Debts in the divorce: who is liable for the joint loan?

The basic rule: the signature counts

Marriage does not create a community of liability. Even in the statutory matrimonial property regime of the Zugewinngemeinschaft the assets of both spouses stay separate, and with them the debts. Whoever signed a contract alone is liable alone; the other is not liable, not even pro rata, and not even after twenty years of marriage.

That is the rule which in advisory conversations most often brings relief. It has exactly one exception of practical significance.

Transactions to cover the necessities of life (§ 1357 BGB): whatever one spouse procures for the appropriate coverage of the family’s daily needs binds the other as well. What is meant are everyday transactions within the couple’s circumstances, not buying a car or taking out an instalment loan. And that effect ends as soon as the spouses live apart (§ 1357 (3) BGB).

Where both of you have signed

The practically most important case is the joint property loan. Where both have signed, they are joint and several debtors (§ 421 BGB): the bank can demand the entire performance from each of them individually. It may choose whom to call on, and it is not bound by any arrangement you have made between yourselves.

That is the point at which many separation agreements fail: “he takes over the loan” settles the relationship between the two of you; towards the bank it changes nothing. If he does not pay, it rings your doorbell.

The balancing between you

Whoever pays more than their share can demand compensation from the other (§ 426 BGB). In principle the split is in halves, unless something else is determined.

During an intact marriage the courts frequently assume such a departure: as long as you run a joint economy, the loan is part of shared life, and no balancing takes place. With the separation that basis falls away, and from then on the balancing in halves applies as a rule.

That is often overlaid by maintenance law. Anyone who stays living alone in the financed property after the separation and pays the instalments has a housing advantage that enters the maintenance calculation; the interest and repayment are in part already taken into account there. An additional full balancing under § 426 BGB would then amount to counting the same thing twice. How the housing advantage works is shown by the property on separation.

Out of the loan agreement, only with the bank

There is no right to be released from a joint loan. A release from liability presupposes the bank’s consent, and the bank simply examines whether the remaining debtor can carry the loan alone. Where that examination turns out negative, the joint liability stays, regardless of what was agreed in the divorce proceedings. What works in practice:

• Refinancing in the name of the partner taking over alone, provided their creditworthiness carries it.
• Redemption out of the equalization of accrued gains or out of the proceeds of other assets.
• Sale of the financed object and repayment out of the proceeds; often the only clean cut.
• An indemnity agreement between the two of you: it does not replace the release from liability but secures the claim for compensation.

Alongside that, two pieces of tidying up belong in the first week after the separation: clarifying joint accounts and any overdraft facilities, and revoking mutual account authorizations. Both prevent new joint liabilities from arising.

Debts in the equalization of accrued gains

In the equalization of accrued gains, liabilities are deducted from both asset positions, from the initial as well as from the final assets. Both may be negative in the process (§ 1374 (3) BGB).

From that follows a consequence that surprises many: anyone who enters the marriage with debts and pays them off during it thereby achieves a gain; their assets have risen from minus to zero. That can trigger an obligation to equalize, even though on balance there never were any assets.

Conversely: you do not have to stand in for the other’s debts in the equalization. The equalization claim is limited to the surplus actually present at the debtor’s side (§ 1378 (2) BGB). The system behind that is explained by assets & accrued gains.

Co-liability and guarantees

A case of its own is co-liability without an interest of one’s own: one spouse co-signs for the other’s business loan although they themselves have neither income nor assets from which they could ever service the sum. The case law treats such contracts, where there is gross financial overburdening and emotional attachment, as contrary to public policy and therefore void (§ 138 BGB).

That is not automatic but an examination of the individual case; it is worth carrying out almost whenever such a constellation exists.

What comes next

How assets and debts are recorded and set off at the relevant dates is set out under assets & accrued gains; which information you can demand for that is shown by disclosure about your spouse’s assets.

Where a property hangs on the debts, the route runs through the property in the equalization of accrued gains. And how liabilities that can be taken into account affect maintenance is set out by separation & maintenance.

Legal notice: This article is provided for general information and does not replace legal advice in an individual case. Any laws, deadlines and amounts mentioned reflect the state of affairs at the time of publication and may change. A binding assessment requires a personal consultation.