Advice on the subject of pension splitting

What happens to your pensions in the event of divorce?

In the event of divorce, the family court automatically ensures that all pension entitlements acquired by the spouses during the marriage are divided equally between them. The acquisition of pension rights is regarded as the joint lifetime achievement of the spouses. Therefore, these rights should be divided fairly between them. This equalisation system is called pension equalisation/pension splitting (Versorgungsausgleich). The details are regulated by the Pension Equalisation Act (Versorgungsausgleichsgesetz). The aim of this state intervention in the event of divorce is to prevent the spouse who cut back on their career during the marriage, for example, because that spouse took care of the children, and who has therefore paid less into its pensions, from being disadvantaged at retirement age and, in the worst case, falling into old-age poverty. So, in addition to protecting the socially weaker spouse, pension equalisation also protects the social security system. For marriages which last less than three years, the need for protection is less pronounced. For such short-lived marriages, a request must be made to the family court to carry out a pension splitting. Unlike in other countries, pensions in Germany are thus treated differently in the event of divorce. They are not subject to the general equalisation of gains.

Which pension rights are divided in the pension splitting?

In principle, all entitlements and current pensions that the spouses have acquired during the marriage and that are intended for their use in old age are divided equally in the event of divorce.

This applies in particular to entitlements and current pensions:

from the statutory pension insurance (Deutsche Rentenversicherung) or, alternatively, from an occupational pension scheme (in particular for doctors, lawyers, tax advisors and architects);
in the form of civil servant pensions or additional public service benefits;
from a company pension, regardless of whether it will be paid out as a pension for life or a capital payment;

from private old-age or disability insurance, provided that the claim is for a pension payment (not: endowment life insurance);
from Riester or Rürup pensions, regardless of the form of payment.

Each individual claim is divided by the respective pension provider by means of a rebooking order based on a court order. There is no overall balancing.

If the value of a claim is low, no equalisation will take place (so-called trivial claims). The same applies if both spouses have similar claims with only a small difference between them.

What applies to entrepreneurs and the independently wealthy?

Self-employed entrepreneurs often do not have a traditional pension plan because they rely on their business for their pension. Others do not pursue an occupation that is subject to compulsory pension insurance because they can live off their own capital. In the case of all these people, there are no rights that could be equalised in the pension rights adjustment.

If the spouse of such a person has its own pension rights, the pension rights adjustment would be to their detriment, even though they are usually the socially weaker spouse that the pension rights adjustment is actually intended to protect. In such cases, a marriage agreement is usually made to exclude the pension rights adjustment.

For what period of time does the pension splitting take place?

Only those pension rights that were acquired during the marriage are divided in the pension splitting. In this context, the marriage period means the period from the first of the month of the civil wedding to the last day of the month before the divorce petition is served. Each spouse retains any pension rights acquired before the month of the civil wedding or after the end of the month in which the divorce petition is served.

How does the pension splitting procedure work? How long does it take?

The pension splitting procedure works as follows:

After the divorce petition has been formally served and the end of the legal marriage period has thereby been determined, the court sends both spouses a standardised questionnaire on the pension splitting. This questionnaire is available in the download area of this website.

Each spouse has to provide details of its pension entitlements acquired during the marriage time within the deadline set by the court. They then send the questionnaire back to the court, ideally after having it reviewed by a lawyer.

The court forwards the questionnaire to the other spouse for review. If one spouse believes that the other spouse has not disclosed existing entitlements or current benefits to the court, that spouse should inform the court of this. The court will then review this ex officio.

The court writes to each of the specified pension providers and requests information on the rights acquired by the spouses during the statutory marriage time. The pension providers thus become parties to the pension splitting proceedings and as such have rights and obligations. In particular, they are obliged to provide the court with information and, if necessary, more detailed explanations. The most important pension providers have entire departments that deal exclusively with the issue of pension splitting.

