Spouse compensation due to difference in spouses' pension savings

Date 31 jan. 2012

 

On 22 December 2011, the Eastern High Court decided in a case regarding a claim for solidarity compensation and reasonableness compensation in connection with extraction of pension schemes on a spouse administration. The High Court found that the wife was entitled to reasonableness compensation due to a significant difference in the spouses’ pension schemes.

 

The case in brief

In consideration of the family, the wife went on part-time at work when the couple had children. When the children had grown a bit older, the husband suggested that the wife resume a full-time job, but the wife rejected this notion and stayed in a part-time job. In 2010, the wife went back to a full-time job and in this connection, she established an employer paid pension scheme.


After 28 years of marriage, the parties decided to divorce. At this time, the husband had an official pension scheme which, converted into free capital with pension payments from the 65th year with an accrual of interest of 3 pct. and after deduction of 37.5 pct. of income tax, had a value of DKK 1,247,292. Further, the husband had a supplementary pension scheme which on 31 December 2010 had a value of DKK 186,545. The wife had made contribution for a total of DKK 156,002.


In connection with the divorce, the wife had claimed that she was eligible to receive solidarity compensation and reasonableness compensation due to the significant difference in the value of their pension rights.

 

The legal basis

Due to the Danish Legal Effects of Marriage Act, the default in connection with a spouse administration on account of separation or divorce is that each spouse extracts its own reasonable pension rights in advance of the joint estate. As a consequence hereof, such pension rights are not divided between the spouses.


Usual labour market pension schemes, private pension schemes when the spouse is not covered by a pension scheme in connection with employment and pension schemes for self-employed, which are reasonable considering the condition of the business, are normally considered as reasonable pension rights.


Regardless of the above, a spouse can be imposed to pay an amount to the other spouse, if, during the marriage, the last-named spouse has contributed less to a pension scheme than what is considered a reasonable pension scheme for the spouse in question, provided that the situation is the consequence of this spouse wholly or partly having been out of the labour market, been on leave or worked part-time in consideration of the family or the other spouse. This is called “solidarity compensation”. Circumstances which can give reasons for solidarity compensation may be maternity leave, childcare leave, homework or a part-time job for the reason of being able to take care of the children.


Furthermore, a spouse can be imposed to pay an amount to the other spouse to make sure that the last-named spouse is not in an unfair position pension-wise, provided that the marriage has been of considerable length and that there is a considerable difference in the spouses’ pension rights. In the decision hereof, the length of the marriage, the wealth conditions of the spouses and the circumstances in general are taken into consideration. This is called “reasonableness compensation”.


It follows from the commentary to the Danish Act on the Legal Effects of Marriage that reasonableness compensation should not be awarded to a spouse if the spouse in question receives a considerable payment from the other spouse in connection with the division of the joint estate.

 

The decision of the High Court

Regarding the question of whether or not the wife is entitled to solidarity compensation, the High Court found that the wife’s pension scheme was smaller than what could be considered reasonable. However, it followed from the circumstances of the cases that it had been the wife’s sole decision to keep her part-time job even after the children had reached a certain age. As a consequence hereof, the High Court decided that the consideration of the family had not been the reason for the lack of pension savings. On this basis, the High Court denied to award the wife solidarity compensation.


Regarding the question of whether or not the wife was entitled to reasonableness compensation, the High Court found that the difference between the values of the parties’ pension rights was of such an order that the wife, taking the length of the marriage and the age of the parties into consideration, should be awarded reasonableness compensation. The compensation was determined at DKK 200,000. In assessing the size of the compensation, emphasis was put on the fact that the wife had received DKK 399,781 from the joint estate.

 

Consequences of the decision

This decision is the first regarding solidarity compensation and reasonableness compensation in connection with extraction of pension rights in connection with a divorce.


The decision illustrates that claims of compensation can be relevant notwithstanding that a spouse’s pension scheme is a regular official pension scheme and not of an unusual size, if, moreover, the circumstances result in a difference in the parties’ pension savings.


By way of a prenuptial agreement, the spouses may agree that a pension right shall be separate property. This way, the owner of the pension can avoid any discussion regarding whether the pension scheme is reasonable or not. The spouse who has the smallest, or who does not have any, pension scheme will in such cases only be able to claim compensation in accordance with section 56 of the Marriage Act (the so-called unreasonably poor rule).


A prenuptial agreement may also include an agreement to comprise the value of a capital pension scheme or a personal pension payable in instalments in the division of the joint estate within administration in connection with separation, divorce or division of the joint estate of spouses.


We recommend that spouses with unequal pension terms actively consider what is to happen with the parties’ pensions schemes in the event of divorce. This way, the spouses have the possibility of scheduling their pension relations and beforehand achieve clarity regarding how the pensions will be handled in case of a spouse administration.

 

 

If you have any questions or require additional information on the division of pension schemes in case of spouse administration or asset rights by spouse administration in general, please contact partner, Partner Thomas Weitemeyer (twe@mwblaw.dk) or Attorney Pernille Nørkær (pno@mwblaw.dk).


The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.