Who has to pay off the home loans in the event of separation and divorce?
If spouses split up with house and debts, the question quickly arises of who has to repay the joint debts. In practice, the wrong course is often set here – with serious financial consequences! As a renowned divorce lawyer Las Vegas, let us advise you on this.
Husband and wife share property worth $ 400,000. The debts are still open in the amount of $ 100,000. Until the separation, the husband had paid off the debt alone. Who has to pay the installments after the separation?
In a ruling of March 25, 2015, once again the question arises of whether one spouse can demand compensation for payments on a home loan from the other. In the case decided, the wife ran a freelance practice (pharmacist) in the shared property. The wife took out the loan alone. She asked her husband to compensate half of the loan installments she had paid since the separation.
The court made it clear that teeth on loans made by one spouse within the marriage cannot be reclaimed from the other spouse. This can be different after the separation:
The following principle applies here: common debts must be borne jointly. If only one pays, the other is obliged to reimburse half. This is true even if the credit by one spouse alone was taken.
Exceptionally, however, something else can apply: the spouses can expressly or tacitly make a different provision according to which the debt settlement does not have to be carried out in half.
The case decided by the court:
This is how the Higher Regional Court sees it – the lower instance of the cited decision: The Higher Regional Court saw the wife obliged to bear the entire loan internally, as she had claimed the loan installments for tax purposes.
However, the court overturned this decision and referred the proceedings back to the Hamm Higher Regional Court for a new decision. The BGH emphasized that there is a need to differentiate between the tax treatment of loan installments: For tax purposes, according to the so-called “two-account model”, only the loan interest can be deducted. The repayment portion of the loan installments is tax neutral. However, the other spouse benefits from the repayment portion as the outstanding loan is gradually paid off with the repayments and his assets are also increased.
The court further emphasizes: The fact that both spouses are co-owners of the property basically means that half of the house loans must be borne in the event of separation and divorce.
The decision gives reason to take a closer look at the topic of home loans in the event of separation:
I. Debt during an Intact Marriage
During the cohabitation of the spouses, the higher earner will usually pay off the debts alone. Often the spouse also maintains a common ” house account ” from which the loan installments are deducted.
After the separation there is no compensation for the installments that were paid up to the separation. So if the husband, who had paid off the debts on his own until the separation, wants to have half of his payments back from his wife, he has no right to this. What was true within the marriage should not be reversed after the separation.
II. Debt servicing after separation
However, this “marital life plan” ends with separation. In principle, each spouse must then be responsible for half of the debt.
1. In principle, everyone is half liable
This applies to the loans for which both spouses are liable to the bank. However, if only one spouse is liable for the loans, a compensation claim against the other spouse may still arise in the internal relationship.
The following principle applies: In principle, everyone has to pay half of the joint loans.
Exceptions: The spouses have expressly or tacitly made another agreement.
2. Unless otherwise agreed
Another regulation – that one spouse has to pay the debts alone – can result from an express agreement between the spouses. Far more common, however, is a tacit agreement. Here it depends on the specific circumstances of the individual case. The case law has adopted such an implied other agreement in the following cases:
a. One spouse is the sole owner of the property
Was the loan z. If, for example, the property is financed in the sole ownership of a spouse, the spouse is generally responsible for the loan. Often a spouse has purchased a piece of land or was given it as a gift by his or her parents. So he is the sole owner of the property. The spouses build a house on this property within the marriage and take out a loan together. The house follows the ownership of the property – it is therefore the sole property of the property owner. However, both spouses are liable for credit. Internally, one of the spouses who is the sole owner of the property and house is obliged to take over the entire loan.
Here, however, the circumstances of the individual case must be taken into account:
- Does the other spouse who does not own the property share the property?
- What are the monthly payments?
- Does the other spouse benefit from the profit sharing from the debt repayment?
- Is it the spouses’ family home?
- How long has it been shared?
- What is the economic situation of the spouses, by the way?
There is an abundance of case law here, which has come to very different results in individual case constellations. A general answer cannot be given here. In these cases, the solution can be found after a comprehensive individual examination and consideration of the further consequences of separation and divorce, in particular the maintenance of the spouse and the equalization of profits.
b. Debts served only one spouse
This is e.g. B. the case when a spouse has rescheduled their existing debts within the marriage. He is solely responsible for the loan for the amount of the debt rescheduling. If the loan was topped up beyond the rescheduling, the spouses are basically liable for half of the topped up part.
c. Credit served one spouse’s business interests
Should the loan z. B. Business debts of a spouse be also paid off, so this spouse has to bear this part of the debt alone.
d. Credit for a spouse’s selfish interests
The same applies if the loan is also used to offset an unauthorized overdraft by a spouse.
e. The operation of a spouse will continue in the shared property
If one spouse continues to operate the joint property after the other spouse has moved out, this can indicate that he alone has to bear the credit in the internal relationship.
3. Caution: If one spouse pays alone, he can also retroactively demand compensation from the other spouse!
It is particularly dangerous if one spouse has been paying off the joint debts alone over a period of years. In that case, he is basically not prevented from requesting the other spouse to settle the payments retrospectively, at least insofar as these are attributable to the periods after the separation.
However, it must be checked on a case-by-case basis whether there is anything contrary to this retroactive debt participation.
If one spouse lived in the property alone and paid off the loan alone, he or she cannot, as a rule, retroactively request the other spouse to share half of the loan. Because the other spouse who moved out of the property could have demanded a usage fee in return – comparable to rent. However, for legal reasons, this usage fee cannot simply be requested retrospectively. In this respect, the other spouse should first have been given notice of default. The consequence: the spouse who moved out would have to participate in debts retrospectively, but could not realize his claim to usage fees.
This case law, which has been problematic for years, has now been resolved by assuming a tacit non-billing agreement. For the past, the claim for half of the debt is offset by the claim of the other spouse for a usage fee.