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2 Apr 2024 Compensation for higher mortgage interest when taking over property after divorce?

An essential, but unfortunately often overlooked, aspect of divisions in (marital) separation is the valuation of debts, where in this post we focus on the valuation of mortgage debt to be divided, in the case where the house is taken over by one of the former partners.

Generally, mortgage debts are valued at their nominal value, at the amount that would actually have to be repaid to the mortgage lender at that time in case the mortgage were to be terminated. Meanwhile, however, some voices are calling for a more innovative method of valuing these mortgage debts, namely by valuing mortgage debts based on their current "value" instead of the traditional nominal value. This aims to do justice to the significant economic weight that interest rate agreements with the mortgage lender can have in the context of divorce.

Of course, it happens often enough that, after a divorce, one of the partners takes over the marital home and the joint mortgage debt on it. The days when the average mortgage interest rate was extremely low are over and this often results in the partner who does not take over the home having to pay a much higher mortgage interest rate than the partner who has taken over the joint home. In other times, of course, the reverse situation also occurs where the acquiring partner is left with a much more unfavorable mortgage contract and so the current value of the mortgage is higher than the nominal value.

The question is whether valuing mortgage debts at their "current value" is reasonable. After all, there is often the possibility of paying off mortgage debts without penalty when the house is sold. In that situation, neither party could benefit from the existing mortgage agreement. One might also ask whether, for example, one partner's conscious decision to continue an unfavorable mortgage contract should be passed on half to the non-acquiring party.

Having said that, it is of course not necessarily the case that simply taking the nominal value of a mortgage debt into account should be used in all cases. There may well be reasons in specific cases that make it necessary to deal with that mortgage debt differently. An increasingly common solution is to split the existing interest rate contract so that each of the parties can benefit from part of the existing favorable interest rate contract in the future. It is a solution that more and more mortgage lenders are cooperating with, but the mortgage lender is completely free to choose whether or not to accept that solution.

Should the situation arise that a mortgage lender does not want to cooperate in splitting the interest rate contract, there might be conceivable situations where the acquiring partner could be expected to compensate the other party. The Limburg court, in its ruling of 19 October 2023, (ECLI:NL:RBLIM:2023:6151) ): “In the opinion of the court in preliminary relief proceedings, it cannot in general be ruled in advance that the claim for interest compensation as claimed by [plaintiff in the main proceedings, defendant in counterclaim] is without chance”. Whether such a claim is likely to succeed will therefore have to be determined by all the facts and circumstances of the case. All sorts of factors play a role in this, such as the type of mortgage, the length of the fixed-interest period, the reason why one partner is taking over the house, the amount of the benefit, etc. etc.also stated

Given the complexity of this issue, the crucial importance of early consultation and cooperation with a family law specialist should be stressed. This is essential for navigating the complexities of divorce and ensuring fair and equitable property division agreements.

Pending (further) case law on these issues, it is important for divorce law practice to always examine all facts and circumstances for each divorce or separation situation in order to determine whether there is cause for compensation in case of a takeover of the home by one of the partners . In any case, there is a need to take the economic importance of mortgage interest contracts seriously in every divorce. A careful and expert approach will help you reach decisions that are both fair and financially prudent.

SPEE advocaten & mediation's aim is to guide you through these complicated cases with knowledge and empathy, not only to meet your immediate needs, but also to lay a solid foundation for your future. Want to know whether compensation for the mortgage interest contract may be an issue in your specific situation? If so, contact one of our family law attorneys.

SPEE advocaten & mediation Maastricht

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