Divorcing couples has far-reaching financial consequences. Because everything that the spouses have saved for old-age provision during the marriage is added up and divided equally. This is called supply balancing. And there is a second variant, the so-called compensatory payment.
When a couple divorces, the pension entitlements are divided. And this directly at the time of the divorce and not only when you later enter retirement age. This relates to all pension entitlements (“earnings points”) that both partners have acquired during their joint marriage. The money professionals of the United Income Tax Aid (VLH) explain what needs to be considered.
Experts refer to the division of the respective pension entitlements between the two partners as “pension equalization”. The amount of the pension depends on how many years the spouses have worked – and of course on the amount of their respective income.
Another important criterion for the amount of a pension is how high the value of a so-called pension point is at the time of retirement. The value of a pension point is recalculated every year on July 1 using the pension adjustment formula:
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A sample calculation for the old federal states shows how a pension equalization can be calculated using the values that have been in force since July 2022:
So that the so-called pension splitting can be carried out at all, couples have to meet a number of requirements. The German pension insurance lists them:
Pension splitting is possible if couples
Before deciding to split your pension, you must have completed your working life. This means that one of the two partners is entitled to a full old-age pension. The unentitled partner must have reached the regular retirement age. For those born in 1957, it is 65 years and eleven months.
All of the above requirements also apply to registered civil partnerships that have been established since January 1, 2005.
Pension splitting also possible after the death of one of the partners
If pension splitting was not permitted during the lifetime of both partners, after the death of one of the two partners, the other can opt for pension splitting. Prerequisite: He must have 25 years of pensionable periods.
Suppose the husband mentioned in the above example had also invested in a company pension plan, which was worth 30,000 euros at the time of the divorce. The same applies here: The ex-wife gets half, so she is entitled to a company pension worth 15,000 euros.
Splitting the pensions themselves is tax-free. But not the pension: Anyone who retired in 2022 will be taxed at 82 percent for life (18 percent will therefore remain tax-free). For each later year of retirement, the pension tax increases by one percent. For those retiring after 2040, that means their pension will be taxed at 100 percent. However, the tax only applies to amounts that are above the so-called basic allowance. In 2022 it was 10,347 euros for each. Since January 1st, 2023 it has been 10,908 euros per citizen.
There is a second way that a divorced couple find common ground
He pays a lump sum to his ex-wife. He does not have to share his future pension for this. However, this compensatory payment to avoid the pension equalization is taxable. The ex-wife must enter the payment as “other income” in her tax return. In return, the man can deduct the compensation amount from his taxes as a special expense.
However, whether the ex-wife is obliged to agree to her ex-husband’s deduction of special expenses must be clarified on a case-by-case basis. As a rule, she only has to give her consent if at least the disadvantages from taxation are compensated for – this is called “disadvantage compensation”.
Tip: Anyone who gets divorced and divides the pension entitlements by means of a compensation payment should also regulate the tax treatment in writing in the agreement on the compensation payment.