What happens to your AHV (Old Age and Survivors' Insurance), pension fund, and Pillar 3a if you get divorced?
In the event of a divorce, the same principle applies to AHV, pension fund and Pillar 3a assets, namely that entitlements and assets earned during the marriage are divided up. However, this is done differently from pillar to pillar.
Money worries and financial disagreements are among the most common reasons for divorce. In the event of a divorce, these conflicts are generally exacerbated further. This can lead to substantial disputes, especially when the pension fund assets come to be split. In contrast to the first pillar (Old Age and Survivors' Insurance [AHV]) and Pillar 3a (private pension provision), splitting the 2nd pillar (pension fund or employee benefits insurance (BVG)) is a complex matter that is almost impossible to manage without the help of a specialist. Moreover, since January 1, 2017, a new law has applied in Switzerland which redefines some aspects of the division of the 2nd pillar in the event of a divorce. People who are already divorced may benefit from this under certain circumstances.
First pillar: Splitting the AHV upon divorce
After a divorce, an application for “splitting” can be filed with the AHV compensation office. If you do not fill out an application, the compensation offices will carry out the splitting automatically when the pension calculation is performed, if not before. This means that all the income earned by you and your spouse during the marriage will be divided 50-50 between you. The only exceptions to this rule are the year in which the marriage took place and the year in which it ended in divorce. This means that a couple must have been married for at least one calendar year for the purpose of splitting. If a couple is already receiving an AHV pension, they will receive two individual pensions after the divorce. The sum of the two individuals’ pensions is generally higher than the existing shared pension – especially if the couple received the maximum retirement pension payable under the AHV for married couples before the divorce. Caution is required if one of the parties was not gainfully employed before the divorce and was not required to pay non-employed contributions to the AHV contributions due to their spouse’s income. As of the date of the divorce, this party will be responsible for paying their own AHV contributions.
Pillar 2: Impact of a divorce on your pension fund
In contrast to the AHV, couples must arrange the division of their pension fund assets in their divorce proceedings. That sounds simpler than it is. This is because, in addition to the existing assets, it is necessary to consider several factors such as voluntary purchases, balances with several pension funds, and advance withdrawals for the purchase of residential property. The assets saved in the employee benefits insurance reserves before the marriage are never taken into account. Since 1995, the pension funds have been obliged to inform their insured clients how high their balance is when they marry. However, anyone who married before 1995 and has changed jobs several times would be best advised to consult an expert to determine the assets correctly. It is also important that equalization payments made as part of the divorce must remain with the pension fund and cannot be paid out in cash. Any gaps in the provision due to divorce can be closed again; however, this requires careful planning.
Pension fund: Differences between the advance withdrawals
Pension fund withdrawals for the purchase of residential property during the marriage will be included in the calculation of the division of pension assets upon divorce. Account must also be taken of which spouse retains the property following the divorce. By contrast, cash withdrawals – for example for starting self-employed activity – are not considered in the division of pension assets, because the other spouse would have had to agree to the withdrawal. If these funds are still available, they will be taken into account under marital property law when the disposable assets are divided up.
Pension fund and divorce: New law as of January 1, 2017
Since January 1, 2017, a new law has applied in Switzerland. It ensures that pension fund assets are divided up more fairly. Divorced people who undertook care duties during the marriage may have been at a particular disadvantage in the past. Now, the assets will be divided up even if one spouse is already retired or registered disabled at the time of the divorce. For payment, there are two options: Either the hypothetical termination benefit is calculated and split, or the existing BVG pension is split and converted into a lifelong pension for the non-disabled or non-retired person. A further important change is that the time for the settlement is now the start of divorce proceedings and not the end. In the past, the date of settlement had to be as close as possible to the divorce decree date so that the financially weaker person would not be disadvantaged. Now that is no longer necessary.
Pillar 3a and 3b after a divorce
If a married couple has not agreed to a separation of property, assets held in Pillar 3a (tied pension provision) that were saved up during the marriage will be divided up between the spouses. It does not matter whether the money is held in the form of a bank account or an insurance policy. The distribution of assets must be recorded in the divorce agreement. The divorce decree must in all cases have been enforced and declared legally effected by a court of law. A draft is not sufficient. The money must remain in Pillar 3a or be transferred to an employee benefits insurance pension fund unless grounds for a cash payment exist under Article 3 of the Ordinance on the Tax Deductibility of Contributions to Recognized Forms of Benefits Schemes (BVV 3). Money in Pillar 3b (flexible pension provision) is counted as part of the jointly acquired property and will also be divided up.