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Advice on real estate

Home sweet home and valuable property

Property plays a role in almost all separations and divorces in various contexts. It represents the family home and is also an asset. When a couple separates, the first question that often arises is which spouse will take over the previous marital home and how the household items will be distributed.

If the property is jointly owned by the spouses, the long-term future of the matrimonial home and any other property (holiday home, rented property, etc.) must also be clarified as part of the division of assets. Various arrangements are possible here.

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In Germany, you need to review the land registry to find out who the owner of a piece of land is.

Before considering any other aspects of the property, the first thing to do is to take a look at the land registry! This cannot be emphasised enough. Not everyone who speaks of ‘our house’ in the initial meeting or alongside their spouse in mediation is actually the owner of the house. From my experience and from the case law of the family courts, there are many colourful anecdotes to be told in this regard.
The land registry also shows whether the property is encumbered with debts or special rights or restrictions.

Who moves out of the marital home when the couple separates?

When a marriage enters a crisis and it can no longer be expected that the spouses will live together, the first question that arises is who moves out of the shared home. The law refers to this shared home as the ‘marital home’, regardless of whether it is an apartment or a house.

Ideal case: amicable settlement

Ideally, the spouses should be able to agree between themselves on who moves out. In this case the only thing that remains to be settled is the financial impact of the new arrangement. It becomes more difficult when neither of the spouses is willing to leave the marital home to the other. This is often the case when joint children of the spouses also live there and their current living environment should remain unchanged, at least for the time being.

In such situations, it makes sense to first discuss how the children will be cared for in the future. In a residency model, it makes sense for the spouse who looks after the children to remain in the marital home for the time being. In an alternating model, the situation is more complicated. In the (rarely practised) nest model, only the children would remain in the marital home and both parents would move into separate homes and alternately return to the marital home to look after the children.

Likewise, it should of course be considered whether the person who claims the apartment can still afford it in the future. If it is a rented apartment, it must be possible to finance the rent and additional costs. If the person’s own income is insufficient for this, it must be determined whether and to what extent alimony claims may exist against the other spouse.

If the matrimonial home is co-owned by the spouses or solely owned by one of them, it must be determined whether the spouse moving out can demand compensation for use from the other or whether the housing benefit is considered as income for purposes of the maintenance calculation.

Once all this has been clarified, the arrangements made can be included in the separation and divorce agreement.

If necessary, the court decides who gets the home.

If the couple is unable to reach an amicable agreement on the home, each of them has the option of applying to the family court for the matrimonial home to be provisionally assigned to them for the period of separation. However, the legal hurdles for this are relatively high. The required ‘unreasonable hardship’ that would result from continued cohabitation will only be present in exceptional cases, such as violence or a risk to the well-being of the children. There is extensive case law on this. Mere ‘inconvenience due to separation’ is not enough in any case. The ownership structure also plays a role in who gets the home.

During the separation period, the court only determines who gets the home in the internal relationship between the spouses. It cannot change the rental contract with the landlord. If the spouse who has moved out is the sole or co-owner of the marital home, he or she can demand compensation from the other spouse for use of the property.

If the question of which spouse will continue to live in the matrimonial home is still in dispute at the time of the divorce, the parties can again ask the court to decide the matter. The well-being of the children living in the household plays a role here, but so do the living conditions of the spouses, especially their age and state of health, as well as their income and assets.

When the court decision on the allocation of the home in the event of divorce becomes legally binding, the rental agreement with the landlord is automatically also restructured.

If the matrimonial home belongs to one of the spouses alone (or together with a third party), the other spouse can only get the home in the event of divorce in absolutely exceptional cases, if otherwise an ‘unreasonable hardship’ would arise. The person would then have to urgently need the home for private or professional reasons. In this case, a rental agreement with the owner would be established based on housing prices in the area where the home is located.

In practice, court proceedings to determine ownership of a home in the event of divorce are rare, since in most cases a court ruling is sought as soon as the couple separates, and this is then established until the divorce.

