Term and Fundamentals of External Division
Die External division is a central term in German social security law, particularly in connection with pension rights adjustment in divorce proceedings. It refers to a legal procedure in which, as part of the pension rights adjustment, pension entitlements acquired by one spouse during the marriage are not internally transferred but instead externally transferred to a pension provider of the entitled spouse. The aim of external division is to make the entitled spouse as independent as possible from the pension of the liable spouse and thus to disentangle the pension situations of both spouses after the divorce.
Legal Framework for External Division
External division was introduced as part of the reform of the pension rights adjustment law by the Act on the Structural Reform of Pension Rights Adjustment (VersAusglG) in 2009. The relevant statutory provisions are primarily found in Sections 14 et seq. VersAusglG. In addition, the relevant provisions of the German Civil Code (BGB), the Social Code (SGB VI), and other pension laws apply.
Pension Rights Adjustment Act (VersAusglG)
The Pension Rights Adjustment Act governs both the conditions and the procedure for external division. External division is specifically intended for occupational and private pension entitlements, but also for rights from professional pension schemes and certain cases within the statutory pension insurance.
Section 14 VersAusglG – External Division of Pension Rights
Section 14 VersAusglG generally provides for external division for occupational and private pension rights when the entitled spouse is not a member of the pension provider in which the pension right to be divided exists. For certain pension providers, there is the option to demand external division.
Section 17 VersAusglG – External Division by Agreement
Section 17 VersAusglG gives spouses the possibility to choose external division within the scope of an agreement, provided that the interests of both parties are adequately considered.
Distinction from Internal Division
Internal division requires that the entitled spouse receives their own pension entitlement with the liable spouse’s pension provider. In contrast, with external division, the adjustment value is transferred to another pension provider to be designated by the beneficiary or to a newly established pension account.
Requirements for External Division
The external division requires that
- the right to be divided is subject to pension rights adjustment,
- the pension provider opts for external division or the entitled spouse applies for transfer to another pension provider,
- no internal division is mandated by law or contract,
- transfer of the adjustment amount is feasible.
Certain pension providers are legally required to carry out external division if the specifics of their pension system make internal division inappropriate or unfeasible. Typical cases include occupational pensions or rights from life insurance policies.
Process and Implementation of External Division
The process of external division comprises several procedural steps:
Determination of the Adjustment Value
The first step involves calculating the adjustment value, which corresponds to the value that the entitlement acquired during the marriage has at the valuation date. This assessment is carried out in accordance with the provisions of the Pension Rights Adjustment Act and the relevant actuarial principles applicable to the particular right.
Modalities of Transfer
The pension provider of the liable spouse pays the determined adjustment amount into a new or existing retirement pension contract of the entitled spouse. Certain requirements must be met by the receiving pension provider and the type of pension contract. The pension provider may specify which pension contracts are accepted.
Design Options
The entitled spouse has flexibility in choosing the new pension provider, provided that this provider meets the statutory requirements. The actual execution and investment of the transferred capital is then the responsibility of the new provider.
Protective Mechanisms and Pension Rights Adjustment Account
The capital transferred from the pension rights adjustment is converted into a new, independent pension entitlement. Legal protections against premature disposal and garnishment of the pension capital persist, to the extent provided by law.
Legal Particularities and Problem Areas
Valuation and Equivalence
Since the externally transferred entitlements cannot always be integrated into existing pension systems at the same value, the issue of social security equivalence arises. The aim is to carry out the pension adjustment so that the entitled spouse neither suffers disproportionate losses nor obtains unjustified advantages.
tax-related aspects
The transfer value in the context of external division is tax-neutral, provided that the transferred capital is used for retirement provision as defined by Section 10a EStG or Section 3 no. 55 EStG. Subsequent payments from the new pension contract are subject to deferred taxation according to the respective tax regulations.
Pension Providers and the Obligation to Accept Transfers
Not every pension provider is obliged to accept transfers within the scope of the pension rights adjustment. Certain conditions and restrictions may apply, particularly with private insurance companies and professional pension institutions.
Exclusion Options
In certain cases, pension rights adjustment may be excluded or modified, for example by marriage contract or court decision. External division is generally mandatory if the legal requirements are met and no exclusion has been agreed.
Practical Significance of External Division
External division has gained particular importance in occupational pensions and in cases of private, funded life or annuity insurance. It enables a clear separation of the former spouses’ pension entitlements, prevents dependencies, and ensures transparency in the pension rights adjustment procedure.
