Divorce can be a difficult time, legally as well as emotionally. One of the main practical issues is how to divide real estate assets.
Divorce can be a difficult time, legally as well as emotionally. One of the main practical issues is how to divide real estate assets. Which spouse will keep the house during the separation phase? Who will move out after the divorce? How will any capital gain on the property be shared? Are any major changes in Swiss divorce law planned for 2017? Fortunately, solicitor Véronique Fontana from Étude Fontana Avocats, a top legal firm in Lausanne, is here to help. She kindly took the time to explain some common real estate issues that can arise in the event of a divorce, and how they can be resolved.
Measures to protect the marital union
In Switzerland, it’s impossible to get a divorce before the spouses have been separated for two years, except in the case of an uncontested divorce. During this period, separate living arrangements are made following a procedure known as “measures to protect the marital union”. This raises the issue of who will stay in the matrimonial home. Ultimately, it doesn’t make much difference whether or not both spouses are co-owners.
Who can stay in the family home
When a couple separates, a key priority for the judge is preventing any children from having to endure a stressful house move. Therefore, they will tend to let the partner who has custody of the children stay in the family home (this is often the wife but not always).
If either spouse works from home, perhaps in a self-employed profession such as a doctor, dentist, lawyer, etc., this can work in their favour, as they can argue that moving out would disrupt their business.
In Swiss law, the notion of “predominant interest” applies here: the spouse who most needs to remain in the family home is granted the right to do so.
To this end, the judge will weigh up the interests of the parties involved. The decision is always made on case-by-case basis. For instance, a wife may have custody of the children but the husband may have his own doctor’s surgery at home. It’s up to the judge to decide.
Who gets the house after divorce
In the case of a contested divorce, a two-year separation is required before proceedings can begin. If the couple has been separated for two years and one partner then files for divorce, how will the judge decide who gets the family home if the estranged spouses can’t agree?
A number of options are available depending on the situation:
For leasehold properties, if both partners are on the lease, the judge can award the lease to one of them individually if there are serious grounds for doing so and if this decision will not put the other spouse under unreasonable duress.
If the property belongs to one of the spouses only, in principle they are entitled to continue owning the property as well as having the full use of their home after the divorce.
In some cases, where there are serious grounds for doings so, the ex-spouse who is not the owner may be entitled to live at the property without the owner for a limited period of time, providing the owner is fairly compensated.
If the family home (and more generally any other property) belongs to both spouses, they will need to reach an agreement if possible. Can one of them buy out the other, for example? Or will the property be sold to someone else and the proceeds split?
In some cases, if the couple cannot come to an agreement, the judge may award the property to one partner if they can show they have a predominant interest. The spouse who is awarded the property must then buy out the other spouse. Last but not least, the judge may decide not to settle the issue of co-ownership right away and instead allow one of the ex-spouses to live at the property for a limited period. This option gives both parties some time to agree on how to share the property.
Real estate in the divorce settlement
In Swiss law, real estate is dealt with in a specific way when a couple divorces. The concept of “acquests” (acquêts), meaning property or assets acquired otherwise than by inheritance, comes into play here. In a partnership of acquests, the value of property accumulated during the marriage is divided once the marriage has ended, but does not include each spouse’s private property.
First of all, the judge must decide to what extent the property belongs to each spouse. Is the property jointly owned in a partnership of acquests or is it the private property of one spouse? This is important as the value of the spouses’ acquests at the time of the divorce is shared equally between them.
Broadly, real estate will be treated as an acquest if the equity in the property (mostly) originally came from assets acquired during the marriage, such as wages saved by both spouses during the marriage. On the other hand, if the equity came from an inheritance, money saved before the marriage or a gift, the home will be classed as private property.
If the property is an acquest, its value at the time of the divorce ruling will be divided in two. Whether the property is jointly owned or solely owned by one spouse does not matter here. An expert valuation will usually be conducted in order to estimate the property’s worth (including any increase in value since it was purchased).
This is the most straightforward scenario. If the property is an acquest (or a share in one, in the case of jointly owned property), the judge simply needs to establish its value at the time of the divorce, deduct any outstanding mortgage charges, and divide it by two in order to calculate each spouse’s share.
If the property (or share in one) is deemed to be private property, its value will belong to its owner, who does not have to share it as part of the divorce settlement. This is also a relatively simple situation. It should also be noted that in the case of jointly owned property financed exclusively by one spouse’s private assets, this spouse will be entitled to the value of the other spouse’s share (including any capital gain). In Swiss law, this is known as “capital gain debt” (as in the example here of a private property that is jointly owned).
The above are two textbook cases. Unfortunately, the reality is often more complicated. For instance, even if a home is classed as one spouse’s private property, the mortgage repayments might have come out of acquests. Acquests might also have been used to fund home improvements.
In this scenario, one spouse’s acquests create a “debt” for the other spouse. The value of these repayments and the related capital gain on the property will have to be calculated. The total amount will then be shared equally between the spouses.
There are of course legal ramifications to this. For instance, when a spouse’s salary is an acquest, even if the mortgage repayments come entirely from the wages of the spouse who owns the home as their private property, the other spouse is still entitled to half of the value of the repayments made and the related capital gain.
This all goes to show that determining the extent of each spouse’s entitlement to a property can be a rather complicated affair, whether the home belongs to both spouses or just one of them. In the Swiss canton of Vaud, a notary may sometimes be appointed to share out the matrimonial assets as part of the divorce process. They may sometimes appoint a real estate expert to value the property.
Defining the capital gain on a property
First and foremost, any capital gain on the property must be calculated. Improvement work or extensions may be considered to increase the value of the asset. They might be funded by a new mortgage, or the owner’s wages or savings. They are all taken into account and added to the initial value of the property. Naturally, capital gain due to market conditions must also be taken into account. If the capital gain is classed as an acquest, it will be divided by two after the divorce, regardless of the two spouses’ respective salaries. One spouse could earn 3 times more than the other and it would make no difference.
Spouses who have inherited real estate shouldn’t assume that they won’t have to share any of its value in the event of a divorce. For example, if they cover their mortgage repayments using rental income (which counts as an acquest), they stand to lose half of the value of these repayments and any related capital gain.
In this scenario, the spouse who inherited the property could sign a prenuptial agreement stating that this rental is their personal property. This income would then be theirs alone and would not be considered as an acquest, so they would not have to share it as part of the divorce settlement.
Changes for 2017
In January 2017, Switzerland introduced several major changes to its divorce laws. These include a thorough review of the way occupational benefits accrued during the marriage are shared out in the event of a divorce, and in particular a change in the timeframe taken into consideration. Until 31 December 2016, this ran from the start of the marriage to the date of the divorce ruling. As of January 2017, the period still begins on the marriage start date, but now only runs until the court receives the application for a divorce, not all the way up to the final ruling. This could have a significant impact on the amount of assets to be shared out, given that divorce proceedings can take several years including the separation period.
For any further information, feel free to contact Véronique Fontana, an experienced solicitor you can count on to guide you every step of the way.
Etude Fontana Avocats
Adress : Rue Etraz 12, 1003 Lausanne
Phone : 021 311 18 09
Website : www.etude-fontana.ch