If a spouse takes over the home based on mutual agreement, the landlord can be obliged after the divorce to adjust the rental agreement based on a joint declaration of the spouses.

Beware of involuntary loss of the right of use – the six-month period

Caution is advised if one spouse moves out of the marital home and then does not do anything. If he or she does not express a serious intention to return to the home for a period of six months, the law irrefutably assumes that he or she has left the other spouse with sole right of use. This means that the spouse will lose access to the home unless the other spouse takes him or her back. The other spouse is even allowed to change the locks.

How much longer does the spouse who has moved out have to contribute to the rental costs?

Whether and for how long the spouse who has moved out of the marital home still has to contribute to the rent (in the internal relationship with the other spouse) depends on whether the move was decided by mutual agreement or whether the sole use of the house was forced upon the remaining spouse. 

If the spouse who remained in the home has agreed to take over the home, he or she must bear the rent alone in the future, regardless of whether this was explicitly discussed or not. Otherwise, he or she must be given a certain amount of time to decide whether he or she wishes to remain in the marital home or move out and terminate the lease together with the other spouse.

During this period of consideration, the spouse who has moved out continues to owe a pro-rata share of the rent, even if the other spouse decides in the end to terminate the lease. It is debatable whether in such case half of the rent is owed or only a smaller share in view of the fact that the remaining spouse would have to pay rent somewhere else anyway.

In any case, the spouse who moved out remains jointly liable to the landlord, if he or she was a party to the rental agreement before he or she moved out, unless the landlord agreed to change the rental contract such that the remaining spouse is the only tenant.

Living in one´s own home after separation: the meaning of compensation for use and housing benefit

If, upon separation, you allow your spouse to use a property that you own or co-own, you can demand compensation from them for use. However, you must expressly demand this from them. Such a claim does not arise automatically.

If the spouse who has remained in the matrimonial home is the (sole or joint) owner of the property, the financial advantage of rent-free living is taken into account when calculating maintenance. This so-called housing benefit is treated as income under maintenance law. If the person remaining in the home is entitled to maintenance from the other spouse, the housing benefit reduces its maintenance claim.

Until the couple finally separates, in any event not after the date of filing for divorce, only a subjective living benefit is taken into account. This means that the financial benefit attributed to the spouse remaining in the home is limited to the amount that the spouse would have to pay for a smaller, appropriate home elsewhere. This amount is significantly lower than the full objective rental value. The full objective rental value of the house (market value) is only taken into account from the time after the final separation.

If the spouse who has remained in the home contributes to the joint loan instalments for the home or has taken over the loan in full upon separation, he or she can deduct the loan payments from his or her housing benefit up to the amount of his or her housing benefit, or even beyond if it is recognized as to be used as pension.

Compensation for use and housing benefit cannot be claimed at the same time, as they provide compensation for the same benefit of use. If an agreement on maintenance has already been reached in which a housing benefit has been taken into account, compensation for use cannot be claimed for that same time period. If, on the other hand, compensation for use is already being paid, there is no room for taking housing benefit into account in the maintenance calculation.

What happens to household items in the event of a separation or divorce?

When one of the spouses moves out of the marital home when the couple separates and looks for a new place to live, that spouse is often faced with the question of how to furnish the new apartment. When one household suddenly becomes two households, there is often not enough money to completely re-equip both new apartments.

The law therefore stipulates that in the event of a separation and subsequent divorce, household items purchased during the marriage are to be divided fairly and appropriately between the spouses in kind, according to the principle of real division. Financial compensation can only be demanded in exceptional cases.

The law assumes that household items purchased for the joint household during the marriage are the joint property of the spouses for the purposes of distribution, regardless of which spouse paid for them. This also applies, as a rule, to household items that were brought into the marriage or given to the spouses by third parties during the marriage.

Anyone who claims that a household item belongs to them alone, for example, because it was purchased after the separation, has to prove this. This rule on the burden of proof already applies during the separation phase.

