Pension savings in divorce

Division of the pension savings in the event of divorce

In 2015, the “Law for Division of Pension Savings Between Separated Spouses” came into effect. The law provides that the pension savings can be divided equally between the two parties immediately after the divorce is certified in court.

The law specifies that money accrued in new pension funds, provident funds, senior employee insurance policies having a separation between the insurance and the savings components – will immediately be equally divided between the spouses. Compensation money under a compensation continuity and/or pension continuity arrangement will also be divided. Compensation money of a current employer will be divided on the date of the work’s end and of the release of the money by the employer. The new law also adds a new point regarding the entitlement to division of a survivors’ pension in old pension funds.

Does the law also apply to spouses who divorced prior to the law’s amendment?

Spouses who have a divorce judgment predating February 6, 2015 may apply to the Family Court that issued the judgment and file a motion to adjust the original judgment to meet the new law’s requirements.

Why is it important that you be familiar with the pension savings division law?

Because many spouses are unaware of the option even existing, and at the same time you should remember that there is no obligation to follow the provision of that law and that an agreement between the spouses can also prescribe a division other than equally in a manner more expedient to both parties for taxation considerations.

Also, some savings cannot be divided immediately. Money accrued in an old pension fund, in a budgetary pension arrangement or in old insurance policies that do not have a separation between the insurance and the savings components, such as policies of the “Pension” and “Mixed” types, cannot be divided immediately and the division will be made only upon the realization of the pension or the money’s realization.

Familiarity with the law allows for proper and optimal tax planning for both parties before the divorce agreement is signed.

Why do you even need to go through this process rather than just split the money?

Because there are so many elements and factors you have to be familiar with, bureaucratic procedures and taxation regulations.

Spouses, even if they have a good understanding of the financial sphere, cannot possibly possess all the knowledge and tools required for optimal utilization of the law. The pension information and data are constantly updating, there are tax reforms, updates to laws, changes to retirement age, bureaucratic procedures, market fluctuations and a lot of other factors which all affect the division of pension savings.

The responsibility to divide the pension savings is of the pension entity. Since your financial future is at stake and the matter concerns complex taxation aspects, the decision cannot be left to them. Many pension entities do not have enough experience in dealing with the pension savings’ division, and as a result the savings are often divided inaccurately and improperly, leading to loss of money on taxes which could have been reduced.

Before you decide to follow the law’s provision, you should consider whether it would be at all expedient for both parties to apply it. At Kali, we will create an expediency test consisting of a weighting of the pension accrual period and the shared life period and will calculate a certain percentage constituting the former spouse’s portion of the pension rights. This way, we will achieve a proper, optimal and accurate division to fit your specific situation. 

In certain cases, it would be inexpedient to divide the money equally, both for tax considerations and for other considerations, and there are more economically expedient alternatives.

What else do you need to understand?

The pension fund, provident fund or insurance company receives the divorce agreement after the agreement has been certified by the court, opens a new account under the name of one of the parties and transfers all the amounts from the saving party’s accrued balance into that account.

The transfer of the money into a new account under the name of the former spouse is considered a tax event, and therefore before transferring the money one must produce a certificate from the tax authorities indicating the amount of tax payable. As a rule, in a money transfer to a former spouse by a person whose accrued balance in all pension savings under his or her name is lower than 1,500,000 shekels (the amount is updated annually) – the entire transferred amount is exempt from tax.

If the accrued balance is higher than 1,500,00 – a tax of 21% will be levied on the difference between the accrued balance and the limit. If the former spouse chooses to redeem the money rather than keep it in pension savings – the amount will be taxed according to the marginal tax rate of the party from whose account the money is transferred to the other party.

Kali’s team of experts will meet with you and together we’ll build a responsible, balanced and clear pension savings plan which maximizes the situation to the benefit of both parties and bolsters your financial future even in a less-than-pleasant situation like divorce.