Divorce and your mortgage: the best solution

Around 40 percent of all marriages in Switzerland end in divorce. Splitting up is an emotionally difficult time when people are faced with many questions. When it comes to home ownership, they have to address important issues: Who will take over the joint home? Can one of the two partners afford the property on their own? If that’s not possible, what other options do separated couples have?

The legal consequences of a divorce for couples in Switzerland are essentially governed by the Swiss Civil Code.

The division of assets depends principally on the matrimonial property regime chosen by the couple.

However, the form of property ownership also plays a role when ex-partners have to work out what to do about their mortgage. It determines what share of the house or apartment belongs to each of the partners. In the case of real estate, this is specified in the land register at the land registry office of the relevant municipality.

Most divorced couples decide to sell the joint property. The ex-partner who wants to take over the mortgage on their own often needs considerable financial leeway, which they do not necessarily have.

A mortgage is generally considered affordable if the costs do not exceed one third of a household’s gross income.

As well as honoring interest and amortization payments, which can now no longer be shared, the ex-partner who wants to keep the property usually has to buy out the other person’s share. If one of the partners moves out of owner-occupied residential property, they must repay any pension fund advance withdrawals used to finance it.

Passing on the mortgage to a third party is only a viable option if both the buyer and the mortgage lender give their consent. The mortgage lender will generally examine the dossier as if it were a new transaction. All the usual requirements such as affordability and compliance with the lending guidelines must also be met.

Whether or not the buyer of the property takes over the existing mortgage also depends on the interest conditions and, to a large extent, on negotiations regarding the change of ownership. If the financing was concluded at a higher interest rate than the current level, the buyer will include any additional costs in the purchase offer when transferring the mortgage to the buyer.

A divorce changes the credit default risk from the mortgage lender’s perspective. It also alters the probability of receiving the agreed flow of funds to cover repayments and interest.

One person’s assets alone are rarely sufficient to obtain a mortgage. Divorce changes the financial possibilities and creditworthiness of the contractual partners. If the mortgage lender sees a risk that the borrower will not be able to keep up with the mortgage payments in the future, they will review the loan. As well as modifying the conditions, the lender also has the right to terminate the loan, subject to the applicable contractual conditions.

A mortgage is too important to ignore in the event of divorce. The best way to ensure that couples think rationally about the long payment obligation they have entered into, and what it might mean in the event of divorce, is for them to talk about it in advance, i.e., during good times. If necessary, they should seek legal assistance.

The more carefully both partners consider what might happen to the property they have bought, and the loan they have taken out, should they split up, the less uncertainty there will be later on. If you get divorced, you should seek advice and explain the situation to the mortgage lender of your own accord.

By adopting a cooperative approach, you reduce the risk of the mortgage being canceled unnecessarily, which could result in a costly foreclosure. If you can reach a joint solution for the mortgage, you will rid yourself of a major worry.