After a divorce, the ex-spouses can divide their property on their own, or decide on a court decision in this regard. Regardless of the option chosen, this breakdown will not include joint debts and liabilities. For banks, parting spouses remain co-borrowers. What does this mean for a mortgage? Divorce and mortgage – we dispel any doubts arising in this matter.
What doubts about a loan arise in a divorce?
The fact that the co-borrowers are or have been married is of little importance to the bank. What matters to the lender is that the customer has signed the loan agreement and is therefore responsible or jointly responsible for timely payment of installments and full repayment of the debt.
For divorced spouses, the matter is not so obvious and raises a number of important questions. Of course, most of them appear in the context of a mortgage contract. Will you have to pay it back together until the last installment? What can you do with an apartment financed with its help? What potential solutions do the legal provisions provide?
Marriage in property versus mortgage
The Family and Guardianship Code stipulates that entering into marriage, unless the spouses have written off the intercourse, leads to the creation of statutory joint property. From this moment, all property, whether acquired jointly or by one of the spouses, is the property of the marriage. This means, among other things, that none of the spouses can decide on their own to sell or rent a shared property. It also means that in this case they both sign up for a possible mortgage contract.
Divorce and mortgage and the division of marital property
For many former spouses, divorce is a chance to start a new, more satisfying stage of life. To make this possible, however, you must first go through many rather onerous and time-consuming formalities. One of them is the need to divide the property worked out jointly during the marriage.
This issue can be resolved by existing spouses on their own or left to the court. The latter option, due to the relatively high court costs and often lengthy proceedings, is chosen mainly for serious disputes and complex property situations. However, it will not allow you to settle matters related to jointly incurred obligations either. Since the ex-spouses will answer jointly to the creditor, e.g. a bank, the court will focus only on the distribution of assets. So how can they solve the problem of paying off the mortgage and other debts?
Divorce and mortgage – what to do with your commitment after divorce?
The divorce itself does not cause any changes to the mortgage contract. Separating spouses remain bank debtors and are jointly and severally liable for repayment. Obviously, they do not have to sit back and jointly pay the installments for the remainder of the loan agreement. In this case, they can communicate with each other and choose one of several available solutions.
Sale of a house or apartment bought on credit
This is the least problematic, willingly chosen solution. The funds obtained from the sale of a house or flat will allow you to repay the loan and forget about the joint debt. If a large part of the debt has already been settled or the value of the property has increased significantly, then the former spouses will be able to share the surplus and make it easier to start a new stage of life. It is worth emphasizing here that when selling, in addition to the standard set of documents, the notary public will require a divorce decree and documentation regarding the division of property.
In a situation where the loan was taken recently, or when the current market price of the apartment is lower than the outstanding amount of the loan, it is better to look for other options.
If the property is sold before the end of five years, the Tax Office may charge income tax (if the property is sold at a profit). Unless the amount from the sale of the apartment will be used for another housing purpose within two years of the sale.
Renting a shared property
This is a beneficial solution for spouses who for some reason do not want to sell joint property. Renting an apartment or house will ensure a steady income that will allow you to repay your mortgage installments on a monthly basis. On the other hand, this option has several obvious limitations and disadvantages.
First, for it to be profitable, the property must be popular with potential tenants – a country house or a flat in a small town usually does not meet this criterion. Secondly, because the ex-spouses remain co-owners of the property, they must agree together on matters related to renting, or looking after and renovating the apartment. Another significant drawback is that their creditworthiness remains encumbered with a mortgage, which may make it difficult for them to start a new home and purchase a loan for another home.
One of the former spouses takes over the debt
This solution is permitted by the provisions of the Civil Code, but the lender ultimately decides whether it will actually be possible in the end. The bank will agree to the assumption of the debt by one of the ex-spouses, provided that its creditworthiness is equal to or higher than the outstanding amount of the loan. If the spouse’s financial situation is not good enough, he or she can “save” by joining an additional borrower, for example a new partner, parents or siblings. Regardless of who will be responsible for future repayment, you will need to write an annex to the loan agreement.
Joint payment of installments up to the full repayment of the mortgage
If the ex-spouses have good relations and at the same time would like to hand over the property to a child, they may think about paying off their loan installments. In theory, this looks like a pretty reasonable solution. It should be remembered, however, that for the bank it only matters whether they will pay the liability in a timely manner. If one ex-spouse stops paying his share for some reason, then the arrears in payments will be recorded not only in his credit history, but also in the case of the other co-borrower.
As you can see, the problem of joint mortgage after divorce can be solved in several different ways. If one of the parting spouses is to receive the property at their full disposal, the best solution is to take over the debt. Well-mannered ex-spouses may consider renting an apartment. Sales work above all where the parties strive to completely solve the problem of repayment of liabilities and termination of close relationships.