Expat Divorce & Pensions: A Guide to Securing Your Future
What Happens to Your Pension After a Divorce?
Every set of circumstances, every marriage and divorce are unique. There are no set rules when it comes to dividing assets.
It’s tough to reduce a whole life together down to finances. This is why, unfortunately, many people only think about the financial impact after the event. Particularly when it comes to expat divorce and pensions. When retirement is years away, it’s easy to let pension plans and savings accounts fall by the wayside in favour of more immediate concerns.
However, aside from property, retirement savings tend to be the largest asset in a marriage. So it’s bizarre that while houses are often sold and assets split, pensions are often overlooked! h
What happens to pensions in international divorce?
International divorce cases can be especially complex; it’s important to understand the legal status of assets and tax treatment relevant to each partner’s country. There’s some great information on divorce and legal separation and access to specific assistance services for expats in Europe available on the official website of the EU.
Working overseas and accruing private pensions can leave a complex financial situation that’s difficult to unravel when untying the knot. It’s impossible to give an exhaustive list of all these considerations in one blog: the variables are endless.
Let’s start with advice on the steps you should take when navigating divorce as an expat with pensions to consider.
1. Decide where to file for divorce
Should you file in the country you’re currently living in or your home country? What if you and your spouse are citizens of different countries?
It can be overwhelming, but it’s essential to understand your options.
The legalities of divorce are going to largely depend on the jurisdiction you’re divorcing in. For example, in many countries, pensions accrued prior to the marriage aren’t considered marital assets and therefore won’t be subject to division in a divorce settlement.
Even if you’re not planning on going to court, it’s important to know your options when negotiating with your partner.
2. Find out the pension rules for each relevant country
Your starting position should be finding out what you’re dealing with. Are there any particular rules in the country from which the pension benefits originate?
In some jurisdictions, private pensions may be treated differently depending on whether they were accumulated before or during the marriage. For example, in France, private pensions that were accumulated before the marriage may be considered separate property and may not be subject to division in the event of divorce.
However, in many countries, including most developed countries, private pensions are generally considered to be matrimonial assets and can be subject to division in the event of divorce. This is because private pensions are often accumulated over the course of a marriage and are considered to be a joint asset of both parties.
3. Can your ex-spouse claim a percentage of your international pension?
In most jurisdictions, if you have a pension that was accumulated during the course of your marriage, it will likely be considered a marital asset and subject to division during divorce proceedings. This means that your ex-spouse may be entitled to a portion of your pension, depending on a variety of factors such as the length of the marriage and each spouse’s income.
Almost certainly, yes. Even if you have a solicitor who specialises in cross-border divorce settlements, an expert international financial adviser will be able to provide you with the right perspective, advice and support. It is also important to bear in mind that your financial adviser will have a vested interest in ensuring that you achieve a positive outcome from this process.
It is often helpful for each spouse to have their own financial adviser – ideally a specialist in cross-border financial issues. In some cases, it may be a good idea for both parties to appoint the same independent expert.
5. Understand taxation, divorce and expat pension sharing
It is important to note that there may be tax implications associated with dividing your pension. This is especially true when pensions are being moved from one jurisdiction to another. It’s important to consult with a financial adviser who is knowledgeable about cross-border pension matters. And that leads us to our next point.
6. Seek professional advice on expat divorce and pensions issues
Finally, the most important step you can take is to seek professional advice from a qualified financial adviser who is experienced in dealing with expat pensions and divorce. They can help you understand your options and navigate the complex legal and financial issues surrounding divorce and pensions.
What are the options available to divorcing expats with pensions?
Whether you’re going through the courts, mediation or simply coming to an agreement yourself, there are several pension division options available to you. This section outlines the most common options and how they work – so that you can make an informed decision about which one is right for you. You can also find out more about the legalities of how pensions are divided in divorce here.
1. Consider pension sharing
A Pension Sharing Order is a legal document that allows you and your ex-spouse to split your pension benefits between you. This means you will both have your own pension benefits, which are accessible separately.
Pension-sharing orders made by a court are only enforceable overseas where the same arrangement would be applicable in the jurisdiction where your pension is held.
You have various options in terms of navigating this. Either you can keep your international pension protected from any court ruling. Or, if you wish to share your pension with your ex-spouse, you can transfer it to a pension in the jurisdiction where your divorce is taking place. There may be tax implications for doing so. More on that later.
2. Explore Offset Agreements for expat divorce and pensions
Offset arrangements can be a more simple solution where international pensions are concerned. This is a way of compensating your ex-spouse for their share of your pension. This can be done by offsetting the value of the pension against other assets – like property or investments.
While this seems simple on the surface, valuing a pension for divorce settlements can be complex. Particularly if you have a defined benefit pension. While a simple valuation is possible, it may not align with local pension practices. Actuaries may be needed to confirm the reliability of the valuation or to place a value on an international pension fund. If the value is agreed upon, it can be included in the overall settlement.
When the value CAN’T be agreed upon, it gets a bit tricky. If one spouse doesn’t accept the value of international pension funds, it can result in litigation. In such cases, expert evidence may be necessary for the court to make a ruling. To avoid unnecessary litigation, it’s essential to seek proper advice and expert input on international pensions.
3. Negotiate a Clean Break
A Clean Break is an agreement that allows you and your ex-spouse to sever all financial ties after divorce. This means that neither party will have any claim on the other’s pension benefits.
Expert advice for expat divorce & pensions concerns
If you’re an expat who’s going through a divorce, or considering one, then it’s crucial to understand the rules and regulations around pensions in your country of residence. At Galileo Wealth, we understand that navigating the complexities of pension sharing in divorce proceedings can be daunting, especially when you’re in a foreign country.
That’s why we’re here to help. We have year of experience providing guidance and support to expats in the midst of divorce. We’ll work with you to understand your unique situation and help you to navigate the legal and financial aspects of your divorce settlement, including pension sharing.
Don’t let the stress and uncertainty of divorce cloud your financial future. Contact Galileo Wealth today and let us help you take control.