Separation in the Netherlands and a joint mortgage – what are your options?

Separation is a difficult moment in life. If, in addition to the emotional side of the situation, there is also a jointly owned home and a mortgage, things can quickly become complicated from both a financial and a formal perspective.

Who stays in the house? Who will continue paying the mortgage? Can one person take over the property? What happens if neither partner can afford to keep the home on their own?

There is no single solution that will be best for every couple. Much depends on the partners’ financial situation, the value of the property, the remaining mortgage balance, and how ownership and the relationship itself have been legally arranged.

Among other things, it matters whether the partners are married, are in a geregistreerd partnerschap, meaning a registered partnership, live together without formally registering their relationship, or have a samenlevingscontract, meaning a cohabitation agreement.

Before making any decisions, it is worth establishing:

• who is legally the owner of the property and in what proportion,

• who is named as a borrower,

• the current value of the property,

• how much of the mortgage remains outstanding,

• whether one person has sufficient borrowing capacity to remain in the home,

• what previous agreements have been made between the partners,

• whether one party contributed a larger amount of their own funds.

Situation 1 – one person stays in the home and takes over the mortgage

Many couples who buy a property together own it on a 50/50 basis and are jointly responsible for the mortgage. However, this is not always the case, so the title deed and mortgage documentation should always be checked.

It is also very important to understand that simply moving out of the property does not automatically release someone from responsibility for the mortgage.

If both people are borrowers, the bank or other lender must agree to release one of them from liability for the loan. This is known as ontslag uit de hoofdelijke aansprakelijkheid, meaning release from joint liability for the mortgage debt.

Until this change has been formally completed, the person who has moved out may still remain liable for the mortgage.

If one person wants to stay in the home, the first step is therefore to determine whether they can afford the mortgage independently. The lender will assess factors such as income, financial obligations and the remaining loan amount.

For mortgages with NHG – Nationale Hypotheek Garantie, the Dutch National Mortgage Guarantee, additional options may be available. NHG may use what is known as the Beheertoets, an additional affordability assessment used to determine whether the person remaining in the home can sustainably afford the mortgage payments.

In some situations, this can make it possible to keep the property even when a standard mortgage affordability assessment would be problematic.

What happens to the other person’s share?

If the property has positive equity, known as overwaarde – the value of the property above the outstanding mortgage, the person staying in the home may need to buy out the former partner’s share.

Example:

Current property value: €400,000
Outstanding mortgage: €300,000
Overwaarde – positive equity: €100,000

If Anna and Marcin each own 50% of the property, each person’s share of this equity would generally be €50,000.

If Anna wants to take over the property, she may therefore need to compensate Marcin for his €50,000 share.

This does not mean that every case will be settled in exactly this way. Relevant factors may include the ownership percentages, personal contributions made by either party, previous agreements, huwelijkse voorwaarden, meaning a prenuptial or marital property agreement, partnerschapsvoorwaarden, meaning a registered partnership property agreement, a samenlevingscontract, meaning a cohabitation agreement, or other financial arrangements between the parties.

When buying out the other person’s share, the current market value of the property is also important. Settling the share for an amount that differs significantly from the market value can have tax consequences.

Situation 2 – selling the property

If neither person wants to, or is able to, take over the property independently, selling the home may be the appropriate solution.

After the sale, the outstanding mortgage is repaid from the sale proceeds, together with any costs associated with selling and transferring the property.

If money remains after these amounts have been settled, this is known as overwaarde, meaning positive equity in the property. How this equity is divided depends, among other things, on the ownership shares and the agreements between the partners.

The opposite situation is also possible: the sale price may not be sufficient to repay the entire mortgage. This creates a restschuld, meaning a remaining mortgage debt after the sale.

If the mortgage is covered by NHG – Nationale Hypotheek Garantie, the Dutch National Mortgage Guarantee, it is worth checking the available options in advance. Subject to certain conditions, NHG may be able to provide assistance in some situations where selling the property results in residual debt.

Overwaarde can affect the purchase of your next home

Receiving positive equity after selling a property can have tax consequences later.

The Netherlands applies the bijleenregeling, a tax rule relating to the use of equity from a previous property when purchasing another home.

In simplified terms, if you receive overwaarde – positive equity after selling your home and subsequently buy another property, the amount of this equity may affect how much of the interest on your new mortgage is tax-deductible.

After separation, each former partner generally takes their own share of the eigenwoningreserve, meaning the tax reserve connected to the equity released from the sale of an owner-occupied home.

