Three siblings jointly inherit a house in the south of France. Two want to sell, one sister wants to keep it. For a community of heirs (Erbengemeinschaft) with property abroad, the partition of the estate (Erbauseinandersetzung) raises more than the question of who gets what. It also raises the questions of which law governs the partition, which court decides and how the result is recorded in the foreign register. This article explains the partition of an estate governed by German succession law, shows the routes from a contract to a court action and identifies where an adviser in the country where the property is located has to be involved.
How property abroad is inherited in the first place, and why the law of the place where it is located has a say in the registration, is set out in detail in the article Inheriting property abroad. This article deals with the next step: dissolving the community.
Starting Point: Joint Ownership under Sections 2032 et seq. BGB
If the deceased leaves several heirs and German succession law applies, the estate becomes the joint property of the heirs under Section 2032 (1) of the German Civil Code (Bürgerliches Gesetzbuch, BGB). The community of heirs is a community of joint owners (Gesamthandsgemeinschaft). For the property abroad, this leads to the same basic rules as for a house in Germany:
- No co-heir can dispose of the property or a fractional share in it on their own (Section 2040 (1) BGB). They can only dispose of their share in the estate as a whole (Section 2033 (1) BGB).
- Measures of proper administration, for example letting at customary terms, can be decided by majority vote (Section 2038 (2) in conjunction with Section 745 (1) BGB). Each co-heir may also take measures necessary for preservation alone (Section 2038 (1) sentence 2 BGB).
- Material changes, a sale or an encumbrance with a land charge (Grundschuld) or a foreign mortgage require the participation of all.
- Income, such as rent, is due to the co-heirs according to their shares in the estate, but is in principle only distributed on partition (Section 2038 (2) sentence 2 BGB), unless the co-heirs agree otherwise. If partition is excluded for more than one year, each co-heir may demand the division of the net income at the end of each year (sentence 3). The co-heirs bear charges and costs in proportion to their shares (Section 2038 (2) in conjunction with Section 748 BGB).
Who belongs to the community of heirs follows from the will or from intestate succession. For emigrants, intestate succession sometimes produces surprising compositions, for example where a foreign succession law applies.
The law regards the community as a transitional state. Under Section 2042 (1) BGB, each co-heir may in principle demand partition at any time, unless Sections 2043 to 2045 BGB prevent it. This also applies where the property is located abroad.
Which Law Governs the Partition?
The Law Applicable to Succession Governs the Division
Whether German or foreign succession law applies is determined, within the scope of the EU Succession Regulation (Europäische Erbrechtsverordnung, EuErbVO), in principle by the last habitual residence of the deceased or by a choice of law. The details are set out in the article on German succession law with a residence abroad.
Once it is established that German law applies, under Article 23 (2) EuErbVO this law expressly also covers the sharing-out of the estate (point (j)), liability for the debts under the succession (point (g)) and the powers of the heirs and executors, in particular as regards the sale of property (point (f)). Whether every co-heir can demand partition, whether a prohibition of partition imposed by the deceased takes effect and how partition orders are to be interpreted is therefore governed by Sections 2042 et seq. BGB, also for the house in France or the apartment in Spain.
Property Law and the Register of the Country Where the Property Is Located
The transfer in rem has to be distinguished from this. The EuErbVO excludes the nature of rights in rem and the recording in registers from its scope (Article 1 (2) points (k) and (l) EuErbVO). How a change of ownership of the property becomes effective, which documents the foreign land register, cadastre or property register requires and whether a separate transfer tax is incurred there is determined by the law of the state in which the property is located.
If that state does not recognise a right in rem that has arisen under German succession law, under Article 31 EuErbVO it is to be adapted, to the extent necessary and possible, to the closest equivalent right. This concerns precisely joint ownership, which not every legal system records in the register in the way the German land register does. How the co-heirs are registered locally should be clarified early with a local adviser, because the declarations needed for the partition depend on it.
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| Question | Applicable law (from the German perspective) |
|---|---|
| Who is a co-heir, with what share? | Law applicable to succession (Articles 21, 22 EuErbVO) |
| Right to partition, prohibition of partition, partition order | Law applicable to succession, under German law Sections 2042 et seq., 2044, 2048 BGB |
| Liability for estate debts | Law applicable to succession (Article 23 (2) point (g) EuErbVO) |
| Nature of rights in rem, entry in the register | Law of the country where the property is located (Article 1 (2) points (k), (l) EuErbVO) |
| Local form of transfer, local transfer taxes | Law of the country where the property is located, local adviser |
| German inheritance tax and income tax | German tax law, where applicable double tax treaty |
If a third country applies its own succession rules to the property (scission of the estate, Nachlassspaltung), it must be clarified locally whether that country recognises the German partition.
