Legal Assistance with Mortgages and Divorce

Questioner

I have a question, maybe you can help me, I'm at my wits end. In 2010 I inherited a house with an exclusion clause community of property. The house was then valued at €200,000. I was not married at the time. Then the house was renovated with a mortgage of €70,000 - still not married and in my name. Married in 2012 in community of property. Then together with money from the community the mortgage partially repaid with €20,000.00 We also made joint investments in the house with money from the community, €20,000. Now we are getting divorced and my question now is, should we now fully return the money, or at least her part of it that was invested in my private assets? to the community? And what to do with the increase in value?

Lawyer

The house has now been enriched in value because funds have been invested from the community. For that part and the part thereof that has caused the increase in value, there would be unjust enrichment on your side. (the excluded part). You must therefore work it out together, a claim based on unjust enrichment is not unthinkable after a divorce.

Questioner

But should the money that was invested also go back to the community? And what about the money that was used to pay off the mortgage, should this go back?

Lawyer

No, in principle not, but this is a reason for a lawsuit by the party that invested. Bottom line is that in principle the assets (incl. expenses) must be divided minus the excluded benefits and expenses. In this case the value of the house (now)

Lawyer

The home you inherited with the exclusion clause is not part of the community of property. This home / the current value of the home is therefore not included in the division of the marital property community. The mortgage debt did become part of the marital property regime when you got married, so that this debt, to the extent that it still exists, must be divided. The repayments that were borne by the marital property regime have reduced this joint debt, but have not increased the value of your home (your private assets). The investments made in your home from the community of property must be repaid to the community, so that they can be included in the division of the community. There is something to be said for the fact that a reasonable interest compensation must also be paid by you to the community of property (so-called investment doctrine). Based on your description alone, the marital property community to be divided consists of a debt to the mortgage bank of €50,000 and a claim on you of €20,000 (excluding interest), or a net negative equity of €30,000. A reasonable division could be (provided the bank cooperates) that you are allocated the entire community, with the obligation to effectively indemnify your ex against liability towards the bank for the mortgage debt. Another view could be that the mortgage debt is 'attached'. In that case, it is not part of the community and you must also pay the repayment back to the community. In that case, the community therefore consists (assuming the above) of only a claim on you of €40,000 (without interest), so that you would have to pay your ex €20,000 (without interest) in total.

Questioner

'When you got married, the mortgage debt became part of the matrimonial property regime...' I don't understand this, isn't the mortgage by definition a private debt because it is part of a house that is private, or am I wrong? And if the mortgage debt is 'attached', what does this 'attached' mean? When is a mortgage debt 'attached'? You then mention amounts of €40,000 (without interest) and €20,000 (without interest), does this mean that interest is added? What is this interest based on, how is it calculated? Compensation law/investment theory?? Increase in value of home during marriage? Furthermore, my wife took out a term life insurance policy (in her name only) on the mortgage (which was/is in my name) shortly before our marriage. I paid the premium for her (on paper) from the community and during our entire marriage. Is this evidence that the mortgage is not 'attached' because of her term life insurance on the mortgage? Again, for the sake of clarity, the house was private before and during the marriage. The mortgage was private before the marriage and becomes, as you say, community property during the marriage. I am not a lawyer myself and certainly do not want to contradict you, but I find this a very strange case. Can you explain this a little further? Does this also mean that the repayment does not have to be repaid?

Questioner

Could you perhaps also give an example of when a mortgage is attached and when it is not?

Lawyer

The loan itself does not fall under the exclusion clause. However, the collateral for the loan (i.e. the home) does. This connection could make it defensible that the debt should also remain outside the marital property community. However, the starting point for marriage in community of property is that all debts and possessions that both spouses have at the start of the marriage fall within the community, except for excluded goods or attached goods. Attached goods are usually goods that are strongly connected to the person of a spouse, and therefore cannot exist without this person. Consider, for example, a periodic insurance payment that was already paid out before the marriage. In principle, the value of the insurance policy also falls within the marital property regime and must be included in the division. Assuming that there is no attachment, which I will continue to use as a starting point for the time being, then you are not obliged to pay back the repayments on the community debt for which your private home serves as collateral (= the mortgage debt) into the marital property community. The money that has been withdrawn from the marital property community to invest in your private home must be repaid by you, increased by a fictitious return. What this return is cannot be determined in advance, but a guideline can be the savings interest that the investment would have yielded if it had been deposited into a regular savings account.

