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Divorce and the main residence – How does it work tax wise?

Tax is exciting, a divorce is not. Lawyers, formalities and trying to cope with each other consumes all your energy. The tax consequences of a divorce are then the least of your worries.  These do need attention as well.

Divorce and the main residence – mortgage deduction

The rule is that a tax resident can deduct the costs related to the loan taken out to purchase the home. From his or her taxable income. A condition is that you need to be living in the house.

Divorce and the main residence

Divorce and main residence – after divorce period

Then the moment comes that the divorce is final. The two partners are officially no longer connected by marriage. That never happens on December 31 or January 1. That implies that during the calendar year part of the year both were married, at least one was living in the house. Part of the year you were not married, hence not fiscal partners. However, the house was still a cost. Who can deduct what?

In this year of divorce the law created the opportunity to choose to remain tax partners for the full calendar year. Even though the conditions for being tax partners no longer apply. One of the conditions is that both partners need to be registered at the same address with city hall. Very unlikely under these conditions. By choosing in the income tax return to remain tax partners, the mortgage costs can be deducted in either tax return by choice.

Divorce and voluntary fiscal partnership

The above mentioned choice to remain fiscal partners during the remainder of the calendar year after divorce solves a practical issue. Often one of the partners actually is able to pay for the mortgage of the house. If that partner pays 100% and can only deduct 50% due to the fact there is no more fiscal partnership. The divorce not only hurts feelings, but also the tax deductions. Hence this solution.

Court case – chosen NOT to use the voluntary fiscal partnership

A couple had a divorce. Basically the wife was so fed up with the whole situation that he could have the house. She owned 50%. The condition is that she is no longer on the mortgage obligation. That was agreed upon in the divorce deed. The notary transferred the mortgage from her name after the divorce became final. The husband settled with the mortgage bank the transfer. Naturally the mortgage bank issued a penalty for this change in conditions of EUR 34.617.

The former wife and husband did not claim in the income tax return to continue for that calendar year their fiscal partnership after the divorce was final. He deducted his part of the interest and the full EUR 34.617 penalty. The tax office disagreed and stated he could only deduct 50% of the costs and penalty, as he had not opted for fiscal partnership after the divorce.

Court case verdict

The court ruled that the divorce agreement stated the transfer of ownership. That the notary has effected that after the divorce. The mortgage rearrangement was done after the divorce. Hence none of what was being deducted was part of the married period. Hence the choice of being or not being tax partners did not affect the costs deducted and the EUR 34.617 penalty deducted. The deduction remained in place and the tax office lost.

Tax is exciting

We think tax is exciting. We experience often that certain aspects of a divorce are mistreated. Pension rights, nearly always waived by the wife, are misunderstood. Lawyers label goods devided between each other as gifts. Nonsense. The tax office? The tax office is eager to deny deductions, if not addressed properly in the divorce agreement.

To both partners in divorce, pay attention to the tax part. If the tax matters are taken into consideration, you can truly address the divorce upon signing as a job well done.

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