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Divorce: What happens to the home?

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Divorce is an emotional challenge, even when it comes to the joint property. The most important aspects in connection with the divorce and the joint property are explained in more detail below.


Division of assets and use of the joint property


In Switzerland, the treatment of joint assets, including joint mortgages, in the event of divorce is governed by the Swiss Civil Code (ZGB). There are three matrimonial property regimes in Switzerland: joint ownership, separation of property and community of property. This also applies to the agreement on the future use of the joint property. The three different scenarios for dealing with the shared property are shown below:

Option 1: Sale to a third party

The couple decide to sell the property. The proceeds of the sale are divided equally and both spouses share the property gains tax payable.

Option 2: One spouse takes over the house

One spouse takes over the joint house and pays off the other spouse. This legal transaction does not trigger property gains tax and is regarded as a tax-deferred sale.

Option 3: Transfer of the residential property free of charge

In some cases, the residential property is transferred free of charge, whereby the spouse living in the house is granted the right to occupy the shared house for a limited or unlimited period without rent. The use and legal aspects are specified in the divorce decree.

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Tax aspects of a divorce


The property tax value is taxed in the property tax according to the ownership shares. This means that the divorced spouses must each declare half of the taxable value in their tax returns. At the same time, they can deduct half of the mortgage debt.

Income tax can be more complex as it includes the taxation of imputed rental value, the deduction of property maintenance costs, the deduction of alimony and the debt interest deduction. The decisive factor for the taxation of imputed rental value is that the owner uses the property himself. If a property is made available to a co-owner free of charge, the owner must pay tax on the imputed rental value as income.


What happens to a joint mortgage?


If a married couple have a joint mortgage and get divorced, there are various ways in which this mortgage can be dealt with:

Option 1: Sale to a third party
The property is sold and the mortgage is repaid in full with the proceeds of the sale. The spouses can then divide the remaining proceeds in accordance with the divorce agreements.

Option 2: One spouse takes over the house
One spouse can take over the mortgage and keep the property by either taking over the mortgage alone or refinancing to pay off the other spouse.

Option 3: Splitting the mortgage
In some cases, the mortgage can be split between the spouses, with each spouse being responsible for a portion of the mortgage. However, this requires the consent of the mortgage bank and a corresponding amendment to the mortgage agreement.

The exact procedure depends on the individual circumstances and agreements of the spouses. It is advisable to seek legal advice from a family law lawyer in Switzerland in order to find the best solution for the division of the joint mortgage in the event of a divorce.


Debt interest and maintenance payments


The divorced spouse, who no longer uses the property, does not generate any income from the property, either through his or her own use or by renting it out. The share of the encumbered imputed rental value is equated to alimony in the form of a pension.

Ordinary property maintenance costs are generally borne by the owners and can be deducted as part of their ownership share. In individual cases, however, a deduction may be made for the owner who can prove that he has borne the costs.

The assessment of deductible debt interest is similar to the mortgage debt deduction in assets. If debt interest is paid, it is treated in the same way as maintenance payments to the divorced or separated spouse.

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Example for better understanding


To illustrate these tax aspects, let’s look at the example of Mr. and Mrs. Huber, who own a joint property with a tax value of CHF 1,200,000 and an officially estimated imputed rental value of CHF 30,000 in the canton of Zurich. The property is encumbered with a mortgage of CHF 620,000 and the interest on the debt amounts to CHF 16,000. Due to Mrs. Huber’s financial situation, she can live in the property free of charge for the time being, and Mr. Huber undertakes to pay CHF 2,000 per month as alimony and to pay the entire interest on the debt.


Calculation of taxable income on divorce

Conclusion


Even if it is not a pleasant topic, it is always advisable to find out about the tax consequences and how to deal with the joint property in the event of a divorce. If necessary, professional advice should also be sought to ensure that the financial implications are fair and transparent for both spouses.

All data are without guarantee. The information on these Internet pages has been carefully researched. Nevertheless, no liability can be assumed for the accuracy of the information provided.

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