Pension equalization in Switzerland: Friendly settlement by agreement (Part 2/3)

• Litigation/Mediation
• Pension equalisation
• Private Clients

Spouses divorced abroad are in principle free to agree on a division of half of the pension assets or occupational pension entitlements by means of a pension equalisation agreement in Switzerland, to determine a separate division ratio or to waive pension equalisation completely. Such agreements are subject to certain conditions and must be submitted to the court for review and approval.

Sense and purpose of the agreement

Compared to enforcing pension equalisation through legal action, an amicable settlement by agreement is a quick and generally more cost-effective alternative, provided there is mutual agreement between the parties or a certain willingness to settle. The conclusion of an agreement also allows the divorcing spouses to deviate from the principle of equal division by mutual agreement. On the one hand, the property settlement that has already taken place abroad can be taken into account, e.g. the acquisition of the marital property. On the other hand, the economic or personal circumstances after the divorce, such as the care of children, emigration, a large age difference between the parties or the provisioning needs per se may speak in favour of a deviation from the principle. If the parties already address the issue of pension equalisation in Switzerland at the time of the divorce abroad, it may be possible to achieve tax optimisation if, for example, it is possible to buy back into the pension fund at a later date.

Content of the agreement

The agreement on pension equalisation in the sense of a supplement to the foreign divorce decree basically consists of three parts. Firstly, the divorcing spouses apply for their foreign divorce decree to be recognised in Switzerland and secondly, they submit the signed agreement to the court for approval. In addition, the parties must submit a so-called feasibility declaration to the court. This document, issued by the vested benefits or pension fund, confirms the feasibility of the pension equalisation in favour of another institution and, in particular, provides information on the amount of the termination benefit available (on both sides) or to be divided. In the agreement, the divorcing spouses can also agree on the distribution of the expected court and party costs. Furthermore, a personal hearing by the court or an oral hearing can be waived or a waiver of appeal can be agreed.

Prerequisites for over/under splitting

The admissibility of a mutually agreed deviation from the 50/50 division of pension assets requires that adequate retirement and disability provision is guaranteed for the party actually entitled or obligated. It is advisable to state this as explicitly as possible in the agreement. The personal circumstances and the total tied assets of the divorced spouses – including those accumulated prior to the marriage – are important for the assessment of adequacy. Pillars 3a and 3b, life insurance policies with endowment capital, any real estate, a personal right of residence or an unlimited usufruct must therefore be taken into account. For the agreement to be admissible, however, it is not necessary for the amount of the waived equalisation benefit to be reached, so that a quantitatively lower provision may also be appropriate. On the other hand, the existence of untied assets is generally not sufficient. Likewise, the existence of important reasons that make a 50/50 split appear inequitable can make a mutual agreement on a higher/lower split permissible.

Judicial review and approval of the agreement

The signed agreement on the equalisation of pension assets in Switzerland must be reviewed and approved by a court in order to be legally valid. The prerequisite for this is that the agreement is clear, complete and not obviously unreasonable. In addition, the court must be satisfied that the divorced spouses concluded the agreement voluntarily and after careful consideration. Next, in the event of a division of the pension assets by more than half or less than half or a waiver of division ex officio, the court must examine whether the parties’ retirement and disability provision is adequate, unless other important reasons are invoked, as a division by more than half in favour of one spouse always constitutes a division by less than half at the expense of the other spouse. If all requirements are met, the submitted agreement on pension equalisation is approved by a corresponding court ruling. This then contains an instruction to the vested benefits or pension fund involved to carry out the pension equalisation.