Be prepared for the unexpected Protect your home against risks

Buying your own home involves risk. We will show you what steps you can take to avoid unforeseen financial difficulties.

by Felix Hauser 27 Sep 2016

Many people dream of owning their own home and living there with their partner or family. Unfortunately, life sometimes involves unforeseen events that can cause financial troubles. These difficulties can also detract from the joy of owning one’s own home. Such events include separation or divorce, the incapacity to work, or the death of one’s spouse or partner.

Financial consequences of the death or disability of the main breadwinner

The financial consequences depend on the reasons for the person’s incapacity to work or the cause of death. The risk of being unable to work due to illness, or the risk of dying from illness, is much greater than the risk of suffering the same fate due to an accident. But most people are better insured against the financial consequences of an accident, and they can cope fairly well with their disability thanks to their pension fund benefits. But an incapacity to work due to illness is a much different story for most people. Very few people have sufficient insurance coverage if their partner is unable to work or dies due to illness. Many families who have not taken steps in advance can no longer afford their home. In the case of incapacity to work, extra costs may also be incurred for remodeling the house, household support, home care, etc.

What options are available for guarding against these illness-related risks?

A term insurance policy is recommended to ensure financial protection in the case of death of the main breadwinner. A disability pension offers financial protection in the case of incapacity to work. Unmarried partners should also be clear about the regulations in their pension fund. In many pension funds, common-law partners are equal to spouses. However, often there are prerequisites that must be fulfilled. The Swiss old-age and survivors’ insurance and disability insurance only pay out survivors’ benefits to married couples – the same also applies to accident insurance.

Financial consequences of a divorce

If a married couple divorces, the assets are divided on the basis of the property regime they have selected. Most married couples in Switzerland are subject to the joint ownership of acquired property, which applies unless there was a prenuptial agreement specifying a different property regime. So, for example, real estate is divided equally between the spouses in the case of a divorce, according to the share of personal and jointly acquired property. Both have the right to the share of the property to which they contributed from their own assets when it was purchased or throughout the term of the mortgage. The assets that were jointly saved during the marriage (marital property) is divided. To avoid potential disputes, it is important to be able to prove who invested how much money into the real estate. If no evidence is available, this will be based on jointly acquired property.

How common-law partners can protect themselves

To prevent disputes about ownership structure, unmarried couples should sign a cohabitation agreement. If one partner buys real estate alone, the other partner has no rights to this property. A cohabitation agreement can regulate what the partner who does not own the property has to pay for use and maintenance of the property. If the couple buys a residential property jointly, they must decide between the two legal forms of ownership: joint ownership or co-ownership. The advantage of co-ownership is that the share owned by each partner is registered in the land registry. In addition, common-law partners may finance their real estate purchase with money from their pension fund or pillar 3a.

Consequences of financing a home purchase with pension fund money

Thanks to the Swiss government’s program to encourage home ownership (EHO), more people can now afford to buy their own home. The EHO offers two options: you can withdraw your pension fund money or you can pledge this money to the bank. If you decide to pledge the money, the pension fund benefits remain unchanged. If you withdraw your vested benefits, then you will receive a smaller pension when you retire. In most cases, the benefits will also be less in the case of death or disability. Your pension fund regulations can provide more details. If possible, you should pay back in to your pension fund any money that you have withdrawn early. In the case of unmarried couples, the situation is more complicated when pension funds are withdrawn early. If the partner who has withdrawn the money dies, and the pension fund does not pay any benefits to survivors, the early withdrawal must be repaid from the estate. In order to make this possible while also ensuring that the survivors can continue to live in the property, a mutual term insurance policy is recommended.