Pension equalisation and endowment life insurance: creating clarity in divorce
28.03.25
4
Minutes
Katrin Straub
Managing Director at nextsure
Divorce raises many financial questions, especially when it comes to pension equalisation and endowment life insurance. Find out when your policy is taken into account in pension equalisation and when it falls under the equalisation of accrued gains – a distinction that often has significant financial consequences.
The topic in brief and concise terms
Whole-life insurance policies with a lump-sum payout usually fall under the equalisation of accrued gains, not the pension equalisation.
An option to choose a pension exercised before the divorce petition can bring an endowment life insurance policy into the pension equalisation scheme.
The exact review of the policy and the timing of the exercise of rights of election are crucial for the financial allocation.
Basics: Understanding pension equalisation versus equalisation of accrued gains
In the event of a divorce, the family court regulates the equalisation of pension rights accrued during the marriage. This takes place through pension equalisation, which was newly restructured on 1 September 2009 by the Pension Equalisation Act (VersAusglG). [1-4] The aim is a fair, equal split of both partners’ retirement provisions built up during the marriage. [1-4] This is distinct from the equalisation of accrued gains, which concerns the assets acquired during the marriage. A endowment life insurance policy with a one-off capital payment typically falls, with its surrender value, into the equalisation of accrued gains. [1-2,1-3] Pure risk life insurance policies without any capital accumulation play no role in either pension equalisation or the equalisation of accrued gains, as they do not represent any current asset value. [1-2] Correct classification of your policy has significant financial consequences and should be clarified at an early stage.
Endowment life insurance: When is it included in pension equalisation?
A pure endowment life insurance policy that pays out a lump sum on maturity is generally not divided in the pension equalisation. [1-1,2-4] Instead, it is treated as part of the assets considered in the equalisation of accrued gains. The position is different if your endowment life insurance policy contains what is known as an annuity option. This right allows you to choose a lifelong pension instead of the one-off capital payout. If this annuity option is exercised before the divorce petition is filed, the entitlement falls within pension equalisation. [1-2,1-4] The marriage period for pension equalisation begins on the first day of the month in which the marriage took place and ends on the last day of the month before service of the divorce petition. [2-4] This timing component is crucial for the allocation.
The right to vote: A decisive factor with deadlines
The existence and exercise of an option right in your life insurance policy can significantly affect the financial division in a divorce. Where a whole life insurance policy includes an annuity option, exercising the option to receive an annuity before the divorce becomes pending leads to its inclusion in pension equalisation. [1-2,1-5] Conversely, a life insurance policy on an annuity basis with a capital option falls within pension equalisation, provided the capital option is not exercised before the divorce petition becomes pending. [1-2] The exercise of the option can even still be examined during ongoing divorce proceedings to determine whether it is contrary to good faith (§ 242 BGB). [1-5] The timely exercise of such an option right can be an important turning point. Advice on this is often worthwhile, especially in cases of separation of assets or exclusion of pension equalisation. [1-2] The deadline for exercising the option right is therefore a critical point.
Practical examples illustrating the regulations
To make the theory more tangible, let us consider two typical scenarios. Case one: Mr and Mrs Müller divorce after 15 years. Mr Müller has a whole life insurance policy with a surrender value of EUR 30,000, without an annuity option. These EUR 30,000 are included in the calculation of the accrued gains. Case two: Mr and Mrs Schmidt, divorce after 20 years. Mrs Schmidt holds a whole life insurance policy with an annuity option. She exercised this right three months before service of the divorce petition and opted for a monthly pension of EUR 200. This pension entitlement is now shared in the equalisation of pension rights. Had she not exercised the option, the policy’s current cash value would have fallen into the equalisation of accrued gains. These examples show how differently treatment can vary depending on the policy design and active steps taken. A precise review of the policy is essential.
Here are some points to bear in mind when assessing it:
Type of life insurance (capital, annuity, risk).
Existence and timing of the exercise of options.
Marriage duration and valuation date.
Surrender value or cash value of the policy.
Possible tax consequences of the split.
These factors determine how it is divided.
Expert knowledge: case law and legal foundations
The legal basis is the Act on Pension Equalisation (VersAusglG). [1-4] The Federal Court of Justice (BGH) has clarified the distinction in several judgments. Thus, the BGH confirmed (order of 05/10/2011, case no. XII ZB 555/10) that private endowment life insurance policies aimed at a one-off capital payment are not subject to pension equalisation. [3-1,3-3] The BGH also confirmed the general permissibility of exercising the capital option right (order of 18/04/2012, case no. XII ZB 325/11). [1-5] The Higher Regional Court of Brandenburg ruled that a substantial reduction in pension entitlements through cancellation of a life insurance policy can justify the exclusion of pension equalisation on grounds of gross inequity (§ 27 VersAusglG). [3-2] Our expert tip: Have your contracts and the current case law reviewed to avoid disadvantages. Knowledge of these judgments can be decisive in negotiations.
