Division of Assets and Property during Divorce Cases in Germany

Division of Assets and Property during Divorce Cases in Germany

The division of assets and property in a divorce not infrequently leads to considerable disputes between the persons involved. As a German multidisciplinary law firm, we offer equally competent and committed support in all legal matters that may arise in connection with a divorce. Whether it is the division of the matrimonial home, the calculation of the gain or questions of real estate law – our lawyers will support you with their specialist knowledge. They have excellent expertise in German divorce, inheritance and tax law as well as the necessary empathy to make this emotionally demanding situation as pleasant as possible for you. We ensure that your property claims are clarified as quickly as possible and, if necessary, enforced in court.

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The Nature of the Assets

Assets divided after a divorce include marital property, real estate acquired through joint accounts or the related purchase agreements signed by both parties, pension plans and stock options. Some assets acquired before the marriage may have increased in value during the marriage, and this may be reflected in the subsequent division of the assets, as the increase in value may be divided between the spouses.

However, not all assets are divided between the partners. As a rule, the assets that were accumulated jointly during the marriage and for which both partners signed as owners are divided.

If debts were incurred during the marriage, these must also be examined alongside the assets. However, the debts are not simply divided between the spouses in a divorce, but it must first be clarified which of the two spouses is contractually obligated as debtors.

If one of the spouses is the sole owner of a property or asset, he or she alone is liable for the debts incurred. If one of the spouses is contractually obliged to finance a deficit, they must usually also repay it. A contract that is not signed by both spouses and does not benefit both spouses is not considered a joint liability.

Certain contractual arrangements may be considered “unfair” depending on their circumstances. This is particularly relevant if the loan (paid by both spouses) benefits only one spouse.

Another aspect to be considered in a divorce is the pension equalisation. Beneficiary pension insurance can likewise be determined as assets.

The Marital Home and the Division of Property

The division of property is a complex process, and this can especially be the case when it involves the decision regarding the marital home. Whereas the spouses’ issues concerning other properties (rental properties) co-owned may be easier to resolve through financial settlements, the marital home can be a more complex problem.

Discussing the issue with a family lawyer at the start of the marriage can lead to a proactive solution that the spouses can agree on. However, should that not be on offer, here are some ways in which they can find a solution:

  • Sell the Property: This solution is not the best choice in many situations but it is a potential resolution. This option is available; it can be pursued for a clean break and allow for a fair distribution of the incoming finances based on the amount invested in the property. However, it should be noted that the sale of a house can be a lengthy process and that a quick sale of one can lead to the property being sold for less than it is truly worth. If this option is considered, the spouses may be best advised to approach it during their year of separation before the official divorce. Once again, having time to sell the property will ensure a better price when the divorce is finalised.
  • Buyout / Paying the other Spouse: Another option available is that one spouse buys out the property from the other spouse. This solution can be fair where one of the spouses is determined to stay in the property, and a reasonable price is decided upon between the spouses. To make this an official purchase, the spouses should consult with a lawyer and, from there, with their bank. This can be a complicated process and will ensure that the spouse who has been bought out has their liability for the property removed.
  • Actual Division of the Property: Theoretically, this option is available to spouses, but in most cases, this does not happen. This process involves dividing the property into two properties (two residential units), and the parties can then decide what to do with them. In practice, this is impractical for most cases as the property in question has to be suitable for conversion. It involves a high degree of cooperation between the spouses – to the level where they essentially live next to each other until they can sell said properties.
  • Transfer Ownership to Children: Another option available to the divorcing couple is for one (or both) of the spouses to transfer their share of the property to their children. This scenario allows the property to be kept within the family during the division of assets. It is particularly appropriate where the house has a substantial sentimental value. Should one of the spouses seek to carry this out, they should be aware that they may require the other spouse’s permission to carry out the transaction. Houses can also carry certain liabilities, taxes and other issues, so this must be outlined to the children in question in advance.

Another option available is to have the issue resolved and planned for in the prenuptial agreement.