Before the Partition: What the Deceased Ordered
Before the co-heirs negotiate, the will should be checked for three arrangements:
- Partition order (Teilungsanordnung, Section 2048 BGB): The deceased allocates the property abroad to one heir. The shares in the estate do not change as a result; if the value of the property exceeds the share of the beneficiary, they must compensate the other co-heirs.
- Preferential legacy (Vorausvermächtnis, Section 2150 BGB): The heir receives the property in addition to their share of the inheritance, without compensation. The distinction from a partition order is a question of interpretation and has considerable economic consequences.
- Prohibition of partition (Teilungsverbot, Section 2044 BGB): The deceased can exclude partition for the estate or for individual items. The order in principle becomes ineffective 30 years after the succession (Section 2044 (2) BGB).
If execution of the will has been ordered, the executor (Testamentsvollstrecker) carries out the partition (Section 2204 (1) BGB); more on this below.
Overview of the Routes to Partition
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| Route | Requirement | Special feature for property abroad |
|---|---|---|
| Partition agreement | Agreement of all co-heirs | Additional completion in the form required where the property is located |
| Transfer of a share in the estate (Section 2033 BGB) | Notarised contract of the departing heir | Check recognition and register consequences locally |
| Withdrawal against compensation (Abschichtung) | Agreement with the remaining co-heirs | Check register consequences locally |
| Mediation by a notary (Sections 363 et seq. FamFG) | Application, no dispute on key points | Suspended in case of dispute (Section 370 FamFG) |
| Action for partition | Estate ready for partition, partition plan | Judgment must be recognised and enforced abroad |
| Partition auction | Application by a co-heir | German ZVG procedure not available for property abroad; realisation under the law where the property is located |
| Execution of the will | Order in the will | Proof of powers in the EU via the European Certificate of Succession |
Partition Agreement
The consensual partition agreement (Auseinandersetzungsvertrag) remains the most practicable route. Typical contents are:
- Takeover by one co-heir against a compensation payment to the others, calculated on the basis of a market value appraisal.
- Joint sale to a third party and distribution of the proceeds according to shares, after the estate debts have been settled (Section 2046 BGB).
- Partial partition: The remaining assets are divided first, the property remains jointly owned for the time being.
- Physical division of a larger plot, provided the place where it is located permits a division under building and register law.
For German properties, notarisation under Section 311b BGB is standard. The foreign register, by contrast, often only accepts the transfer on the basis of a deed meeting the requirements of the place where the property is located, possibly with translation and apostille. The agreement should therefore coordinate German succession law and the transfer in rem on site; only a local adviser can say with certainty which form the register requires.
For the valuation, an appraiser with market knowledge at the location is advisable. Also specify the valuation date, currency and conversion of the compensation payment; exchange rate fluctuations between appraisal and payment are a point of dispute that German model contracts do not address.
Sale of a Share in the Estate and Withdrawal against Compensation
A co-heir who does not want to wait for the others to agree can transfer their entire share in the estate under Section 2033 (1) BGB; the contract requires notarisation. If they sell to a third party, the other co-heirs have a right of pre-emption, which must be exercised within two months (Section 2034 BGB). The joint interest in the property abroad passes together with the share in the estate. Whether the foreign register readily follows this transaction must be checked locally.
In the withdrawal against compensation (Abschichtung) recognised by case law, a co-heir leaves the community against a settlement; their share accrues to the remaining co-heirs. Here too: the effect under German law arises under the law applicable to succession, the register consequences follow the law of the place where the property is located.
Mediation by a Notary (Sections 363 et seq. FamFG)
The official mediation procedure is less well known. Where there are several heirs, the notary must mediate the partition on application (Section 363 (1) of the Act on Proceedings in Family Matters and in Matters of Non-contentious Jurisdiction, FamFG). Co-heirs, acquirers of a share in the estate, and pledgees and usufructuaries of a share in the estate are entitled to apply (Section 363 (2) FamFG). Local jurisdiction lies with any notary whose official seat is in the district of the local court where the deceased had their last habitual residence; if the deceased had no habitual residence in Germany, a notary in whose district items of the estate are located may be considered (Section 344 (4a) FamFG).
