What does divorce mean for your pension?

What does divorce mean for your pension?

Published on: 28 August 2020

You are entitled to part of your ex-partner’s pension after divorce. On January 1, 2022, the new Dutch law on pension distribution after divorce will enter into force. So, what’s going to change? Plus: Five golden pension tips for when your marriage ends.

 

A new law on the effects of divorce on pensions is currently in the pipeline in the Netherlands. The main change we expect to see is that the ex-partner will automatically receive half of their former spouse’s pension built up during the marriage. But an ex is entitled to half even under current legislation, unless you have come to a different arrangement.

 

Working it out

Harrie Alberti, a paralegal at APG, broadly sums up the current rules for us. “If partners separate, the pension of the participant – the person who accrues the pension – is distributed. The ex-partner is entitled to half of the pension of the participant who accrued the pension during the marriage. Any retirement pension accrued before and after the marriage is not distributed.”

 

Let’s look at a simple sample calculation:

  • A participant’s total pension is worth €20,000.
  • €15,000 of this was accrued during the marriage.
  • The ex-partner will receive half of €15,000 = €7,500.
  • The participant will receive €7,500 + €5,000 = €12,500.

The ex-partners may have the distribution carried out by the pension fund, as long as they apply for it within two years of the divorce, Harrie explains. “They can also agree not to share the pension or to come to some other arrangement.”

As for a partner’s pension, “If the person who accrued the pension dies, their ex-partner is entitled to a partner’s pension that was accrued up to the divorce. This part of the accrued partner’s pension is no longer payable to any new partner.”

 

New law takes effect in 2022

The new law will enter into force on January 1, 2022. Harrie sets out the most important changes.

  • Pensions accrued during marriage are now automatically distributed. No action is required from the ex-partners from now on.
  • After the distribution, the ex-partner of the person who accrued the pension is entitled to a pension of their own. They can then decide when the pension starts. This marks a change from the current situation. As things stand, the participant decides when their pension starts and the ex-partner then receives a part of that retirement pension.
  • Only the part of the retirement pension and the partner’s pension accrued during the marriage will be distributed. At present, this applies only to the retirement pension. The partner’s pension accrued up to the end of the marriage is now entirely payable to the former partner.

Learn more about these changes (in Dutch):

 

Often overlooked

While ex-partners often recognize the importance of reaching a settlement, pensions are often overlooked in a divorce, explains mediator and divorce financial adviser Corrien Roche, owner of Roche divorcel advisers. “Many mediators and lawyers find it too complicated, so it is hardly ever discussed, if at all. But there can be a lot of money at stake. Aside from the house, your pension can be your largest asset.”

 

The VPS Act, which governs the settlement of pension rights in the event of divorce, stipulates that the retirement pension accrued during marriage must be distributed 50/50 by default in the event of divorce. But it doesn’t necessarily have to be that way, Corrien says. “Most people choose this route often because it’s easier or they don’t know what their options are. But you can instead leave your entire pension to the person who has accrued the least amount in their pension, or apply a settlement percentage to someone else’s pension.”

Smart solutions

Moreover, if there is a large age gap between the two partners, this requires a different approach, says pension consultant Eric de Bruijn of edb.pensioen.nl. “If one partner is considerably older than the other, the oldest of the two must hand over part of their pension on their retirement date and wait to receive their part from their former partner. There are some smart solutions for this.”

Eric continues, “The law offers the opportunity to deviate from the standard. So, take advantage of it! The value must be calculated correctly and objectively, which requires a custom approach. That doesn’t mean there is an ideal solution for every situation. But lawyers and advisors are there to help you.”

 

Spoiled for choice

In Eric’s experience, cooperation between the spouses routinely leads to a solution that both sides are happy with. “You’re spoiled for choice. Sometimes, the two ex-partners can keep giving each other a share of their pension until they are practically the same in value. But this requires careful guidance. The ex-partner may continue to live in the house in exchange for waiving any entitlement to the other’s pension, for example. Arrangements like that also affect your tax.”

It is important to check whether the pension administration wants to cooperate, he advises. “You might well be allowed to come to another arrangement, but not every provider is flexible.”

 

Emotions run high

Emotions are part and parcel of a divorce. People must remember that they need to make the right decisions for their future. Corrien knows that the idea of in-depth discussions on finance and/or pensions isn’t the first thing on everyone’s mind at that stage of their life. “Yet, people are well aware that they are making an important decision for their future. They prefer to be guided step by step, so that they can make the right choices together.”

 

 

Five golden pension tips for when your marriage ends

 

  1. You can agree on how your pension will be distributed long before you retire in a divorce agreement.
  2. If your pension provider is informed of what you have agreed on within two years of the divorce, the fund will automatically distribute the pension.
  3. Conversion can be an attractive option. This means your pension distribution rights will be completely separate from your ex-partner’s in the event of divorce. You will then not be dependent on the age at which your ex-partner retires.
  4. Not every situation is the same. Choose a lawyer or advisor for a solution that is right for you.
  5. Before considering any changes, check whether your pension administrator will cooperate with any tailored arrangements.

Published in these collection(s)

Pension

Collection in Income