When checking the pension accounts, it is not uncommon for the pension providers to discover that certain periods of entitlement (e.g. periods of education, military service, maternity leave or time spent abroad) are still unresolved and that the pension providers are therefore unable to provide the information. They then ask the affected spouse to assist with the clarification of the account. The spouses are legally obliged to cooperate. The court can order sanctions if a spouse refuses to cooperate.

All of the pension providers then send their information back to the court. The court forwards the information to the spouses or their lawyers for review. They can ask the pension providers questions or point out errors through the court.

The more rights to be equalised and the more unresolved pension accounts there are, the longer the process will take. It is not uncommon for it to take between six months and a year for all the information to be returned.

Tip: If you want to speed up the divorce process, make sure that all pension accounts are settled in advance and submit the completed pension splitting form together with the divorce petition to the court.

As soon as the court has received all the information, it usually sends a draft of the pension splitting with the exact calculations to the lawyers involved for review. Shortly thereafter, or at the same time, the divorce date is often scheduled.

If necessary, the pension splitting will be discussed again at the divorce hearing. Often, however, the court will simply refer to the draft submitted.

At the divorce hearing, the court then announces a two-part decision, whereby the divorce is pronounced and the specific implementation of the pension splitting is ordered.

How is the pension splitting carried out?

After the divorce hearing, all the pension providers involved receive a copy of the court decision on the pension splitting and, after the expiry of the period for lodging an appeal, they carry out the pension splitting as ordered by the court. In concrete terms, this means that they transfer the equalisation amounts or valuation points determined by the court from the pension account of the spouse insured with them to the pension account of the other spouse.

At this point in time, therefore, no money changes hands. The spouses themselves do not have to take any action either. The pension equalisation will only have an effect in their favour or to their detriment when they draw their pensions at a later date. The pension providers will inform the spouses about the specific effects of the pension equalisation on their pension accounts.

The spouses can often offset the reduction in their pension entitlement due to the pension equalisation in full or in part by making voluntary contributions as long as they have not yet reached the standard retirement age. The pension providers will also provide information on this.

What is the difference between internal and external division?

The pension account to which the rebooking is made depends on whether the pension is divided internally or externally. The standard legal case is internal division, which means that the entitlement is established with the same pension provider.

In exceptional cases, the entitlement is established with a different pension provider (external division). This is the case, for example, if one spouse is a state or municipal official. In this case, the other spouse is entitled to a statutory pension.

In special cases, the pension provider may also request external equalisation. The beneficiary spouse then has the right to choose which pension provider the entitlement should be transferred to. If the right to choose is not exercised, the court orders that the transfer be made to the statutory pension insurance or, in the case of company pensions, to the pension equalisation fund (Versorgungsausgleichkasse). However, this is not always the most favourable form of provision. The beneficiary spouse should carefully check whether another insurance company offers better conditions and exercise the right to choose accordingly.

Pension splitting for current pension recipients (abolition of the pensioner privilege)

If a spouse is already drawing a pension when it divorces, the execution of the pension splitting will now immediately result in a reduction in its pension. This also applies if the beneficiary spouse is significantly younger and only begins to enjoy its share in the pension entitlement many years later. The pension provider and all of those insured thus benefit from the divorce of the pensioner.

The so-called ‘pensioner privilege’ that used to apply, according to which a spouse who was already a pensioner or retiree when divorced was still allowed to receive his or her pension in full until the divorced spouse also retired, despite the pension equalisation carried out at his or her expense, was abolished on 1 September 2009. The corresponding amendment to the law was declared compatible with the Basic Law by the Federal Constitutional Court in 2014.

In the state of Hessen, however, an exception still applies for civil servants in accordance with § 57, para. 1 of the Hessian Civil Servants’ Pension Act (Hessisches BeamtVG).

Furthermore, the law continues to provide for a suspension of the pension reduction in the event that the pensioner is also liable to pay maintenance to the spouse entitled to equalisation (so-called maintenance privilege). The pension reduction is then suspended in the amount of the maintenance payment.