The procedure is suitable where co-heirs are passive or difficult to reach. In the case of genuine points of dispute, it is suspended under Section 370 FamFG until they are resolved; undisputed points can nevertheless be notarised. The procedure therefore does not replace a court action. If an executor is entitled to carry out the partition, the application is excluded (Section 363 (1) FamFG). If the deceased lived abroad and the estate is essentially located there, the jurisdiction of a German notary must be clarified in advance.
Action for Partition
If agreement fails, each co-heir can bring an action for partition (Auseinandersetzungsklage) and sue for consent to a partition plan they have submitted. The prerequisite is that the estate is ready for partition: estate debts have been settled or retained, all heirs are established, and the plan complies with the statutory rules (Section 2042 (2) in conjunction with Sections 749 (2) and (3), 750 to 758 BGB). The court only rules on the plan submitted.
With property abroad, two additional hurdles need to be planned for:
- Jurisdiction: Under Article 4 EuErbVO, the courts of the Member State in which the deceased had their last habitual residence have jurisdiction in principle; Article 10 EuErbVO provides for subsidiary jurisdiction under certain conditions. If the property is located in a third country, the court may, under Article 12 (1) EuErbVO, at the request of a party, decide not to rule on this asset if its decision would probably not be recognised there.
- Enforcement: A German judgment ordering consent replaces the defendant’s declaration in Germany. Abroad, it must be recognised and implemented under the rules of the place where the property is located. Within the EU, the EuErbVO facilitates recognition; outside the EU, national rules apply. An overview is given in the article on the enforcement of German judgments abroad.
Partition Auction: Not Available in Germany for Property Abroad
For German properties, the partition auction (Teilungsversteigerung) under Section 753 (1) BGB in conjunction with Section 180 of the Act on Compulsory Auction and Compulsory Administration (Zwangsversteigerungsgesetz, ZVG) is the well-known means of exerting pressure. For a property located abroad, this procedure is not available before a German local court (Amtsgericht). The wording of Section 1 (1) ZVG does not expressly say so; it only provides that the local court in whose district the property is located has jurisdiction. The restriction to German properties follows, however, from the structure of the law, because only German local courts have a district, and from the principle of territoriality under public international law: the compulsory auction is an enforcement procedure, and German enforcement bodies may not perform sovereign acts abroad. Whether and how a compulsory realisation is possible in the country where the property is located, and how long it takes, is assessed by a local adviser. Anyone who wants to build up pressure with an auction should know this situation beforehand.
Executor
If the deceased ordered execution of the will, the executor must carry out the partition in accordance with Sections 2042 to 2057a BGB and hear the heirs on the partition plan before implementing it (Section 2204 BGB). This can defuse blockades by individual co-heirs. Abroad, the executor must prove their powers; within the EU, the European Certificate of Succession (Europäisches Nachlasszeugnis, ENZ) serves this purpose and is also intended for executors (Article 63 (1), (2) point (c) EuErbVO). Whether third countries recognise the German position must be clarified locally.
Administration until Partition
Until the partition, insurance, local property taxes, community charges and repairs are incurred. Anyone who pays more than their share can demand proportionate reimbursement. If one co-heir uses the property alone, compensation for use may be considered, as a rule only from the time at which the others demand a new arrangement for its use (Section 745 (2) BGB). A joint account in the country where the property is located and an authorised contact person on site prevent deadlines set by authorities or utility providers from being missed.
Rental income is attributed to the co-heirs for tax purposes according to their shares. How this income is allocated between Germany and the country where the property is located is explained in the article on taxation of rental income from property abroad.
Taxes on Partition
Inheritance Tax
For German inheritance tax, the decisive factor is the acquisition by inheritance according to the share in the estate; the later partition in principle does not change this. Foreign real estate is valued at its fair market value (gemeiner Wert) under Section 12 (7) of the Inheritance and Gift Tax Act (ErbStG) in conjunction with Section 31 of the Valuation Act (BewG). If a co-heir receives more than they are entitled to in the course of the partition without adequate compensation, this may constitute a gift between the co-heirs.
If the country where the property is located also levies an inheritance tax, double taxation threatens. Where no double tax treaty applies, the foreign tax that has been assessed, paid and is not subject to any claim for reduction is credited against the German tax on application under Section 21 (1) ErbStG, to the extent that the foreign assets are also subject to German inheritance tax; a five-year period between the foreign tax and the German tax arising must be observed. Germany has concluded inheritance tax treaties with only a few states; details in the article Inheritance tax and double tax treaties.