For this reason, before purchasing another property, it is also important to consider the tax consequences of the previous sale.

Situation 3 – the property remains jointly owned for a while

A final decision does not always have to be made immediately.

Sometimes partners decide that the property will remain jointly owned for a certain period after the separation. One person may move out while the other continues living in the home, or both may temporarily remain in the property until the next steps have been agreed.

This can provide time to sell the home, improve the financial position of one of the partners, or prepare for a later transfer of the mortgage.

However, keeping the property jointly owned means that the former partners remain financially connected.

It is therefore important to clearly agree:

• who pays the mortgage and in what proportion,

• who pays for energy and other household bills,

• who is responsible for taxes and insurance,

• who pays for repairs and property maintenance,

• when the property will be sold or transferred to one person,

• how any future overwaarde – positive equity, or restschuld – remaining debt, will be divided.

It is advisable to properly document these arrangements, especially if the situation is expected to continue for a longer period.

Be aware of hypotheekrenteaftrek

Moving out of the property can also affect your tax position.

Hypotheekrenteaftrek means the possibility of deducting mortgage interest from taxable income, provided the relevant conditions are met.

The Belastingdienst, the Dutch Tax and Customs Administration, has specific rules for people who separate and leave a jointly owned property. In many cases, the person who moves out may continue to treat their share of the property as an eigen woning, meaning an owner-occupied home for tax purposes, for up to two years.

After this period, the tax treatment may change. For example, the right to deduct mortgage interest relating to that share may end, and the person’s share of the property and mortgage debt may move to Box 3, the part of the Dutch tax system relating to savings and assets.

The exact tax treatment depends on factors such as who owns the property, who pays the mortgage interest and who continues living in the home.

Situation 4 – divorce or termination of a registered partnership

In the case of marriage or a geregistreerd partnerschap, meaning a registered partnership, it is also necessary to determine which property regime applies to the home.

Relevant factors include whether the couple has huwelijkse voorwaarden, meaning a prenuptial or marital property agreement, or partnerschapsvoorwaarden, meaning a registered partnership property agreement, as well as the matrimonial property regime that applies to them.

Before dividing the property, it is therefore important to determine whose assets the property belongs to and in what proportion.

Equally importantly, divorce or termination of a registered partnership does not automatically remove one person from the mortgage.

If one person is going to remain in the home, the lender must approve the change and release the other person from liability for the mortgage.

Echtscheidingsconvenant – divorce settlement agreement

In a divorce, an important document is often the echtscheidingsconvenant, meaning a divorce settlement agreement.

This document allows spouses to record the agreements they have made regarding the divorce, including finances, spousal maintenance, division of assets and the jointly owned property.

With regard to the home, the agreement can specify, for example:

• who will remain in the property,

• who will take over the home,

• how the value of the property will be determined,

• how much will be paid to the other person to buy out their share,

• who will pay the costs of the property until it is formally transferred or sold,

• whether the property will be sold,

• how any overwaarde – positive equity, or restschuld – remaining mortgage debt, will be divided.

However, one very important point should be kept in mind:

an arrangement included in the divorce settlement agreement does not automatically mean that the bank will be able to implement it.

For example, a couple may agree that one person will take over the property and the entire mortgage while the other person is released from liability. On paper, this may look like a perfectly reasonable solution. However, if the income of the person staying in the home is insufficient to take over the mortgage independently, or if the lender does not approve the change, the arrangement cannot be implemented as intended.

For this reason, before final arrangements regarding the property and mortgage are included in the echtscheidingsconvenant – divorce settlement agreement – it is advisable to speak to a mortgage adviser first.

The adviser can assess, among other things:

• whether one person can take over the existing mortgage,

• whether their income is sufficient,

• whether the other person can be released from joint liability,

• the maximum amount of financing available,

• whether the buyout of the former partner’s share can be financed,

• which alternatives are available if taking over the mortgage is not possible.

This helps ensure that the arrangements included in the divorce settlement agreement reflect what is actually financially feasible.

Otherwise, both parties may agree that one of them will take over the property, only to discover later that the bank will not approve the arrangement. The divorce terms may then need to be renegotiated, or selling the property may have to be considered.

A sensible order of action is therefore usually:

first assess the financial and mortgage possibilities, then agree the arrangements between the partners, and only after that record the final arrangements in the echtscheidingsconvenant – divorce settlement agreement.

What if you are not married?

