Mortgage and divorce: what happens with loan repayments?

Does divorce have an impact on your current mortgage?

The divorce decree does not erase your commitments to the bank. The mortgage continues as normal throughout the proceedings and afterwards, until it has been repaid in full.

If you both signed the loan offer as co-borrowers, the joint and several liability clause applies: it binds you to the bank, regardless of what happens in your personal life. The marriage may be dissolved, but not this contractual commitment.

Everything depends on how the loan was originally taken out:

• Loan taken out by one person only: you remain solely responsible for the monthly instalments, even if your former spouse lived in the property.
• Loan taken out jointly: you are both required to pay the full instalments, regardless of who is living in the property today. 

Our advice: inform your bank and your insurer as soon as the separation proceedings begin. That way, you can anticipate restructuring solutions rather than having them imposed on you.

What are your 3 options for repaying the loan after a divorce?

To decide the future of the property financing, you have three practical solutions:

• Sell the property: this is the most common solution. The sale proceeds are used first and foremost to repay the outstanding capital. If there is a positive balance left, it is divided between you in accordance with your marriage contract and matrimonial property regime. One point to check before you get started: any early repayment charges provided for in your loan agreement.
• Buy out the other person's share (equity buyout): would you like to keep the property? You compensate your former spouse, then have the mortgage transferred into your sole name. He or she is then released from the debt.
• Continue repaying together: you remain co-borrowers and joint owners of the property, often through a co-ownership agreement. This solution requires a good understanding and real mutual trust: for example, the property may be let to cover the monthly instalments. 

Equity buyout: how do you calculate the amount to be paid?

The equity buyout is the financial compensation you pay to your former spouse to buy out their share and become the sole owner of the property.

It is calculated on the basis of the property's current market value and the capital still owed to the bank. For a 50/50 split, the formula is simple:

Equity buyout amount = (Estimated value of the property − Outstanding capital) ÷ 2

A practical example:
You jointly own a flat valued at €700,000. €300,000 remains to be repaid to the bank.

• The net value of the assets to be divided is: €700,000 − €300,000 = €400,000.
• If you keep the property, you will have to pay your former partner an equity buyout of €200,000 (€400,000 ÷ 2), and take over sole responsibility for the remaining €300,000 mortgage.

Before approving this transfer and releasing the other spouse, the bank will carefully check your financial capacity and creditworthiness to ensure that you can bear the debt burden on your own.

How can you be released from a joint mortgage?

To no longer be committed on a debt taken out jointly, you need to begin a bank release from joint and several liability procedure.

• The written request: you and your former spouse send a written request together to your bank to be released from joint and several liability. The bank will then carry out a detailed review of the file of the person taking over the loan (income, employment stability, maximum debt ratio).
• And if the bank refuses? The bank is under no obligation to agree. If it considers the income insufficient, it may refuse. There are then still alternatives: providing additional security (guarantee, mortgage) or having the loan bought out by another bank.

For as long as the release from joint and several liability has not been officially approved and recorded in writing by the bank, you both remain jointly and severally liable for payment. If the person taking over the loan defaults, the other person may be pursued for payment.

And what happens to Outstanding Balance Insurance in the event of divorce?

Outstanding Balance Insurance is your death and disability cover linked to the loan. It must be adjusted as soon as the mortgage loan changes holder or structure.

If you take over the property and the loan alone, your Outstanding Balance Insurance must be increased to one hundred per cent cover on your life only, so that the capital is fully covered if the worst happens. As for the person leaving the loan, their cover will be cancelled or adjusted. This is also a good time to compare offers and possibly change insurer to optimise your premiums.

From a Luxembourg tax perspective, one point should be checked with your tax adviser: new Outstanding Balance Insurance taken out as part of a loan buyout or share buyout following a divorce generally does not benefit from the exceptional increase in the deductible ceiling reserved for the single premium for a first acquisition. Good to know, to avoid surprises when filing your tax return.

Que faire en cas de désaccord entre ex-conjoints ?

Si la séparation est conflictuelle, il y a une règle d'or : ne jamais interrompre les paiements. Les mensualités du crédit immobilier doivent continuer d'être honorées à date fixe, tant qu'aucune solution juridique (vente ou rachat) n'est officiellement actée.

Le risque, si l'un de vous arrête de payer ? La banque peut se retourner immédiatement vers l'autre conjoint pour exiger le versement de 100 % de l'échéance, avec pénalités de retard et fichage bancaire à la clé. En cas de désaccord persistant sur le sort du bien ou sur le montant de la soulte, des recours existent : la médiation familiale ou, en dernier ressort, le juge aux affaires familiales.

Un dernier conseil : gardez précieusement toutes vos preuves de paiement et d'apports personnels effectués pendant la vie commune.

En cas de divorce, entourez-vous de professionnels pour vous conseiller sur votre crédit immobilier

Régler le sort d'un patrimoine immobilier demande plusieurs expertises croisées, pour sécuriser vos intérêts financiers et juridiques :

• Le conseiller bancaire : indispensable pour analyser votre capacité d'emprunt individuelle et instruire le dossier de désolidarisation.
• Le notaire : obligatoire pour authentifier le rachat de soulte, rédiger l'acte de partage et enregistrer les modifications soumises à la publicité foncière.
• Le conseiller en assurance : essentiel pour recalculer les quotités et ajuster votre assurance solde restant dû à votre nouvelle situation de vie.