Are payments to avoid pension rights adjustments deductible from 2015 onwards?

Under the new divorce law from 1 September 2009, entitlements from all pension schemes are divided at the time of divorce. "Everyone gets half of everything." Primarily, each entitlement is divided within the respective pension scheme (internal division) or, in exceptional cases, of equal value with another insurance provider for the beneficiary (external division). In both cases, the payments are tax-free for both the person obliged to make the adjustment and the beneficiary (§ 3 No. 55a and No. 55b EStG).

There is also the pension rights adjustment under civil law: In this case, the person obliged to make the adjustment receives the income in full but is obliged to pass a portion of it to the beneficiary.

• The person obliged to make the adjustment can deduct the payments under the pension rights adjustment as special expenses (according to § 10 para. 1a No. 4 EStG 2015) to the extent that the income underlying the adjustment payments is subject to taxation for them. If the underlying income is tax-free, a deduction as special expenses is not possible.

• The beneficiary must tax the received adjustment payments as "other income" (according to § 22 No. 1a EStG 2015), insofar as they can be deducted as special expenses by the person obliged to make the adjustment. The strict correspondence principle applies here. However, it does not matter whether they actually had a tax effect for the person obliged to make the adjustment. When calculating the income, an allowance for income-related expenses of 102 Euro is to be deducted.

It is often stipulated in a marriage contract or a notarial agreement that in the event of divorce, the pension rights adjustment should be excluded and that the wife receives a compensation payment, e.g. a sum of money, a severance payment, a life insurance policy, etc. (§ 1408 para. 2 BGB). Such compensation payments are often only agreed upon during the divorce proceedings to settle pension claims (§ 6 para. 1 No. 2 VersAusglG).

Under the previous legal situation, private payments to exclude the pension rights adjustment could not be deducted as special expenses by the spouse obliged to make the adjustment. In return, the spouse entitled to the adjustment did not have to tax the received payment as "other income" (BMF letter of 9 April 2010, BStBl. 2010 I p. 323, para. 19; BFH judgment of 15 June 2010, X R 23/08).

Since 2015, payments to avoid the pension rights adjustment – similar to the pension rights adjustment under civil law – can also be deducted as special expenses by the person obliged to make the payment, while the beneficiary must tax the income as other income (§ 10 para. 1a No. 3 and § 22 No. 1a EStG 2015).
In future, the person obliged to make the adjustment can deduct their payments as special expenses. This requires an application by the person obliged to make the adjustment and the consent of the beneficiary. This allows both parties to specify exactly to what extent a tax deduction and the corresponding taxation should take place. The part of the adjustment payments that is not claimed for tax purposes in the year of payment cannot be deducted in a later year.

The adjustment option exists independently of whether it concerns a civil service, public law, private, subsidised or company pension scheme. In future, the payments can only be deducted as special expenses. Previously, such adjustment payments by civil servants to avoid a reduction in their pension benefits could be deducted as income-related expenses (e.g. BFH judgment of 8 March 2006, BStBl. 2006 II p. 446 and 448).