Pension equalization and life insurance: Bringing clarity to divorce
28 Mar 2025
5
Minutes
Katrin Straub
CEO at nextsure
A divorce raises many financial questions, especially regarding pension equalization and endowment life insurance. Find out when your policy is considered in pension equalization and when it falls under accrual compensation – a distinction that often has significant financial consequences.
The topic in brief and concise terms
Capital life insurance policies with a lump sum payout are usually included in the equalisation of gains, not in the equalisation of pensions.
A pension selection exercised before divorce proceedings can transfer a capital life insurance policy into the pension adjustment.
The precise review of the policy and the timing of exercising options are crucial for the financial allocation.
Fundamentals: Understanding pension rights adjustment versus equalization of accrued gains
In the event of a divorce, the family court arranges the distribution of pension rights acquired during the marriage. This is done through the pension adjustment, which has been restructured by the Pension Adjustment Act (VersAusglG) since September 1, 2009. [1-4] The aim is a fair half-and-half division of retirement claims built up during the marriage by both partners. [1-4] This is distinct from the gain equalisation, which pertains to assets acquired during the marriage. A whole life insurance with a one-time capital payout typically falls into the gain equalisation with its surrender value. [1-2,1-3] Pure term life insurances without capital formation play no role in either the pension or gain equalisation, as they do not represent a current asset value. [1-2] The correct categorisation of your policy has significant financial implications and should be clarified at an early stage.
Whole life insurance: When in pension adjustment?
A pure endowment life insurance policy that pays out a lump sum at maturity is generally not divided in the pension adjustment account. [1-1,2-4] Instead, it is considered part of the assets accounted for in the equalisation of accrued gains. The situation is different if your endowment life insurance includes an option to choose a pension. This option allows you to opt for a lifelong annuity instead of a one-time capital payment. If this pension option is exercised before filing the divorce petition, the entitlement is included in the pension adjustment. [1-2,1-4] The marriage period for pension adjustment starts on the first day of the month of marriage and ends on the last day of the month before the divorce petition is served. [2-4] This timing component is crucial for the allocation.
The right to vote: A crucial factor with deadlines
The existence and exercise of a voting right in your life insurance can significantly influence the financial division in a divorce. In the case of a capital life insurance with an annuity option, exercising the voting right to an annuity before the divorce is pending leads to its inclusion in the pension equalisation. [1-2,1-5] Conversely, the same applies: A life insurance on an annuity basis with a capital option falls under pension equalisation if the capital option is not exercised before the divorce application is pending. [1-2] It is possible for the exercise of the voting right to still be examined during the ongoing divorce proceedings to determine if it is in bad faith (§ 242 BGB). [1-5] Timely exercise of such a voting right can represent an important turning point. Consulting on this is often advisable, especially in cases of separation of property or exclusion of pension equalisation. [1-2] Therefore, the deadline for exercising the voting right is a critical point.
Practical examples to illustrate 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 an endowment life insurance policy with a surrender value of €30,000, without an annuity option. This €30,000 is included in the calculation of the accrued gains. Case two: Mr and Mrs Schmidt, divorce after 20 years. Mrs Schmidt has an endowment life insurance policy with an annuity option. She exercised this option three months before the divorce petition was served and opted for a monthly pension of €200. This pension entitlement is now divided in the pension equalisation. Had she not exercised the option, the current capital value of the policy would have been included in the gains equalisation. These examples show how different the treatment can be depending on the contract terms and active decisions. A thorough review of the policy is essential.
Here are some points to consider in the evaluation:
Type of life insurance (capital, annuity, risk).
Presence and timing of exercising options.
Duration of the marriage and key date for valuation.
Surrender value or current value of the policy.
Possible tax consequences of the division.
These factors determine the path of division.
Expert Knowledge: Case Law and Legal Foundations
The legal basis is the Versorgungsausgleichsgesetz (VersAusglG). [1-4] The Federal Court of Justice (BGH) has clarified the distinction in several rulings. For instance, the BGH confirmed (decision of 05.10.2011, Ref. XII ZB 555/10) that private capital life insurance policies aimed at a one-time capital payment are not subject to pension equalization. [3-1,3-3] The fundamental permissibility of exercising the capital option was also confirmed by the BGH (decision of 18.04.2012, Ref. XII ZB 325/11). [1-5] The Higher Regional Court of Brandenburg decided that a significant reduction of pension entitlements due to the cancellation of a life insurance policy can justify exclusion from pension equalization due to gross inequity (§ 27 VersAusglG). [3-2] Our expert tip: Have your contracts and the current case law checked to avoid disadvantages. Knowledge of these rulings can be crucial in negotiations.
