Are payments to avoid pension rights adjustments deductible?

Since 01.09.2009, as part of the pension rights adjustment in a divorce, all entitlements from the various pension systems are shared equally. The division usually takes place within the respective pension system ("internal division") or, exceptionally, with another pension provider ("external division"). These processes are tax-free for both spouses (§ 3 No. 55a and 55b EStG).

Debt-based pension rights adjustment

In the so-called debt-based pension rights adjustment, the spouse entitled to the adjustment receives a payment after the spouse obliged to make the adjustment has received the full pension benefits.

• The spouse obliged to make the adjustment can deduct these payments as special expenses (§ 10 para. 1a No. 4 EStG), provided the underlying income is taxable.
• The spouse entitled to the adjustment must declare the payments received as "other income" (§ 22 No. 1a EStG). The correspondence principle applies: taxation occurs to the extent that a deduction for special expenses is possible for the other partner.
• An allowance for income-related expenses of 102 Euro is taken into account.

Compensation payments to avoid pension rights adjustment

It is often stipulated in marriage contracts or divorce agreements that the pension rights adjustment is waived – instead, a settlement is made (e.g. cash payment, life insurance). Until 2015, such private compensation payments were not tax-deductible. The recipient also did not have to pay tax on them (see BMF letter dated 09.04.2010, BFH ruling dated 15.06.2010).

New regulation since 2015

Since 2015, such payments have been treated for tax purposes like a debt-based pension rights adjustment (§ 10 para. 1a No. 3, § 22 No. 1a EStG):

• The payer can deduct the payments as special expenses if an application is made and the receiving person agrees.
• The receiving person declares the payments as "other income".
• The amount of the tax-deductible amount and the taxable income must correspond.
• Subsequent claims in later years are excluded.

Independence from the pension system

This tax regulation applies regardless of whether it is a civil service, company, private or other pension. In future, the deduction will only be possible as a special expense. A previously possible deduction for income-related expenses – for example, for civil servants – is no longer applicable.