The spouses are in principle called upon to divide the property between themselves. In doing so, they should consider who needs the respective item more urgently, for example, because they are caring for joint children. In principle, care should be taken to ensure a balanced distribution that does justice to the interests of both spouses (equity principle). Such arrangements are often included in the separation and divorce agreement.

Only if no agreement can be reached can the family court be called in to decide who gets which items. The courts only make provisional arrangements for the period of separation. Household items are only definitively assigned after the divorce has become final. Compensation payments can also be demanded here.

Household items are therefore not subject to equalisation of gains but are to be divided under a separate regime. Claims to get hold of household items must be asserted in special proceedings before the family courts.

Such proceedings are laborious and time-consuming and rare in practice. Anyone who applies to the court for a judicial division of the joint household items must, at the court’s request, not only state which household items they claim for themselves, but also submit a complete overview in which all of the family’s household items are listed individually with an exact description (groupings are possible). As a rule, this is done room by room, and information must also be provided on the approximate value of the items. In view of this, most couples prefer to reach an out-of-court settlement.

What are household items?

Household items are all movable items that are intended for the spouses and children for their living purposes and for the home and household, based on their financial and living circumstances. It is irrelevant when and why the items were purchased or who owns them. They may also be borrowed, leased or rented.

Household items include, in particular:

  • Furniture (including garden furniture), lamps, carpets, curtains, crockery, cutlery, household appliances, tools, linen;
  • vases, decorative items, wall decorations;
  • TV and radio, film and video/audio equipment, PC, game consoles and electrical appliances;
  • books, DVDs, musical instruments, sports equipment, provided that they do not exclusively serve the personal interests of one of the spouses;
  • works of art and antiques, provided that they are not only used for investment purposes;
  • boats and caravans;
  • pets such as dogs, cats and birds.

A car is considered a household item if it is used by the married couple primarily for private purposes (e.g. holidays, excursions, childcare) and for running the household (shopping, transport), etc. According to recent case law, this also applies if the car is used for work but also for family purposes, especially if it is the only vehicle in the family.

Household items do not include items

  • which are intended solely for investment;
  • which serve the personal use of a family member, in particular clothing, jewellery, personal mementos and items used for work, and for children, clothing, toys, hobby and school accessories;
  • which have become an integral part of the building (built-in furniture).

The spouse who has moved out must collect the household items assigned to him or her from the location themselves or pay a collection service (obligation to collect).

It is often agreed that family photos be reproduced digitally so that they are available to both spouses after the separation. If the photos are sorted into albums or are in loose form, it can be agreed that the total amount be divided in half or that the photos be copied. This is then considerably more expensive.

What happens to jointly owned property when the couple divorces?

The family court does not by itself make any arrangements regarding the use of the previous marital home or other jointly owned property of the spouses. Nor does it redefine the ownership structure. The spouses thus remain co-owners of jointly owned property even after the divorce. The land registry remains unchanged.

Long-term shared ownership solutions are often problematic.

As a rule, however, the parties want to reorganise the ownership structure of at least the matrimonial home. A long-term shared ownership solution in the form of renting the ex-spouse’s share of the home after the divorce is often problematic because the typical problems of a tenancy are exacerbated when the ex-spouse acts as the landlord.

Renting the joint property to third parties, with the couple sharing the rental income between them, is also conceivable. However, at least one of the spouses often wants to liquidate the assets tied up in the house in order to acquire new residential property or to invest the proceeds elsewhere. This solution is then also excluded.

Most common solutions: sale to a third party or acquisition by one of the spouses

The most common solution is to sell the property to a third party and divide the net proceeds between the spouses. Alternatively, one spouse can take sole ownership of the property, i.e. it can purchase the other spouse’s share in return for an appropriate compensation. If the property is still mortgaged, the spouse taking ownership will usually also take on the joint mortgage debt, which is often spread out over decades. However, the consent of the bank is required for this, which is not always unproblematic.

