Equalization of Gains in Real Estate
When a marriage ends in divorce, the financial implications must be addressed, alongside the emotional burden. This includes issues such as equalization of gains or pension compensation. Real estate often becomes a contentious topic during a divorce.
If the couple has not entered into a prenuptial agreement with differing provisions, they are automatically subject to the marital property regime of community of accrued gains. The purpose of the equalization of gains is to balance the financial growth achieved during the marriage between the spouses. A frequent point of contention in calculating claims is the valuation of real estate. Various factors must be considered, as real estate is not always included in the equalization of gains, according to MTR Legal Attorneys, who advise on family law, among other areas.
Calculation of Equalization of Gains
Equalization of gains is not automatically conducted during divorce proceedings; it must be explicitly requested by one of the spouses. Its aim is to balance the wealth accumulated during the marriage. For the calculation, the starting assets at the time of marriage and the ending assets at the time of divorce are critical. The date the divorce petition is filed determines the point for assessing the ending assets. Both the starting and ending assets are calculated separately for each spouse. The difference between these two amounts represents the gain achieved during the marriage. If one spouse’s gain exceeds the other’s, the surplus is balanced. Generally, each spouse is entitled to half of the gain. This equalization is strictly monetary.
Real estate is often a source of disputes. It is important to note that property brought into the marriage by one spouse or solely owned by them is not included in the gain. Similarly, real estate inherited by one spouse is attributed to their starting assets and excluded from the gain. In principle, one spouse has no claim to assets received by the other through inheritance or gift. However, this does not apply to increases in the value of such assets up to the point of divorce. Therefore, value increases in real estate can impact the gain.
Valuation of Real Estate
If the property was acquired during the marriage, the situation changes. In such cases, the property is included in the gain. For calculating equalization, the market value of the property is decisive. Disputes between spouses often arise regarding the property’s value. An expert can be engaged to determine its worth. However, their assessment is only binding if the spouses have agreed to this in a notarized arbitration agreement.
If the property was purchased during the marriage, ownership must also be clarified. Ownership is not automatically shared between the spouses. The decisive factor is who is listed as the owner in the land register. Both spouses can be listed as owners. Contributions to the property’s financing do not necessarily reflect ownership shares.
Use of the Property Post-Divorce
After divorce, the question arises about how the property will be used. If there are children from the marriage, it is common for one spouse to continue living in the family home with the children. For that spouse to become the sole owner, the other must sell their share and transfer ownership.
Alternatively, the divorced couple may decide to sell the property to a third party. If both own the property, they must both agree to the sale. Tax consequences must also be considered, as capital gains tax may apply under certain circumstances.
If the divorced spouses cannot agree on the property’s use, one co-owner may request a partition auction. However, this often results in financial losses and involves legal hurdles.
Prenuptial Agreement and Divorce Settlement Agreement
A property can become a significant source of conflict in a divorce. These disputes can be avoided if the spouses agree on different terms regarding equalization of gains in a prenuptial agreement or divorce settlement agreement.
MTR Legal Attorneys provide advice on divorce and other aspects of family law.
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