What are compensatory payments?
Compensation payments as part of the pension rights adjustment may be deductible as special expenses.
The amount of the actual payments made must be stated here. If you are claiming such special expenses for the first time, please attach a copy of the contract/pension agreement.
Since 2015, not only "payments as part of the pension rights adjustment" are deductible as special expenses, but also "payments to avoid the pension rights adjustment" (§ 10 para. 1a no. 3 and 4 and § 22 no. 1a EStG):
- The person obliged to make the adjustment can deduct their payments as special expenses. This requires an application from 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 compensation 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. The payments can only be deducted as special expenses. Previously, such compensation payments by civil servants to avoid a reduction in their pension entitlements could be deducted as income-related expenses.
Please use "Form U" for the application and consent. It must be signed by you and the recipient of the compensation payments. A prerequisite for the deduction as special expenses is that you enclose Form U.
What are compensatory payments?
What is pension rights adjustment?
In simple terms, pension rights adjustment means that in the event of a divorce, all pension entitlements acquired during the marriage are shared equally between the former spouses.
In essence, the partner who has acquired the larger entitlements must give half of the difference to the other partner.
This regulation applies to the following pensions:
- State pension
- Civil service pension
- Occupational pension schemes
- Company pension schemes
- Private pension and/or disability insurance
A man had state pension entitlements of 200 Euro before the marriage. During the marriage, these grew to 500 Euro. He also made private provisions during this time, acquiring further entitlements of 200 Euro. The woman already had state pension entitlements of 150 Euro before the marriage. During the marriage, these increased to 300 Euro. She also has company pension provisions, with entitlements of 200 Euro acquired during the marriage.
The man must pay his former wife 150 Euro from the state pension (500 – 200 = 300 : 2 = 150) and 100 Euro from the private pension through the pension rights adjustment. He receives 75 Euro from his ex-wife's state pension (300 – 150 = 150 : 2 = 75) and another 100 Euro from the company pension.
During the marriage, the man acquired entitlements of 175 Euro, while his wife acquired over 250 Euro. He must therefore balance the difference of 75 Euro.
What is pension rights adjustment?
How are pension adjustment payments taken into account?
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." Each entitlement is primarily divided within the respective pension scheme (internal division) or, in exceptional cases, of equal value with another insurance provider for the beneficiary (external division). 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 adjustment under civil law: 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 made under the pension adjustment as special expenses (according to § 10 para. 1a No. 4 EStG 2015) to the extent that the income on which the adjustment payments are based is taxable 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 EUR is to be deducted.
It is often stipulated in a marriage contract or a notarial agreement that in the event of divorce, the pension adjustment should be excluded and instead the wife receives a compensation payment, e.g. a sum of money, a severance payment, a life insurance policy, etc. Such compensation payments are often only agreed upon during the divorce proceedings to settle pension claims.
Under the previous legal situation, private payments to exclude the pension 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 payment received as "other income".
Since 2015, payments to avoid the pension adjustment - similar to the pension 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).
How are pension adjustment payments taken into account?
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).
Are payments to avoid pension rights adjustments deductible from 2015 onwards?