Questioner

Thank you for your extensive and clear explanation Mr. Kleijwegt. It has become much clearer to me now. Does anyone else perhaps have anything to add?

Questioner

Can it also be in this case that the remaining mortgage debt does not have to be shared in the event of divorce, on the grounds of reasonableness and fairness? After all, the mortgage debt was incurred before the marriage when investing in a private home that falls outside the community of property during the marriage.!?!

Lawyer

Assuming that the mortgage debt is only in the name of the spouse who took out the mortgage loan before the marriage, the mortgage bank will only be able to call on this spouse for payment of the debt. In that sense, the debt has already been 'divided'. However (if there is no special attachment) the debt does form part of the community of property and therefore reduces the value of the spouses' 50/50 shares in the matrimonial property. Reasonableness and fairness must be taken into account in the division of the assets and I find it arguable that in the event of division in the situation you describe, the party who is the owner of the home that falls outside the community and is liable for payment of the remaining premarital debt connected to the home, cannot, in the division on the grounds of reasonableness and fairness, claim compensation from the other party (in whatever form) for half of that debt.

Questioner

This is different from what you previously stated, namely: 'When you got married, the mortgage debt became part of the marital property regime, so that this debt, to the extent that it still exists, must be divided.' What can be said then about the fact that the marriage was in community of property, that the mortgage debt was 'accepted' by the wife upon marriage, and then no longer upon divorce. What is the value of marriage in community of property if you give it a different twist at the end of the marriage? Furthermore, the wife took out a death risk insurance on the mortgage. If the husband had died during the marriage, the entire outstanding mortgage would be paid off by the insurance. As a result, the wife would be debt-free as far as the house was concerned. Furthermore, a will was made stating that the wife would become the full owner of the house upon the death of the husband. The wife therefore had 'good reasons' to accept the mortgage at the beginning of the marriage and to marry in community of property. After all, there was also the option to marry under prenuptial agreements and to have the mortgage fall outside the community of property. Of course, the question remains how the judge will view this.

Lawyer

In legal terms, debts are not divisible. This is because a third party (the creditor) is always involved in a debt, which means that it is not in the power of the debtors to unilaterally determine among themselves whether and how the debt should be paid. What matters is that in principle the debt, in terms of (negative) value as a result of community of property, will be borne 50/50 by both (ex) spouses. However, by appealing to the special attachment and secondly to reasonableness and fairness, the party that did not incur the debt can, in my opinion, take the defensible position that this negative value should be 100 percent borne by the party that incurred the debt before the marriage. It is then indeed ultimately up to the judge to determine which party should be proven right.

Questioner

Book 1. Personal and family law Title 7. The statutory community of property Section 1. General provisions Article 94 5. The community includes, as regards its liabilities, all debts of each of the spouses, with the exception of debts: a. concerning goods excluded from the community; b. arising from gifts made, agreements made and conversions entered into by one of the spouses as ..... As I read it here, the mortgage debt falls outside the community of property (married from 1 January 2012 to the end of 2017). It concerns a debt concerning a property excluded from the community (the house). Please respond.

