What happens with a property in the event of a divorce?

Living happily together in your own four walls is an ideal of a life together as a married couple. For many couples, therefore, the purchase or construction of a home as a value-stable investment is part of their joint asset building. 

However, personal circumstances and plans may change and the couple may decide to go their separate ways. Below we provide an overview of what can be done with the property in the event of a divorce.

Hamburg - What happens with a property in the event of a divorce?

The importance of premarital decisions 

The civil wedding is when the couple decides how they wish to manage their personal and joint assets in the future. The options are community of property, separation of property or community of gains. A prenuptial agreement can be concluded in order to define a specific division of assets. In the event of a future dispute, this can prevent discord, but this rather unromantic approach is not often chosen.

A marriage without contractual arrangements is considered a community of gains. The individual is thus free to decide on his or her assets, and in the event of divorce there is a so-called equalisation of gains, which the Civil Code has clearly regulated in the Marriage Act. In most cases, this also concerns the division of real estate. The assets gained during the marriage are compared and whoever has acquired the larger sum must pay half of the difference to the partner as compensation.

The home in the community of gains

The equalisation of gains refers exclusively to a monetary claim and does not include any material goods, so that the asset value of the property must be divided. This regulation applies regardless of whether one spouse or both are registered as owners in the land register. Both are entitled to one half.

There are various options for how this claim is implemented in practice and how the property is dealt with. As a general rule, a decision-making process that is as factual and consensual as possible is always preferable to one that is emotionally charged. The latter often leads to financial losses on both sides due to selling pressure and additional court and legal costs. 

Transfer and payout

It is possible to transfer the home in its entirety to one of the partners by notarial deed as part of the separation. The latter is now obliged to pay the other his or her share of the property. If there is still an ongoing mortgage, the consent of the credit institution is required and the spouse must be released from the joint and several credit obligation. 

This solution is suitable if one spouse wishes to continue to live in the house with the joint children. But often this fails due to the lack of financial resources.

Real division of a property

Another option is the so-called real division, in which the existing property is converted into two separate residential units and both parties can continue to reside there. The respective residential unit could be sold as well as rented out.

As this real division is only feasible for properties of a certain size and structure, it is seldom practised.

Letting the property

If both spouses want to move out but keep the house, they can consider renting it out together. It should be borne in mind that this approach still entails joint decisions and obligations as landlords, and that this requires good cooperation.

The advantage here: The rental income could allow the repayment of the outstanding mortgage to continue, and early repayment penalties to the bank would be avoided.

Sale of the house

Experience shows that, apart from the transfer to one of the spouses, the sale of the property is the most frequently chosen solution. The equalisation of gains and any outstanding loans can be settled so that both spouses can make a clean break and start afresh confidently with the credit balance that often remains.

Partition by public auction - if the marital partners cannot come to an agreement

A partition by public auction is called for if no amicable solution can be reached. It can also take place against the will of one of the spouses, generates additional costs due to surveyors and courts and often reduces the profit considerably, as the property rarely achieves its actual value. 

How to proceed if the property was brought into the marriage with you 

If one of the spouses was already in possession of a property before the marriage, this property is attributed to his or her initial assets and is not included in the marital property gain and its equalisation. The same applies to an inheritance or gift during the marriage.

A certified increase in value during the marriage, on the other hand, must be taken into account in the gain, irrespective of its origin. If this is extensive, it could, in exceptional cases, lead to the residential property having to be sold in order to be able to settle the claim for equalisation of spouses' gains.

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