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Landmark decisions of the Federal Supreme Court (BGH) on pension rights adjustment in the context of divorce proceedings – Ambiguities concerning pension rights adjustment removed

Landmark decisions of the Federal Supreme Court (BGH) on pension rights adjustment in the context of divorce proceedings – Ambiguities concerning pension rights adjustment removed

BGH, February 17, 2016 – XII ZB 447/13: Under the Pension Rights Adjustment Act (Versorgungsausgleichgesetz), the value of a pension entitlement at the time of the ending of the marriage (the end of the month preceding the notification of the divorce petition) is determined, and then this capital value is split. However, there often is a significant lag of time until the divorce becomes final.  If pensions are being paid out during this period, the value of the remaining pension entitlement successively decreases. With the judgement of February 17, 2016, the BGH clarifies that current pensions are to be paid until the divorce proceeding becomes legally effective and the “(residual) capital value” is split. A compensatory measure is eligible only if this judgement disproportionately disadvantages beneficiaries, e.g. because the pension payment until the legal effect of the divorce was not considered in the separation support or the post-marital maintenance. As examples, the BGH mentions the exemption of the beneficiaries’ entitlements or parts of the entitlements from the pension right adjustment, e.g. survivor benefits.

BGH, March 9, 2016 – XII ZB 540/14: The technical interest rate has a considerable effect on the amount of the capital value. Hereto, the BGH provided guidelines in its judgement of March 9, 2016. The interest rate relevant to the German commercial balance on the date of the end of the marriage must be applied. This is of importance in the context of the current decreasing interest rates according to the Commercial Code (HGB), because the technical interest rate of the last commercial balance, which can be several tenths of a percentage point higher and has frequently been used by pension providers, ceases to apply. In the case of contribution-oriented defined benefit plans, where a fixed conversion table determines the benefit, the relevant interest used for the calculation of the table values is applicable alternatively. A further exception admitted by the BGH is related to pension entitlements which are completely financed via a reinsurance policy. In this case, the calculation bases – i.e. especially the interest rate – of the reinsurance company apply. These principles to determine the capital value analogously apply to an external splitting, even if the beneficiaries’ pension provider uses a more cautious actuarial interest which results in a correspondingly lower provision. Such “transfer losses” cannot be criticized.

A constitutional appeal has been brought against the last-mentioned judgement (1 BvR 963/16).

Lurse’s estimation: Both judgements close regulatory gaps which the legislator had left open. The extra cost for provision providers due to long-lasting divorce proceedings are omitted by the splitting of the “(residual) capital value.” Considering this, the additional determination of the capital value on the date on which the divorce becomes legally binding is negligible. Also, the judgement concerning the technical interest settles an area with many different legal opinions, especially regarding transfer losses. It remained open, to what extent future and yet undetermined pension adjustments according to § 16 Company Pensions Act are to be included.