Income Tax and Section 23 EStG
According to the letter of the Federal Ministry of Finance (BMF) of 14 March 2006 on the partition of estates (BStBl 2006 I p. 253), a physical division without compensation payment within private assets is in principle free of charge. If, on the other hand, a co-heir pays a settlement because they receive more than their share, there is to that extent an acquisition and sale for consideration. For the departing co-heir, this can be a private sale transaction (privates Veräußerungsgeschäft) under Section 23 (1) sentence 1 no. 1 of the Income Tax Act (EStG) in the case of real estate, if no more than ten years lie between acquisition and sale. The heirs in principle step into the acquisition by the deceased; this also applies to a joint sale to third parties. Which state may tax the gain is governed by the relevant double tax treaty. Further reading: Speculation period under Section 23 EStG on emigration.
Real Estate Transfer Tax
The exemption under Section 3 no. 3 of the Real Estate Transfer Tax Act (GrEStG) for the acquisition of an estate property by co-heirs for the purpose of dividing the estate concerns German properties. No German real estate transfer tax is incurred for the property abroad; the transfer taxes and fees of the place where it is located are decisive. More on this in the article on real estate transfer tax for property abroad.
Where the tax assessment is unclear, in particular on the question of whether a compensation payment triggers a taxable event, a binding ruling (verbindliche Auskunft) from the tax office under Section 89 (2) of the Fiscal Code (AO) can be applied for before implementation; in cross-border cases, a ruling from the tax authority in the country where the property is located should also be considered.
Typical Mistakes in Practice
- Local sale without coordination: A co-heir negotiates with a buyer in the country where the property is located without the consent of the others. Without the participation of all, a disposal is not possible under Section 2040 BGB.
- Partition auction as a threat, although it is not available in Germany for the property abroad.
- Lack of coordination of the deeds: The German contract is valid but is not accepted by the foreign register because the form, translation or certification is missing.
- Overlooking the tax consequences of the compensation payment, in particular Section 23 EStG and possible taxes in the country where the property is located.
- Validity of the European Certificate of Succession: Certified copies are in principle only valid for six months (Article 70 (3) EuErbVO); delayed register procedures require an extension or a new copy.
Example (fictitious): The siblings Anna, Ben and Clara each inherit one third of a holiday home in an EU Member State, which an appraiser values at 300,000 euros. Clara takes over the house and pays Anna and Ben 100,000 euros each. The partition follows the German law applicable to succession, Clara’s registration follows a deed under local law. Anna and Ben check whether the payment triggers a private sale transaction for them, because their mother only bought the house seven years before her death.
Conclusion
Where German law governs the succession, the partition follows Sections 2042 et seq. BGB, even if the house is abroad; completion, register and local taxes are governed by the law of the place where the property is located. A partition agreement coordinated with a local adviser is usually the fastest route. A court action and mediation remain possible, but their result must be implemented abroad, and the German partition auction is ruled out. For tax purposes, compensation payments and the crediting of foreign inheritance tax deserve particular attention.
Frequently Asked Questions
Does German law apply to the division of property abroad?
If German succession law applies under the EuErbVO, it also governs the sharing-out of the estate (Article 23 (2) point (j) EuErbVO). How ownership passes and is registered locally is determined by the law of the country where the property is located.
Can one co-heir sell the property abroad alone?
No. The co-heirs can only dispose of individual items of the estate jointly (Section 2040 (1) BGB). An individual heir can, however, transfer their share in the estate as a whole by notarial deed (Section 2033 BGB).
Can I apply for a partition auction of property abroad in Germany?
No, the procedure under the ZVG concerns German properties. Whether a comparable realisation is possible in the country where the property is located is clarified by a local adviser.
Is tax incurred when a co-heir takes over the property?
No German real estate transfer tax, but possibly local transfer taxes. A compensation payment can be treated as a sale for income tax purposes for the departing co-heirs (Section 23 EStG) if the ten-year period is still running.
What helps if co-heirs abroad do not respond?
Possible options are the mediation procedure before a notary under Sections 363 et seq. FamFG, as long as there is no dispute, or an action for partition. If an executor has been appointed, they carry out the partition under Section 2204 BGB.
Attorney Dr. Johannes Fiala and the Munich-based firm, which focuses on international succession law, tax law and asset protection, advise communities of heirs and individual co-heirs on the partition of an estate with property abroad, from clarifying the applicable law and drafting the partition agreement to coordinating the tax treatment with the country where the property is located. Dr. Fiala has published extensively on questions of emigration and asset protection. Please get in touch with the firm without obligation to discuss your individual situation in an initial consultation.