Lawyer

This is a good response from you. Until January 1, 2012, article 1:94 BW read as follows: Article 94 1 The community includes, as regards its assets, all present and future property of the spouses, with the exception of property which has been determined by the testator's will or by the gift to fall outside the community, and with the exception of the usufruct referred to in Section 2 of Title 3 of Book 4. 2 It includes, as regards its liabilities, all debts of each of the spouses. 3 Goods and debts that are in any special way attached to one of the spouses only fall within the community to the extent that such attachment does not oppose this. 4 Without prejudice to the provisions of Article 155 of this book, pension rights to which the Pension Rights Equalisation in the Event of Divorce Act (Stb. 1994, 342) applies, as well as rights to survivors' pensions related to those pension rights, do not form part of the community of property. As of 1 January 2012, the article has been amended in the manner you noted. However, the debt you are referring to was incurred before 1 January 2012. The amendment as of 1.1.2012 concerns debts incurred during the marriage and concerns goods that fall outside the community. At the same time, as of 1.1.2012, it has also been determined that fruits of goods that fall outside the community (e.g. rental income from a property that does not fall within the partnership) are also not part of the community. Furthermore, it is sometimes difficult to determine whether a debt concerns a property excluded from the community. After all, money that is borrowed and for which a property outside the community is given as collateral (mortgage is the legal term for collateral on a property) will not always concern that property. Perhaps the borrowed money is used to buy a property within the community...

Questioner

Book 1. Personal and family law Title 7. The statutory community of property Section 1. General provisions Article 94 5. The community includes, as regards its liabilities, all debts of each of the spouses, with the exception of debts: a. concerning goods excluded from the community; b. arising from gifts made, agreements made and conversions entered into by one of the spouses as ..... As I read it here, the mortgage debt falls outside the community of property (married from 1 January 2012 to the end of 2017). It concerns a debt concerning a property excluded from the community (the house). Please respond.

Questioner

Book 1. Personal and family law Title 7. The statutory community of property Section 1. General provisions Article 94 5. The community includes, as regards its liabilities, all debts of each of the spouses, with the exception of debts: a. concerning goods excluded from the community; b. arising from gifts made, agreements made and conversions entered into by one of the spouses as ..... As I read it here, the mortgage debt falls outside the community of property (married from 1 January 2012 to the end of 2017). It concerns a debt concerning a property excluded from the community (the house). Please respond.

Questioner

So the mortgage debt (€70,000) that I already had before 1.1.2012 becomes a joint debt upon marriage, despite the new legislation of Article 94.5 during the marriage on 1.1.2012? And this because the debt was incurred before the new legislation of 1.1.2012? Does the mortgage debt still fall under the old legislation? And are the mortgage repayments during the marriage, as previously described, seen as the repayment of a joint debt? I don't want to make it even more difficult than it already is, but there was a second mortgage during the marriage. This was a smaller mortgage from which you could freely withdraw and repay amounts up to a certain amount. I took out this second mortgage a few years before my marriage. This second mortgage was initially €20,000. However, on the day of my marriage on 1.1.2012 I had already paid off this mortgage in full and it was at zero euros on the day of the marriage. However, during the marriage, this second mortgage was used to invest in the house (private property), it was repaid, but the mortgage was also used to buy a car. Should I view this second mortgage debt as a private debt in the event of a divorce, as opposed to the previously mentioned mortgage of €70,000? After all, the debt arose during the marriage, after 1.1.2012.

Lawyer

The point is that the debt was incurred during the marriage. The debt you mention, which arose after the date of the marriage (I understand that this involved a form of 'revolving credit' that already existed before the marriage, for which your private property served as security), therefore does not form part of the community of property to the extent that it can be regarded as relating to goods excluded from the community of property. I believe (based on the case law known to me) that a distinction will have to be made between the part (a) of the debt that was invested in your private home and the part (b) with which the car was purchased. Part (a) was/is a private debt. If and to the extent that this private debt has been paid by funds that belonged to the community, the community has a claim on you (to be increased by a reasonable interest compensation). Part (b) was/is a community debt, so that repayments on this debt do not lead to a claim of the community on you.

Questioner

I would like to come back to the first part of my question for a moment, what can be said about this? So the mortgage debt (€70,000) that I already had before 1.1.2012 becomes a joint debt upon marriage, despite the new legislation of Article 94.5 during the marriage on 1.1.2012? And this because the debt was incurred before the new legislation of 1.1.2012? Does the mortgage debt still fall under the old legislation? And are the mortgage repayments during the marriage, as previously described, seen as the repayment of a joint debt?