Calculation and execution of the settlement
If a capital life insurance policy falls into the pension equalisation due to the exercised pension option, the pension provider determines the proportion of the entitlement acquired during the marriage. [2-4] This is then usually divided equally, often through internal division whereby an independent entitlement is established for the compensating partner with the same pension provider. [2-5] In the case of capital life insurance in asset equalisation, the relevant value (usually the surrender value at the date of service of the divorce petition) is determined. [1-3,2-3] This value is included in the overall balance of gains for both spouses. The spouse with the lower gain is then entitled to compensation amounting to half the difference. The precise valuation is often complex and requires information from the insurers. A premium waiver of the capital life insurance can affect the value.
Important steps in the process are:
Obtaining information from the pension providers/insurers.
Reviewing the contractual documents for options.
Determining the cut-off date for the valuation (usually the service of the divorce petition).
Calculating the portion acquired during the marriage (pension equalisation) or the value (asset equalisation).
Possibly judicial clarification in the event of disagreements.
Careful preparation of these steps is important for a fair outcome.
Special cases and what you should consider
There are situations that require special attention. For marriages lasting up to three years, pension equalisation takes place only at the request of one spouse. [1-4,2-1] If the spouses have effectively excluded pension equalisation by prenuptial agreement, this is also omitted. [1-5] Even with very low equalisation values, the court can refrain from equalisation. A unit-linked endowment insurance policy can be more complex in terms of value determination. [1-2] Our expert tip: Determine early whether there are any particularities in your case that require a different approach. Designing an endowment insurance policy with disability insurance can also raise questions. Consulting professionals is often indispensable here to avoid financial disadvantages.
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More useful links
The portal Gesetze im Internet provides the full text of the Law on Pension Rights Adjustment (VersAusglG), which governs the legal basis for the adjustment of pension rights in the event of divorce.
The German Pension Insurance provides comprehensive information on pension rights adjustment in the context of divorce.
In the glossary of the German Pension Insurance, you will find a precise definition of the term pension rights adjustment.
A detailed brochure from the German Pension Insurance offers divorced individuals valuable guidance on the adjustment of pension entitlements.
The portal of the German Justice provides a questionnaire on pension rights adjustment, which can be helpful when applying.
The Federal Statistical Office (Destatis) offers up-to-date statistics on marriages, divorces, and civil partnerships in Germany.
FAQ
What is the difference between pension equalisation and the equalisation of accrued gains in a life insurance policy?
The pension equalization divides the pension entitlements acquired during the marriage. A whole life insurance policy is only included here if it has been converted into a pension (e.g., through the exercise of a pension option before the divorce petition). Otherwise, its capital value is considered in the equalization of accrued gains (the division of assets earned during the marriage).
My endowment insurance has an annuity option. What should I do in the event of an upcoming divorce?
The decision whether to exercise the pension election right should be well-considered and depends on your individual situation. Exercising it before the divorce petition is served will result in its consideration in the pension equalisation. Seek advice on which option is more advantageous for you.
Is a unit-linked life insurance policy treated differently?
The basic principles (equalization or pension adjustment) apply here as well. However, the valuation of a fund-linked policy can be more complex as it depends on the value of the underlying funds. The cutoff date value is crucial.
Can the pension equalization for a capital life insurance policy be contractually excluded?
The pension equalization can be excluded or modified by a marriage contract or a divorce agreement. This would then also affect entitlements from a converted endowment insurance policy. A specific exclusion for a particular policy is uncommon.
What happens if my ex-partner is the beneficiary of my endowment life insurance?
Regardless of pension entitlements or division of assets, you should review and, if necessary, adjust the beneficiaries of your life insurance policies following a separation or divorce, provided the contract allows for this.
What role does the duration of the marriage play in the pension adjustment of the endowment life insurance?
For marriages lasting up to three years (including the year of separation), a pension adjustment is only carried out if one spouse requests it. This also applies to entitlements from a life insurance policy, which could potentially be included in the pension adjustment.
