avoid having to pay speculation tax.
Speculation tax and own use of the property
In general, the speculation period in Germany is ten years. This means that properties that are resold within this time frame after purchase are taxed as private sales transactions in accordance with Section 23 of the German Income Tax Act (EStG). Taxes at the personal tax rate are then payable on any profit above the tax-free limit of 600 euros (per calendar year). If there are only a few years left of the speculation period, you may want to remain invested in order to avoid incurring speculation tax when selling the property in the event of separation.
However, the ten-year period only applies if you jointly own a property in which you do not live or have not lived yourself. If you have lived in the property yourself in the year of sale and the two preceding years, you can sell without paying speculation tax due to your own use.
However, the devil is in the detail here. Many couples want to separate first and then sell the house or condominium after the divorce. However, at the time of the sale, you would practically no longer live in the property and would have to reckon with the sale.
Tips for avoiding speculation tax:
- If you keep a second home in the property, this is still considered owner-occupation under the Income Tax Act.
- If you have lived in the property for more than two years without interruption, sell the condominium or house immediately in the year of separation.
- If you have not lived in the property, you must regularly wait for a speculation period of ten years, beginning with the purchase of the property.
Emotional management of the sales process
A property in which you have lived together with your partner is always a home in which you once felt comfortable and secure. Parting with such a property can therefore come with a high emotional burden. However, many separating couples also want to draw a line as quickly as possible and start a new life in a different environment. In reality, however, the selling process can drag on, which is why it is advisable to establish certain coping strategies.
Finding support and advice
Sentimentality, frustration and sadness are quite normal when the end of a marriage or partnership also means the end of a phase of life and the separation from a cherished home. The emotional situation can be all the worse if the sale of the property results in a financial loss. In this case, it is particularly important to keep in mind and remember that you have made a decision that will be positive in the long term.
A good, understanding and, above all, neutral estate agent is important for the sales process itself. They take emotions out of the equation and look at the situation objectively. He or she will take care of the property valuation and all the other very stressful and sometimes time-consuming tasks that can lead to additional stress during the sensitive phase of the divorce.
Important tips that can make it easier to say goodbye to your house or condominium in the event of separation:
- Make yourself aware again and again why you are selling the property and why this is important for your life situation.
- Empower yourself emotionally by seeking professional divorce counseling – psychological counseling or separation counseling can also help you deal with the emotions of selling your home.
- Prepare gradually for moving out by reducing furnishings and decorations and thus removing a personal element.
- Choose a trustworthy estate agent who will set a realistic selling price and do the legwork.
- Actively take on some sales tasks to distract yourself.
- Possibly choose a different city for the move so that you can start afresh.
- Talk to friends and family about your feelings.
Case study on the sale of real estate in the event of divorce
Let’s assume that a couple with a joint property are separating and want to sell it. While still in the year of separation, they have the property valued by a real estate agent, who values it at 400,000 euros. The couple originally bought the property together for 300,000 euros nine years ago and there is still a loan in the husband’s name.
If the couple did not live in the property together, it would make sense to wait another year to avoid speculation tax completely. Alternatively, the partners could sell the property during the year of separation if they still have at least a secondary residence there at that time.
In connection with the sale, the loan taken out to finance the property is to be terminated. However, this would result in a prepayment penalty and reduce the profit from the sale. The husband would be contractually obliged to pay the compensation to the bank as lender.
Fortunately, a buyer is found who not only takes over the property, but also the loan. As a result, the bank does not charge a prepayment penalty and the sellers receive the purchase price in full, minus the unpaid loan amount.
This means that the loan installments already paid and the personal contribution have been recouped. However, there is a gain of 20,000 euros, which is now divided equally between the two people’s assets. Both spouses are therefore removed from the land register as owners of the property.
Conclusion: Conducting property sales in the event of divorce in an orderly and objective manner with professional help
Separations are a major challenge in many respects. In addition to the emotional strain, there are numerous practical tasks, including the sale of the joint property. It is worth keeping a clear head here and taking a close look at the legal and contractual requirements of the loan.
First of all, it is important to keep an eye on the speculation period to avoid having to pay high charges without need. Apart from that, the early repayment penalties charged by banks are a certain pitfall. If you want to get out of the loan agreement earlier, you usually have to pay such an early repayment penalty for the expected loss of interest. However, a property or borrower swap can be a way out here.
Overall, couples always come out of the house and apartment sale in divorce better if they work together and use a neutral agent. An estate agent is essential if only to value the property correctly. This may be the basis for determining the gain and dividing the assets later.
Our tip: Rely on a trustworthy estate agent who understands your situation and has an objective view of the sale of property after divorce.
FAQ: Frequently asked questions about selling a house or apartment in the event of separation
How is a property divided in a divorce?
First, the value of the property should be determined. If the spouses bought the property together and both own it, the increase is allocated equally to the partners’ respective assets. Now it depends on what is to happen to the property. If it is sold, the proceeds are divided equally. If, on the other hand, one of the two partners is to become the sole owner, he or she must pay the other the share to which he or she is entitled. The co-ownership share is then transferred to the partner and they become the sole owner of the property.
What do I have to do to sell a joint property in Berlin after the divorce?
The first step should be a discussion with the former partner and co-owner. Together, you should go to a trustworthy estate agent and get neutral advice. They can value the property and suggest solutions. The determined property value forms the basis for the calculation of accrued gains and any compensation payments. While the estate agent takes care of the sales process, it is also important to talk to the bank. In the case of loans that have not yet been paid off, the bank usually insists on an early repayment penalty to compensate for possible interest losses. However, the early repayment penalty can possibly be avoided by the buyer of the property taking over the loan.
What happens if both spouses are entered in the land register as owners after the separation?
If both spouses are entered in the land register, both must agree to the sale of the property upon divorce. If there is any doubt, this will result in court proceedings, which may even result in a partition auction, where high losses cannot be ruled out. A much better solution would be for one partner to remain in the property or retain ownership and pay compensation to the other for their share.