If you buy a home together but are not married and are not in a geregistreerd partnerschap, meaning a registered partnership, the agreements made between you become particularly important.

Unlike marriage or a registered partnership, a matrimonial property regime does not arise automatically.

When buying a property together, it is therefore advisable to establish in advance:

• what share of the property each person owns,

• who pays the mortgage and in what proportion,

• how personal contributions are accounted for,

• who is responsible for other shared costs,

• what will happen to the property if the relationship ends,

• how overwaarde – positive equity, or any loss, will be divided.

Some of these arrangements can be included in a samenlevingscontract, meaning a cohabitation agreement.

When purchasing a property together, such an agreement can be used to regulate matters including the financing of the property, personal contributions and what should happen in the event of separation.

It is important, however, to distinguish between agreements made between the partners and the formal ownership of the property or liability towards the bank.

A samenlevingscontract – cohabitation agreement does not automatically change the ownership of the property or release someone from obligations under the mortgage agreement.

What if you have no formal relationship or agreement at all?

Another possible situation is where partners are not married, do not have a registered partnership and have not entered into a samenlevingscontract – cohabitation agreement, but have purchased a property together.

The absence of a formal relationship does not mean that the jointly owned property or mortgage ceases to exist.

In this situation, it is particularly important to check:

• who is listed as the owner in the notarial deed,

• what share of the property each person owns,

• who signed the mortgage agreement,

• how much each person contributed when the property was purchased,

• whether there are any other written agreements concerning financial settlements between the partners.

If both people are owners and borrowers, after separation they still need to decide whether one person will take over the property, whether the home will be sold, or whether it will remain jointly owned for a period of time.

The absence of a samenlevingscontract – cohabitation agreement may make financial settlement more difficult, particularly where one person contributed substantially more of their own money or paid for a larger proportion of renovations.

It should not automatically be assumed that the person who contributed more money will always receive that amount back before the remaining equity is divided. Formal ownership and the agreements actually made between the partners, as well as the ability to document them, are very important.

For this reason, when unmarried partners purchase a property together, it is particularly important to record such arrangements in writing in advance.

Is a notary required?

If one person takes over the other person’s share of the property, a private agreement between former partners is not sufficient.

A change in ownership must be formally arranged and requires the involvement of a notary.

The notary handles the legal transfer of ownership. Issues relating to changing or taking over the financing must be agreed with the bank or other lender.

In practice, taking over a jointly owned property therefore often requires cooperation between several parties:

• a mortgage adviser,

• the bank or other lender,

• a notary,

• and, in the case of divorce, a lawyer or mediator preparing the divorce arrangements.

What should you do first?

When separating, it is better not to start with the assumption:

“We have to sell the house”

or:

“I will definitely take over the mortgage.”

The first step is to look at the numbers.

What is the current value of the property? How much mortgage remains outstanding? What is each person’s financial position? Can one person afford to keep the property? How much would the buyout of the other partner cost? What are the tax consequences?

Only then can the available options be realistically compared.

The three most common options are:

1. One person takes over the property and the mortgage – provided their financial situation allows it and the lender approves the change.

2. The property is sold – the mortgage is repaid and any remaining equity or debt is then settled between the parties.

3. The property remains jointly owned for a period of time – provided there are clear arrangements regarding mortgage payments, costs and the eventual settlement of the property.

Each of these options may be appropriate in a different situation.

Do not make decisions based solely on emotions

Separation itself is stressful, which is why decisions concerning the property and mortgage are best based on concrete financial calculations.

Sometimes a person who is convinced that they will not be able to remain in the home discovers that it may actually be possible.

In another situation, taking over the property may be technically possible but result in excessively high monthly financial commitments.

Particularly in a divorce, it is advisable to assess the mortgage options before the final arrangements concerning the property are included in the echtscheidingsconvenant – divorce settlement agreement.

This helps avoid agreeing to a solution that looks good on paper but later turns out to be impossible for the bank to approve.

If you are currently in this situation and do not know where to start, please contact us.

Our mortgage advisers can analyse your financial situation, assess the possibility of taking over the existing mortgage and help you determine which solutions are available in your circumstances.

This allows you to understand the realistic financial possibilities first and then make further decisions based on them – including, in the case of divorce, determining what should be included in the divorce settlement agreement regarding the property.

The information in this article is general in nature. The legal, mortgage and tax consequences of separation depend on the individual circumstances. For legal, tax or property division matters, you should consult an appropriate specialist.