Apart from the emotional consequences and hardship, divorce can result in a 50% loss of assets.
Divorce: What impact will it have on my assets, and what are the solutions?
Apart from the emotional consequences and hardship, divorce can result in a 50% loss of assets.
Assess your situation and plan your future projects.
Take the time to address all the essential questions that need answering, such as the consequences of your matrimonial property regime, the timing of the separation, legal fees, taxation, savings, future income, retirement, housing, children's needs, and estate planning. Each question helps you better understand the different aspects of your new life.
What measures should be taken?
There are several points to consider getting through this period as smoothly as possible.
1. Draw up a budget.
A separation will have consequences for the expenses and income of both spouses. So, it's vital to take the time to assess the financial impact of expenses that will no longer be the same, such as new rent, alimony, or changes in tax charges, and to estimate how much income will be available to meet them.
2. Measuring the impact on personal assets and pensions
Depending on the matrimonial property regime, the division may prove complex and significantly reduce assets for one of the spouses. Under the standard participation regime, the two spouses will share all the income-generating assets. In contrast, there will be no division under the separation of property regime, as each spouse's assets remain entirely separate. However, the matrimonial property regime does not impact the second pillar: the savings accumulated during the marriage will be divided equally in all cases. However, the resulting shortfall can then be repurchased and become a tool for tax optimisation.
3. Manage your mortgages.
In Switzerland, many people retain long-term mortgages and make few repayments, making loan restructuring difficult, especially if you are approaching retirement age. It is only sometimes possible for one of the spouses to take over the loan, as their income will be lower. It is essential to consult an independent expert to examine the options for restructuring your mortgage. By thinking ahead, you can draw up a new financial plan independently of your former partner, thus avoiding tense discussions and prolonged financial worries.
4. Re-evaluate your retirement plan.
After a divorce, it is crucial to review your retirement planning, particularly about the distribution of your 2nd pillar. Strategic choices can be made based on your desire to move abroad, purchase opportunities or optimise your tax burden. If you split your LPP/BVG capital, you can buy back the "lost" amount and deduct it for tax purposes.
Pensions - How will your 3 pillars be divided after a divorce?
Your pension provision is the element most affected by a divorce. Even if you opt for contractual matrimonial property regimes (separation of property or community of property), this will not impact the distribution of your pension provision in the event of divorce.
By planning your financial future at retirement, you can assess your future income and expenditure, manage your capital, optimise your tax situation, plan savings measures and, above all, reduce the impact of divorce on your financial situation at retirement.
1st pillar
Generally, divorce does not significantly impact the 1st pillar (AVS). Only people with combined annual incomes of less than CHF 85,500, who have a significant salary disparity with their ex-spouse and have been married for a considerable period, will be affected under this pillar.
For couples with an annual income of over CHF 170,640, their 1st pillar will not be affected by a divorce. They may even benefit financially! Unlike married couples, they will no longer be limited to 150% of the single pension. For those with a lower income, all the couple's income will be divided equally, except for the first and last years of marriage. This ensures that those who have devoted time to raising children, maintaining the household, or engaging in unpaid personal activities are not disadvantaged.
2nd pillar
Unlike the 1st pillar, the 2nd pillar is a personal savings scheme to which you and your employer contribute. In divorce, the person saved the most will see part of their pension assets allocated to their ex-spouse.
The rule states that the savings accumulated between the two spouses from the first day of the marriage until the initiation of divorce proceedings must be divided fairly. However, the 2017 revision introduced a few exceptions, particularly for those already receiving pension benefits in the event of disability or retirement.
It's important to stress that only some are equal regarding the 2nd pillar. Even with equivalent salaries, different pension funds offer other plans. The amounts saved in this investment scheme are, therefore, strongly influenced by the structure of the pension fund chosen by your employer. Moreover, each pension fund has terms and conditions, such as the interest charged on pension assets, risk cover and the conversion rate to be applied.
3rd pillar
Unlike the 2nd pillar, the employer does not contribute to this pension scheme. It's a private pension scheme. You are the only contributor.
The rules applicable to the 3rd pillar in the event of divorce are similar to those for the 2nd.
Do you need advice and support to help you through this critical stage in your life? Just get in touch!
We can help you through this challenging stage to
- Conserving your property
- Don't damage your pension.
- Maintaining your lifestyle
- Optimising your tax position
- Regain your financial independence.