Benefits of long-term savings accounts in the event of divorce

Important aspects of pension and asset equalization as well as alimony

Due to their increasing prevalence in benefits portfolios, HR staff are receiving more and more questions about divorce and long-term savings accounts. In addition to the emotional stress involved, there are numerous legal and financial issues to be clarified for all parties concerned. Complex questions often arise, particularly in cases where long-term savings accounts are part of asset planning. We provide a brief explanation of these issues below.

What are long-term savings accounts?

Long-term savings accounts offer the freedom to organize working hours flexibly and enjoy financial benefits. Working time or remuneration can be saved up tax-free and without social security contributions. Depending on the model, this can later be used in the form of time off, such as sabbaticals, parental leave, care leave, further training, early retirement, partial retirement combinations, or a cash payment.

Unfortunately, in the event of divorce, the credit balance on a long-term savings account can lead to disputes, especially when it comes to the division of assets.

Flexitime or overtime accounts are not considered working time accounts in the legal sense, as they do not allow for the accumulation of remuneration or leave of absence of more than three months.

1. Pension rights equalization and long-term savings accounts

As part of pension rights equalization, the pension entitlements acquired during the marriage are divided between the spouses. At first glance, one might therefore assume that working time accounts are considered retirement provisions and are therefore included in pension rights equalization.

Several higher regional courts have ruled on this:

Higher Regional Court of Koblenz (UF 562/decision of November 29, 2019): The court clarified that long-term savings accounts do not serve as retirement benefits and are therefore not to be included in pension rights equalization.

Munich Higher Regional Court (UF 526/decision of March 29, 2017): The court ruled that a long-term savings account does not constitute adequate provision within the meaning of the Pension Rights Equalization Act, as it does not serve to protect against old age or disability risks.

These decisions make it clear that long-term savings accounts are not considered retirement provision instruments and are therefore not taken into account in pension rights equalization as a rule.

2. Equalization of gains and long-term savings accounts

In the event of divorce, it is crucial to divide the assets acquired by the spouses during the marriage fairly. This is done in the widely-used matrimonial property regime of community of accrued gains as part of the equalization of accrued gains. Long-term saving accounts can play a role here. The question arises as to whether the long-term savings account is considered part of the assets to be divided.

As a rule, the value of the long-term savings account is not directly included in the equalization of accrued gains if is primarily intended for future exemptions.

However, if a credit balance has been accumulated during the marriage which is available as financial resources at the time of divorce, it can be included in the equalization as part of the assets.

One argument against inclusion in the equalization of gains is a decision by the Higher Regional Court of Celle (UF 15/decision of February 21, 2014). According to the court’s assessment, this is not property that is subject to equalization of gains, but rather remuneration for work.

Whether credit balances from long-term savings accounts are to be divided within the framework of the less-common matrimonial property regimes of separation of property or community of property must be examined in each individual case.

3. Spousal support and long-term savings accounts

In a divorce, the clarification of spousal support is often a central issue. With regard to long-term savings accounts, the question often arises as to how the savings process is treated in the past and future.

Savings for asset accumulation can only reduce the income relevant for maintenance if they already shaped the spouses’ living conditions during the marriage and they lived in affluent circumstances that allow for non-consideration (Higher Regional Court of Oldenburg, WF 143/03 /decision of November 27, 2003).

However, due to the potential for abuse (e.g., saving before divorce to deliberately reduce spousal support), the courts are likely to take a rather restrictive approach.

4. Child support and long-term savings accounts

If the credit balance primarily serves to flexibly structure working life, it makes sense to view it as an asset-building instrument. According to established case law, asset-building measures cannot, in principle, be taken into account as income-reducing factors in claims for child support for minor children.

Conclusion

The current case law on divorce issues relating to existing long-term savings accounts has been decided in part by the highest courts. While there is legal certainty with regard to pension rights equalization and child support, the issues of equalization of accrued gains and spousal support have not been decided by the highest courts.

A detailed examination of long-term savings accounts and the associated claims is essential in the event of divorce in order to find fair and legally-secure solutions. Particularly when calculating maintenance, pension rights equalization, and equalization of accrued gains, all relevant factors should be taken into account in order to achieve a comprehensive and fair settlement.

Contact us for your personal consultation.