Going through a divorce or separation is difficult. It’s a time when emotions are running high. But more often than not, it is also a time when you will face important decisions regarding your home, banking, loans and insurance, all of which have to be made quickly. These decisions have a significant impact on the future state of your finances, so it is wise to schedule a meeting with your banker to discuss their implications. In the meantime, myLIFE has prepared an overview of the key things to consider.
Protect your banked assets
When separating or divorcing from your partner, the first thing to do in financial terms is to secure your assets. Make a list of your personal and joint bank accounts, and any for which you hold a third-party mandate. As you proceed, remember that it’s always better to be safe than sorry.
- Your personal account, for which you are the only holder, is safe from any interference. This account operates under your sole signature and responsibility, meaning you have nothing to worry about. However, if your partner has power of attorney for this account, don’t forget to rescind it to avoid unwanted transactions.
No matter your situation, remember that a joint account implies active and passive joint liability for both holders.
- Your joint account is subject to the terms and conditions you agreed to when you opened it. Some joint accounts require both co-holders to validate transactions (in Luxembourg, this is a compte collectif). Others allow each co-holder to make transactions and dispose of the assets on their own (joint liability, known in Luxembourg as solidarité). For both types, both account holders are liable to pay any negative balance on the account (solidarité passive). So what should you do? We discussed this in more detail in our article on how to close a joint account, but remember that these accounts are often used to pay running household costs. That means there may be permanent standing orders or direct debits in place for paying recurring bills. Take this into account as you proceed.
- Your bank cards. If your partner has a debit or credit card linked to your current account, you must terminate their card agreement with the bank. The card will then be cancelled. And don’t forget that they can do the same in the reverse situation.
- Assets in a safe deposit box are subject to the same conditions as for bank accounts. Thus, either you are the sole owner and can dispose of the assets inside as you see fit (and if your partner has a power of attorney over them, you can cancel it at any time), or you are co-owners and both have equal access (but either of you can file a request to block access to the assets for all co-owners), or you have access to your partner’s safe deposit box through a power of attorney that they can revoke at any time.
Settle the issue of your home and mortgage
During any separation, issues surrounding property are often impacted by emotional factors which may cloud the true implications of having bought a home that you both own. There are several options open to you regarding your home, as well as your mortgage.
You decide to keep the marital home yourself and take on sole responsibility for repaying the mortgage. This means you will bear the financial burden alone, and must also compensate your partner for their share. You will have to pay them one half of the home’s net value. Calculate the amount to be paid (i.e. their share of the net value of the home) as follows:
- have an expert assess the market value of the property or come to an agreement with your partner on what it is
- subtract the outstanding balance on the mortgage
- subtract the amounts you have personally invested in the property
- divide the remainder by two.
Until the mortgage is transferred to one of the parties, both of you remain jointly liable for paying it back. Double-check the amount to compensate your ex with your notary.
You decide to sell the property and pay off the mortgage early. You can use the proceeds from the sale to pay off the outstanding balance on the mortgage, or possibly to purchase another property. But don’t forget to talk with your banker about the consequences of early repayment.
You decide to keep your home and continue paying off the mortgage together. If this is the agreement you come to, you and your partner remain jointly liable for paying back your mortgage, and nothing about your loan protection insurance will change. All documents and information will be sent to both borrowers.
In addition to paying the mortgage itself, don’t forget your loan protection insurance payments, as well as your homeowners and family insurance.
In addition to paying the mortgage itself, don’t forget any insurance payments you may have. Whether it’s for loan protection insurance, homeowners insurance or your family insurance plan, you will need to tell your bank and insurance provider about the change in your situation so that they can make any necessary or desired amendments.
Take care of any other debts
Do you have other debts? Just like for your mortgage, make arrangements for any personals loans you have. The status of these loans is tied to your matrimonial regime.
- If you have the default statutory regime, it will depend on who took out the loan. Whether this was before or after the wedding, if a loan is in your name only, it is a personal debt for which you alone are liable. If you took out the loan together with your spouse, it is a joint debt and you are both responsible for paying it back.
- For the full separation of property regime, the debt is yours alone if you took it out in your name only. If the contract is in both your names and includes a joint liability clause, you are both responsible for repaying the loan.
- For the fully shared property regime, all loans belong to your common estate, even if they’re only in one of your names. This means that your spouse is also responsible for making payments.
You are the sole owner of every financial investment or investment vehicle acquired in your name.
Rethink your investments
Never fear, you are the sole owner of every financial investment or investment vehicle acquired in your name. But keep in mind that a divorce or separation is likely to entail significant expenses, requiring a supply of cash. Don’t rush this part! Talk things through with your banker before exiting investments early. Depending on the investment, an early exit may entail significant costs and missed opportunities. Take the chance to review your current investments and determine the most suitable strategy going forward.
Update your insurance
We strongly encourage you to contact your insurance agent to review your current policies, and whether they should be adjusted to your new situation. What happens with your car insurance if the car belongs to both spouses? Who receives the premium refund if an insurance policy is cancelled in the middle of the year? How can you change the beneficiary? These are questions you will need expert help with to ensure they are decided in your best interests.