Calculation and implementation of the compensation
If a capital life insurance policy falls within pension equalisation as a result of an exercised annuity option, the pension provider determines the portion of the entitlement accrued during the marriage. [2-4] This is then divided equally, usually by internal division, in which a separate entitlement is established for the spouse entitled to compensation with the same pension provider. [2-5] In the case of capital life insurance policies in the context of equalisation of accrued gains, the relevant value (usually the surrender value at the cut-off date when the divorce petition is served) is determined. [1-3,2-3] This value is included in the overall balance of the accrued gains of both spouses. The spouse with the lower accrued gain then has a claim to equalisation in the amount of half the difference. The precise valuation is often complex and requires information from the insurers. A making the capital life insurance policy paid-up can affect the value.
Important steps in the process are:
Obtaining information from the pension providers/insurers.
Reviewing the contractual documents for options.
Setting the valuation date (usually service of the divorce petition).
Calculating the portion accrued during the marriage (pension equalisation) or the value (equalisation of accrued gains).
If necessary, judicial clarification in the event of disagreements.
Careful preparation of these steps is important for a fair outcome.
There are circumstances that require particular attention. In the case of a short marriage of up to three years, pension equalisation is carried out only on the application of one spouse. [1-4,2-1] If the spouses have validly excluded pension equalisation in a pre-nuptial agreement, it also does not apply. [1-5] Even in the case of very small equalisation values, the court may waive equalisation. A unit-linked endowment life insurance policy can be more complex to value. [1-2] Our expert tip: Clarify at an early stage whether there are any special circumstances in your case that require a different approach. The design of a endowment life insurance policy with disability insurance can also raise questions. Advice from specialists is often essential here in order to avoid financial disadvantages.
Recommended actions for your situation
Given the complexity of pension equalisation and capital life insurance, proactive action is crucial. First, obtain a clear overview of all existing retirement provision policies and capital life insurance policies. In particular, check whether annuity or lump-sum options are available and the deadlines for exercising them. Request up-to-date value statements from your insurers. Carefully document all relevant data and documents. This forms the basis for well-founded decisions and discussions with your legal adviser or a specialist consultant. Early and comprehensive information can help you safeguard your entitlements in the best possible way and set the course for a secure financial future after divorce. Bear in mind that every situation is individual and general statements are often of little help.
Your next step towards financial clarity
Dealing with pension equalisation and the role of your endowment life insurance can be emotional and complex. A professional assessment of your individual situation is therefore often the best way to gain peace of mind and to represent your financial interests as effectively as possible. At nextsure, we understand the challenges that come with divorce and offer you a well-founded analysis of your insurance policies. Use our expertise to gain clarity about your entitlements and make the right decisions for your future. Careful planning today can save you many worries and financial disadvantages tomorrow. Do not hesitate to seek support.
Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific recommendations for improvement.
More useful links
The Gesetze im Internet portal provides the full text of the Pension Equalisation Act (VersAusglG), which governs the legal basis for equalising pension entitlements in the event of divorce.
The German Pension Insurance organisation provides comprehensive information on pension equalisation in the context of divorce.
In the glossary of the German Pension Insurance, you will find a precise definition of the term pension equalisation.
A detailed brochure from the German Pension Insurance offers divorced people valuable guidance on equalising pension entitlements.
The portal of the German Justice provides a questionnaire on pension equalisation that can be helpful when applying.
The Federal Statistical Office (Destatis) offers up-to-date statistics on marriages, divorces and registered civil partnerships in Germany.
FAQ
What is the difference between pension equalisation and equalisation of accrued gains in a whole life insurance policy?
The pension equalisation shares pension entitlements acquired during the marriage. A whole-life insurance policy is only included here if it has been converted into an annuity (e.g. by exercising the option to choose a pension before filing for divorce). Otherwise, its cash value is taken into account in the equalisation of accrued gains (division of assets accumulated during the marriage).
My endowment life insurance policy has an annuity option. What should I do if I am facing an impending divorce?
The decision of whether to exercise your pension option should be carefully considered and depends on your individual circumstances. Exercising it before service of the divorce petition will result in it being taken into account in the pension equalisation. Seek advice on which option is more advantageous for you.
Is a unit-linked endowment life insurance policy treated differently?
The basic principles (accrual or pension equalisation) also apply here. However, determining the value of a unit-linked policy can be more complex, as it depends on the value of the underlying funds. The value at the valuation date is decisive.
Can pension equalisation be contractually excluded for an endowment life insurance policy?
The pension adjustment as a whole can be excluded or modified by a marriage contract or a divorce settlement agreement. This would then also affect entitlements from a converted endowment life insurance policy. A specific exclusion for just a particular policy is unusual.
What happens if my ex-partner is the beneficiary of my endowment life insurance?
Regardless of pension equalisation or equalisation of accrued gains, after a separation or divorce you should review the beneficiary designation of your life insurance policies and, if necessary, have it adjusted, provided the contract allows this.
What role does the length of the marriage play in the equalisation of pension rights for the endowment life insurance policy?
If a marriage has lasted up to three years (including the year of separation), pension equalisation only takes place if one spouse applies for it. This also applies to entitlements from an endowment life insurance policy that may potentially be included in the pension equalisation.