Loan Repayments and Other Properties following the Division of Assets

The division of other properties will be based on who is the property’s actual owner. Sometimes partners entering a marriage may have acquired property before the marriage. This property may have come about due to inheritance or having been purchased before marriage.

Where the other spouse has not contributed to the property’s financing, it is not likely to be considered divisible during the divorce. This provision would not be an equitable solution to how the property should be handled.

When it comes to loans for financing the family home, it can come down to who is contractually obliged to repay the bank for the mortgage. The person who signed the contract will be seen as liable.

The family house is often down as joint property, and they may be repaying it from a joint bank account. Once again, should this occur, the spouses should agree on how to make this arrangement. For example, it may be arrangeable for one spouse to compensate the other to take complete control of the loans’ repayment and thus the property itself.

However, it must be noted that such an arrangement should not (by design) cause the spouse in question to take on payments above what they can finance. This solution can be viewed as immoral, mainly when there has been pressure to take on the burden of these payments.

The Division of Assets following Divorce

Several factors play a role when dividing assets after a divorce.

Firstly, having a prenuptial agreement arranged in advance may be fair to resolve the division of assets. Such a marriage contract can ensure that the assets are divided according to the spouses’ wishes before the complication of divorce plays a role.

Alternatively, the spouses can sit down with their respective lawyers and decide to divide the assets. In court, the assets will be divided equally between both partners. These measures refer to assets that the spouses jointly own. Such assets include those purchased throughout the marriage, have been purchased using a joint bank account or involve contracts signed by both partners etc.

One example we can use is the purchase of a car. If a vehicle has been purchased and paid for by one spouse, that car is their car and, thus, not a joint asset. This statement holds accurate even when the other spouse uses the vehicle for work or other purposes. It is not their asset if they have not paid for the asset or are not registered as the owner.

It is permissible under § 1357 BGB for spouses to enter transactions to “provide the necessities of life of the family”, even if they involve binding the other spouse. Such transactions concern issues that affect the family’s living requirements (necessary household appliances, foodstuffs etc., deemed necessary).

Unethical Joint Liability and the Division of Assets

Agreements signed during a marriage are not as straightforward as those signed by business partners.

It is not unusual for spouses to sign up for arrangements and establish joint liability for an asset for their partner’s benefit. Such a case may involve a party signing their name to a loan arrangement, knowing that both spouses’ joint income will be able to cover it.

For example, Spouse A is undertaking an arrangement with Spouse B to benefit Spouse B’s business interest. At the time of marriage, that is, of course, also in the interest of Spouse A. However, following the end of the marriage, the success of Spouse B’s business interests may not be as of much interest to Spouse A, and the loan Spouse A agreed to enter with Spouse B may not provide any financial advantage to Spouse A. With the failure of the marriage, Spouse A may find themselves in a difficult financial situation. Thus the continuing liability for Spouse B’s loan may cause them to be financially overburdened.

Such a case can be deemed an unethical division of liabilities, and should this be found, their liability may be considered ineffective.

The Prenuptial Agreement

One solution to prevent a complicated divorce settlement is for the couple to agree to a prenuptial agreement. Prenuptial agreements are a means of recognising that marriages also involve a legal arrangement. They are a safety net for a possible future eventuality. Essentially, a good prenuptial agreement will apply a contractual plan for the division of assets. Should this be designed during the good years of the marriage, it may ensure that the assets in question are divided equitably.

Therefore, an experienced family law professional should design preliminary agreements to ensure that the contract is fair and reflects the spouses’ wishes. A fair prenuptial agreement can result in far fewer complications in the equitable division of assets and property following a divorce.

Prenuptial agreements can be changed over time and must follow specific legal requirements. Some clauses deemed unfair regarding the division of assets, among other aspects, can be rejected in court as inherently unfair.

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Practice Group: German Family Law

Practice Group:
German Family Law

Dr. Tim Schlun

Lawyer | Managing Partner

Maria Ivanova

Certified Specialist Lawyer in Family Law

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