Under certain circumstances, a transfer of the property to joint children may also be considered, or a division of the property in such a way that it is divided into two self-contained apartments and each spouse takes one apartment. In practice, the sale of the joint property or its takeover by one spouse is likely to be the most frequently chosen solution.

In the case of a third-party sale, the couple has a common interest in achieving the highest possible sales proceeds. As a rule, they will agree on a real estate agency to take over the marketing. A commitment to sell the house to a third party can be stipulated in a separation and divorce agreement, along with provisions for vacating the property, the sales process and the distribution of the proceeds. Such an arrangement requires notarisation.

If one of the spouses takes over the property, a fair compensation amount must be determined. The interests of the spouses are naturally opposed here. In practice, several real estate agents are often asked for an assessment for the value of the house with the intention to sell the property. Occasionally, market value reports are also obtained from real estate experts or a statement from the expert committee of the respective municipality in order to determine the fair market value of the co-ownership share.

The specific compensation amount is then often negotiated as part of the negotiations on the other consequences of separation and divorce. The transfer of ownership or the regulation for the planned third-party sale is notarised later as an independent part of the separation and divorce agreement.

Last resort: partition auction

There is no legal obligation for either spouse to participate in the sale of a jointly held property to a third party or to transfer its co-ownership share to the other spouse at market value. If the other spouse refuses both a third-party sale and an internal transfer, the only option left is a partition auction.

This is a form of judicial foreclosure. The district court in whose district the property is located has jurisdiction. Either spouse can request the partition auction at the latest after the legally binding divorce. A foreclosure notice is then entered into the land registry. The other spouse is informed of this and then has two weeks to raise any objections. If the objection is successful, the auction is initially suspended for six months pending a new review.

If it comes to a public auction, both spouses can submit bids themselves and purchase the property at the auction. The partition auction ends with the acceptance of the bid, at which point ownership of the property is transferred to the highest bidder. After deduction of the costs of the proceedings, the proceeds are distributed among the spouses on a pro rata basis. However, the proceeds obtained are often less than the market value, so that an amicable settlement is usually preferable.

What tax issues need to be considered in the division of real estate?

Profits from the private sale of real estate are generally subject to income tax if less than ten years have elapsed between the purchase and sale of the property or if the property was not occupied exclusively by the owner prior to the divorce (so-called speculation tax). This must be taken into account if a spouse moves out of the marital home at the time of the separation but intends to sell it.

In addition to the speculation tax, the transfer of the property to one of the spouses may also incur land transfer tax due to the change of ownership. To avoid this, the property should be transferred to the future sole owner before the divorce becomes legally effective, as spouses are exempt from this tax.

Real estate in the equalisation of gains

Real estate also plays a major role in the equalisation of gains. If a married couple owns real estate jointly or if one of the spouses is the sole owner, the real estate in question must be taken into account in the equalisation of gains balance sheet as an asset of the respective spouse, both in the Initial Assets (record date: marriage) and in the Final Assets (record date: service of the divorce petition), at its objective market value on the respective record date.

In this case, too, the objective market value on the record dates is usually determined by brokers or real estate experts, provided that an amicable solution is sought. In court proceedings, a special expert is appointed for this purpose, who acts as an assistant to the court.

If several properties or properties located abroad are to be valued, or if the spouses additionally engage private experts, such a process can drag on for many years. A settlement is often the only way to bring the proceedings to a conclusion within a reasonable period of time.

According to the case law of the Federal Court of Justice, the fictitious tax (speculation tax) that would have been incurred if the property had been sold on the record date must be deducted from the market value when valuing property for the purpose of equalising gains. In this respect, a careful tax assessment of the situation must always be carried out when equalising gains.

Contact

If you have any questions about real estate, you can contact me by phone at any time during my office hours, or by email outside office hours. I will get back to you as soon as possible.

Mon-Fri: 9.00 – 13.00 and 14.00 – 18.00
T: 06174 – 935 75 70
E: marx@familienrecht-marx.de

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