What happens in the event of divorce in Switzerland and how to secure your future?
Divorce can be a real challenge, both emotionally and financially. To date, nearly two out of five married couples divorce in Switzerland. Therefore, before entering into a marriage contract, couples must guard against the risks of divorce. They must take into account its impact on long-term financial planning, including retirement planning, asset protection and maintenance, as well as other risks such as death, accident or illness.
Understanding your current financial situation, your future plans, your retirement plan and the consequences of a divorce are therefore the starting points.
Here are some of the most common questions to ask yourself if you are considering divorce:
- How will the rights and assets acquired during the marriage be shared in the event of divorce?
- What will be the impact on your retirement?
- What will happen to the house mortgage?
The divorce process requires professional consultation. Thanks to the wise advice of our specialists in matters of matrimonial regime and separation of assets at Impact Financial Engineering, you will be able to restore, protect and strengthen your assets to guarantee a secure future.
What is divorce?
Unlike a separation, divorce is the legal dissolution of marriage. It represents the end of a marriage on a permanent basis that only a court can pronounce. There are two types of divorce: divorce by joint petition and divorce by unilateral petition.
We are talking about divorce by joint petition when both members of the couple wish to divorce despite a disagreement over the terms. Here we distinguish between:
- divorce by joint petition with full agreement which means that both spouses agree on all the consequences of the divorce and
- divorce by joint petition with partial agreement which refers to the fact that both spouses do not align themselves with all the terms of the divorce.
Divorce on unilateral request is the situation where only one member wants to divorce. This is possible in two scenarios:
- after at least two years of separate life (one year for registered partners), cases in which the defendant spouse can no longer oppose the divorce, or
- when’ there has been a breakdown in the marital relationship in cases of domestic violence or crime committed within the couple.
A mutually agreed divorce normally lasts between three and four months. Disputed or unilateral divorces can take several years.
What are the consequences of divorce on your financial situation?
Divorce is expensive and fees vary depending on the canton. While the cost of a divorce by mutual consent is borne by both partners, in the case of a contested divorce, the losing party must bear the full costs. A divorce can have significant consequences on various aspects of your life old age provision.
The consequences on the AVS
Once the divorce is finalized, the AVS income subject to contributions during the years of marriage is distributed equitably between the AVS accounts of both parties. In legal terminology, this process is called ‘splitting’. The sharing of AVS assets does not take into account the year of marriage or that of divorce. This also applies to couples in registered partnerships.
The marriage contract or community of property have no impact on splitting. To divide AVS assets upon divorce, you must contact the competent social insurance administration and inform them of the divorce.
In the event of marriage or registered partnership, non-active partners are automatically insured in the active partner's AVS. Once the divorce is finalized, both ex-spouses are obliged to pay AVS contributions from the year of divorce. If you do not engage in gainful activity, you must pay AVS contributions for people without gainful activity. The amount of contributions is determined by wealth and sources of income acquired in the form of an annuity (e.g. maintenance contributions).
Good to know: After a divorce or the dissolution of a registered partnership, ex-spouses receive their entire individual pension in the future, provided that they do not remarry. The marriage penalty, according to which married or registered partners receive a maximum of 150% of the maximum AVS pension, is thus eliminated. Splitting can, however, have significant effects on the amount of the pension.
The consequences on professional pension provision
As with the AVS and regardless of the matrimonial regime chosen, the pension fund's assets under the 2nd pillar are equally distributed equally between the two spouses. You should know that they constitute compensation for foresight. The amount distributed between the two partners is calculated for the period from the date of marriage to the date of initiation of the judicial divorce procedure and includes the assets accumulated during the marriage.
Our recommendations
For the contributing partner, it is recommended to make redemptions from the pension fund over several years in order to compensate for the reduction in retirement assets due to the payment to the ex-spouse. This strategy allows for tax savings, because redemptions from the pension fund are deducted from taxable income. For the entitled partner, the funds remain pension assets. If the spouse is not affiliated with the pension fund, the money is deposited into a vested benefits account or vested benefits policy.
Our specialists at Impact Financial Engineering will help you choose the most appropriate options from the various possibilities offered by banks and insurance companies.
The consequences on private insurance or 3e pillar
The matrimonial regime agreed in the marriage contract determines whether the private pension assets will be shared or not. In the absence of special provisions or according to the ordinary regime of participation in acquisitions and the regime of community of property, the provident funds saved in the 3rd pillar during the marriage are shared equitably and independently of their investment (bank or insurance) or the framework in which they are placed (linked pension 3a or free pension 3b).
On the other hand, if the couple chooses the regime of separation of property, the assets are not shared. Sometimes, the couple can renounce the sharing of private retirement assets during divorce or choose another method of sharing property.
The separation of property regime is the legal regime for registered partners. If the partners have not agreed to participate in the acquisitions through a notarized agreement, the assets of pillar 3a are not shared.
What happens to the mortgage?
Divorce processes become more complicated when it comes to a home mortgage, especially when it was purchased jointly by spouses or registered partners. In this case, the moving party must receive compensation which depends on the value of the property at that time.
If the mortgage has not been repaid, each of the divorced parties is responsible for the other party's debt if they are unable to pay. Divorce has no influence on the mortgage agreement. To get out of a mortgage, there is an often high prepayment penalty. To learn more about how to manage your mortgage, read our previous article.
To ensure financial independence after a divorce, you need to be clear-sighted. At Impact FE, our internal financial advisors have excellent know-how in the areas of matrimonial regime, l’savings, wealth management, retirement planning, mortgage planning and there taxation.
Thanks to our integrated and independent approach, our advisors specializing in these different areas work in synergy to support you in all phases of your life and guide you through the legal labyrinth to build you a resilient financial plan.
Do not hesitate to contact us if you would like to make an appointment!