What about foreign pension rights?

Pension rights acquired during the marriage from foreign pension providers cannot be included in the pension splitting in the event of divorce. German courts have no jurisdiction over foreign pension providers.

However, such rights can be settled in what is known as a contractual pension splitting. As soon as both divorced spouses have reached retirement age and the foreign pension is paid out to the beneficiary, the ex-spouse can demand that the portion of the pension corresponding to the period of the marriage be transferred to him or her.

If waiting until retirement age is too uncertain, a settlement for foreign pension entitlements can be requested at the time of divorce.

Alternatively, a pension splitting procedure can be carried out abroad, provided that the respective country has such a procedure, such as Switzerland.

My law firm has particular experience in dealing with foreign pension rights in divorce cases in Germany, such as the three pillars of the Swiss pension system, US 401(k) plans or unusual pension rights, such as the QROPS set up outside the UK for the tax-free transfer of UK company pensions.

What can be done if the pension splitting proceedings take too long?

The court will normally only pronounce the divorce when all the pension information has been obtained and the pension splitting can therefore be carried out at the same time as the divorce.

However, in exceptional cases, it is possible to separate the pension splitting from the divorce proceedings, with the result that the divorce can already be pronounced and the pension splitting will be carried out later. Such a separation by the court requires that:

three months have passed since the divorce petition was filed,
the year of separation has expired,
both spouses have taken the necessary cooperative actions, and
both apply for the separation of the pension splitting proceeding.

In that case as a rule, no further hearings are required for the decision on the pension splitting. The parties can agree to the written procedure.

Contractual agreements on pension splitting

Contractual agreements on pension splitting are possible. The spouses can exclude the pension splitting in whole or in part, for example, with respect to individual rights, or modify it in some other way. Such agreements must either be notarised or recorded in court. In this case, the court examines the appropriateness of the planned agreement.

In some cases, it makes sense to offset pension rights against other claims as part of the divorce settlement and to waive these respective rights. This is particularly possible if divorce proceedings have already been initiated and the full pension information is available. Before the divorce proceedings have been initiated, it is usually impossible to obtain the necessary information, since the pension providers generally only provide information to the courts regarding the pension rights acquired during the marriage time, but not to the spouses themselves.

Contractual agreements on pension splitting are an option, among other things, if

the case would previously have been resolved by means of the so-called pensioner privilege (marriage where there is a difference in age);
the financially stronger spouse has not acquired any traditional pension rights, but the other spouse has (married couple where one spouse is self-employed);
one spouse is a civil servant and the other is insured under the statutory system, with the aim of preserving the civil servant’s pension as far as possible;

pension rights under foreign legal systems exist whose equalisation value or form of equalisation is uncertain;
the agreement is related to another provision within a separation and divorce agreement, e.g. if it is offset against claims arising from the settlement of joint and several debt or assets.

Can the pension splitting still be changed in the event of death?

If the beneficiary spouse dies after having received benefits from the pension splitting for less than 36 months, the spouse who had to give up his or her share of the pension can demand that the pension provider transfer it back, provided that the claims arise under a standard pension system.

In some cases, it is still possible to reclaim the former pension rights of the deceased ex-spouse by applying for an amendment, even after the three-year period has expired. If you were divorced before 31 August 2009, please do not hesitate to contact me about this.

Close cooperation with an experienced pension consultant

Pension splitting is a highly complex area of law that often requires not only special legal knowledge but also an understanding of actuarial mathematics. In this area, I therefore work closely with an experienced pension consultant who, for example, reviews the pension information for you in complicated cases, advises you on choosing the right pension provider in the case of external division and prepares valuation reports for cases of adjustment.

Contact

If you have any questions regarding pension splitting, you can contact me by phone at any time during my office hours, or by email outside office hours. I will get back to you as soon as possible.

Mon-Fri: 9.00 – 13.00 and 14.00 – 18.00
T: 06174 – 935 75 70
E: marx@familienrecht-marx.de

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