Pension provision in the event of divorce. Maintaining financial independence.
Considering the consequences of divorce before getting married? It's unthinkable for many couples. Yet as unromantic as it sounds, it makes sense to think about financial matters early on. That is because divorce can mean losses, particularly when it comes to pension provision. That is why it is so important to address the issue early on to ensure the financial independence and security of both partners, even in the worst-case scenario.
What financial consequences can a divorce have?
Not only does separating or getting divorced leave an emotional mark, but it also has an impact on finances and pension provision. Especially for the partner who earns less or chooses to reduce their level of employment after starting a family. In Switzerland, this is most often the case for women.
This may limit the financial independence of the partner who takes a step back in their career over the long term. A career break or a reduction in working hours can create gaps in their curriculum vitae, complicate their return to work, or simply lead to fewer professional opportunities. The longer this situation lasts, the greater the impact. But pension gaps can also arise, for example, since you are no longer insured under a pension fund. In particular, the second and third pillar can incur heavy losses of retirement assets and pension as a result of separation.
How are assets divided up after a divorce?
How assets are divided up after a divorce depends on the marital property regime. Unless special provisions are made, married couples are subject to the sharing of acquired property. All the assets generated during the marriage are split evenly in the event of divorce. Only individual property, i.e. assets that the partners brought into the marriage as well as gifts and inheritance received during the marriage, are not divided up.
Couples can establish a general community of property or separation of property as alternative marital property regimes. Under a general community of property regime, the assets and income of both partners are included in joint marital property. This is split evenly in the event of divorce. There is no division of assets under a separation of property regime.
What happens to pension provision after a divorce?
Retirement assets accumulated during the marriage are divided differently under each of the three pillars:
AHV – each full year of marriage is split for the first pillar. The combined gross salaries deposited for both partners during the marriage are divided evenly into an individual account. Contributions made in the year in which the marriage took place and the year in which it ended in divorce are excluded. This splitting cannot be circumvented by a marriage contract or other contractual provisions.
Pension funds – the division of pension assets applies for the second pillar. Under this pillar, the money saved during the marriage plus interest is divided based on the precise day. This splitting cannot be circumvented by a marriage contract or other contractual provisions, either. Exception: If evidence can be provided that voluntary purchases were made during the marriage using assets from individual property, this is not considered in the calculation. It may also be possible to deviate from splitting the assets equally subject to certain statutory requirements. This division may result in a pension gap for the liable partner. However, purchasing pension benefits is a good method for filling this gap again.
Private pension provision – division of the third pillar assets depends on the marital property regime. If separation of property was not agreed, the funds in Pillar 3a and 3b are split evenly. If separation of property was agreed, then nothing changes and the capital remains in the private pension provision of the two partners. Important: Pillar 3a assets remain tied.
Detailed information about what happens to pension funds in the event of divorce can be found in this article.
How spouses can protect each other
After a divorce, both partners need to be able to pay for their own living expenses and their retirement provision. The different factors below should be considered for the best possible solution to protect both partners:
- Consider the risk of divorce in your individual pension planning as well as the risk of death or disability, for example. This makes both partners aware of the possible consequences so they are not confronted with unexpected financial losses as they get older.
- Early on, think about plans for your life together and the career goals of each partner. Together, you can make a joint decision about which family model is right for both of you based on this.
- Do not neglect your own professional activity. Follow the latest developments even during parental leave so that you can resume your career as seamlessly as possible.
- If one or both partners reduce their working hours, make sure both continue to pay into their private provision if feasible.
- Regularly review your actual living circumstances and conclude a marriage contract, if needed, to establish concrete measures to protect each other. For example, homemaking pay for the person who reduces their level of employment or takes a career break.
What do you need to think about when it comes to pension provision after divorce?
After separating or getting divorced, you should reassess your pension situation accordingly in order to make any adjustments. For instance, non-working partners will need to pay their AHV contributions again after a separation in order to avoid pension gaps. It may also be worthwhile purchasing pension benefits or making larger Pillar 3a contributions in order to close new gaps. It is important to plan carefully and prudently. This ensures you can achieve your own financial goals for your golden years.