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Attorney Milena Nowicka
Swiss franc loan after divorce and division of joint marital property
Arrangements between former spouses after divorce and the obligation to repay the loan to the bank
Is the participation of a former husband or wife necessary in proceedings to invalidate a Swiss franc loan?
Swiss franc loan and divorce – what did the Supreme Court resolutions of 19 October and 26 October 2023 change?
How is the settlement with the bank carried out when only one of the co-borrowers files a claim to invalidate a Swiss franc loan agreement?
When married couples took out Swiss franc loans in the early 2000s, they did not anticipate either the instability of the franc exchange rate or a crisis in their relationship. Unfortunately, over the years many such couples decided to divorce. This gave rise to a significant problem: how should the invalidation of a Swiss franc loan agreement proceed after divorce? Do former spouses have to participate jointly in the proceedings, even if they have not maintained contact for years? Until recently, such situations involved numerous complications. However, the Supreme Court issued resolutions that significantly facilitated the process of invalidating loan agreements by divorced Swiss franc borrowers.
The saying that a loan binds more strongly than marriage is well worn but still true. Swiss franc loans and the situation of former spouses after divorce are a prime example. While former spouses may divide their joint marital property after divorce, such property does not include their liabilities towards the bank. In short, they may decide who becomes the owner of the jointly owned house and who receives other elements of the common property, but they cannot divide the debt itself. This means that they remain jointly liable for repayment of the loan.
In practice, in most cases former spouses agree that the property encumbered by a mortgage will be allocated to one of them after divorce. If, from that point on, only one person is to live in the property and be its sole owner, it seems fair that this person should also fully assume the obligation to repay the remaining instalments of the loan.
However, it must be emphasised that such arrangements between former spouses, even if made in the form of an agreement, are not binding on the bank. As a result, if the person residing in the property ceased to service the loan, the bank could just as well pursue repayment from the other co-borrower.
There is, in theory, the possibility of amending the loan agreement by means of an annex. This, however, requires the bank’s consent, and such a solution is generally not in the bank’s interest. It is far more advantageous for the bank to retain two co-borrowers from whom it can effectively demand payment. Consequently, there is a high probability that the bank will refuse to agree to such an annex and to release the former spouse from the obligation to repay the loan.
In both scenarios – whether only an internal agreement between former spouses was concluded or an attempt to amend the loan agreement failed – specific legal problems arise. Since the spouses jointly took out the loan and, even after divorce, remain co-borrowers, it might appear logical that an action seeking invalidation of the Swiss franc loan should be brought jointly.
Until a few years ago, when a bank received a claim seeking invalidation of a Swiss franc loan filed after divorce by only one of the former spouses, it typically raised an objection based on mandatory joint participation of all borrowers. In non-technical terms, the bank argued that all persons who had taken out the loan together had to file the claim jointly for the proceedings to be admissible.
As a consequence, courts sometimes dismissed such claims. In order for the case to proceed, the Swiss franc borrower had to act together with the former spouse. The problem arose, however, when the former spouse did not respond to court correspondence and was not interested in establishing the invalidity of the loan.
After all, if only one spouse lives in the mortgaged property and alone repays the debt, the former spouse has no motivation to bring an action together. If it proved impossible to persuade the former spouse to participate in the proceedings, this usually meant that obtaining a judgment and freeing oneself from the loan was unrealistic.
Fortunately, recent developments have significantly improved the position of divorced Swiss franc borrowers. The Supreme Court addressed this issue, issuing two favourable resolutions in analogous cases on 19 October 2023 (III CZP 12/23) and 26 October 2023 (III CZP 156/22).
The Supreme Court held that there is no requirement for former spouses to act jointly in order to establish the invalidity of a loan agreement. This circumstance does not justify dismissing a claim filed by a Swiss franc borrower who independently decides to sue the bank. The Supreme Court expressed this position in two resolutions issued only one week apart.
Importantly, these resolutions are not relevant solely to Swiss franc borrowers seeking to invalidate a loan agreement after divorce. They also apply to all other situations in which there were multiple borrowers, for example where siblings jointly took out a Swiss franc loan. In such cases as well, the bank may be sued independently by only one of the borrowers.
A declaration of invalidity of a Swiss franc loan agreement means that each party must return to the other everything it has received. Accordingly, the borrower may demand reimbursement of the amounts paid to the bank, while being obliged only to return the principal amount borrowed.
The situation is somewhat different, however, when only one of the former spouses is a claimant in the proceedings. The loan was originally taken out and serviced jointly. Therefore, while one may assert individual rights, this does not mean that one is entitled to recover all amounts received by the bank over the entire term of the Swiss franc loan agreement.
In practice, several periods must be distinguished:
If, until now, you have refrained from seeking invalidation of a Swiss franc loan agreement solely because you and your spouse are divorced, there is no longer any reason for concern. The Supreme Court’s resolutions have improved your legal position, and the lack of a jointly filed claim by divorced spouses is no longer an obstacle.
You may therefore pursue your claims against the bank and free yourself from an unfavourable loan, provided that your agreement contains unlawful clauses that allow it to be declared invalid. To verify this and to take further steps – above all, to prepare an effective claim against the bank – it is advisable to seek assistance from a law firm experienced in handling Swiss franc loan cases.