Case Law and Legal Development
The courts have clarified various aspects of external division in the past, in particular questions of valuation, effective protection of the entitled spouse, and requirements for transferability and equivalence of pension entitlements. Scholarly literature continues to develop the legal issues associated with external division.
Summary
Die external division is an important instrument of German pension rights adjustment law that allows the transfer of pension entitlements to a new pension provider in the event of divorce. The statutory provisions offer a comprehensive framework for the assessment, implementation, and safeguarding of externalized pension rights. External division creates independent, autonomous retirement claims for divorced spouses and thus represents a significant cornerstone for financial independence after marriage.
Frequently Asked Questions
What are the relevant legal foundations for external division?
External division is primarily regulated in the Company Pension Act (BetrAVG) and the Pension Rights Adjustment Act (VersAusglG). Sections 14 and 17 BetrAVG govern the structure and implementation of external division for occupational pensions. According to these provisions, pension entitlements can be divided within the pension rights adjustment so that the entitled spouse receives their own claim to pension benefits against an external provider. The family court makes the decision regarding external division in close coordination with the pension providers and taking into account specific provisions, such as minimum amounts, the provider’s choice right, and the protection of pension expectancies. The German Civil Code (BGB) contains supplementary provisions, for example on procedural issues in the context of pension rights adjustment on divorce.
What role does the provider’s right of choice play in external division?
According to Section 17 BetrAVG, the pension provider has the right to choose whether it permits internal or external division within the scope of pension rights adjustment. It is required to inform the family court at the beginning of the proceedings which form of division it prefers. This decision is generally binding for the court, unless there are special circumstances justifying a different ruling. The right of choice is intended to allow the provider to keep the administrative and financial burdens of a division within manageable limits. In making this decision, insurance law and regulatory requirements must also be considered.
What rights and entitlements does the entitled spouse have in the case of external division?
Through external division, the entitled spouse receives their own claim to pension benefits from the external provider they chose or was assigned by the family court. The pension capital is transferred from the original provider to the external provider, who then establishes a separate entitlement in favor of the entitled party. The claim is calculated based on the values determined in the pension rights adjustment. All rights regarding the commencement of pension, modalities of payment, and adjustments are subject to the new provider and its statutes. Claims to profit participation and the consideration of biometric risks (disability, death) are generally governed by the law and terms of the external provider.
What deadlines must be observed in external division?
Deadlines within external division are set both by the court and by the rules of the involved pension providers. Once the family court’s decision on external division has become final, the affected pension providers generally have a fixed period—typically between one and three months—to transfer the capital amount and establish the new entitlement for the beneficiary. The precise deadline usually begins with the delivery of the final court order to the providers. If providers fail to fulfill their obligations or delays occur, the law provides for enforcement and compensation options. Additionally, the beneficiary must designate an external provider within certain periods, otherwise the court or the original provider will select one.
What are the tax implications of external division?
External division generally leads to what is known as deferred taxation of pension benefits, i.e.: the entitled spouse must pay tax on future pension payments as income from employment or annuities, depending on the pension arrangement. Transfer of the capital value to the external provider is generally tax-neutral, provided certain conditions—particularly its use for tax-favored retirement—are met. Deviations or additional tax liabilities may arise if the beneficiary does not use the capital payment, or only partially, for retirement purposes. Any applicable tax allowances or special rules must also be considered for the various forms of occupational pension provision (such as direct insurance, pension funds).
What special rules apply to external division for different types of occupational pension provision?
External division can affect all five forms of occupational pension provision: direct promise, support fund, pension fund, direct insurance, and pension plan. Depending on the type of provision, different legal restrictions and options apply. It is particularly important for direct promises and support funds that the new external provider is generally required to be a product of the second pillar (occupational or Rürup pension). For pension funds, direct insurance, and pension plans, a change of provider is often implemented in practice, which must conform to certain regulatory and tax requirements. The transfer of capital to a new provider is subject to certification requirements and review for compliance with minimum benefits. The granting of options, such as the beneficiary’s right to choose the provider, is regularly part of the procedure.
What risks and liability issues arise for employers or pension providers with external division?
With external division, all further claims of the entitled party against the original employer or pension provider generally cease after the capital is transferred. There is therefore no subsequent liability for later pension payments, adjustments, or potential funding shortfalls. However, the providers remain liable for due and complete transfer of the capital. Faulty calculations, delayed transfers, or breaches of legal requirements can result in compensation claims. Employers and providers are also obliged to inform the beneficiary about all relevant points and assist in selecting the external provider. Compliance with regulatory obligations—especially under the Insurance Supervision Act (VAG)—remains unaffected.
