Dutch law requires spouses to share their pensions when getting a divorce. This post tackles some frequently asked questions about sharing foreign pensions in The Netherlands.
So what do we share exactly?
Any type of old age pension that has been built up from the time of marriage until the date of the divorce must be shared equally between the spouses. This is also known as pension equalisation. The basics of pension equalisation for Dutch pension schemes are explained on our pensions page.
Pension built up before and after the marriage remains the private property of the spouse that owns the pension and is not shared or divided upon divorce. For example, Mary and Barry were married for 10 years. Mary worked as a teacher and has built up 15 years worth of pension rights. Barry only became eligible for a pension scheme 8 years ago. All of Barry’s pension will be shared, while only 10 years of Mary’s pension will be shared. The previous 5 years of Mary’s pension before the marriage are not shared.
Does this apply to any type of pension?
Dutch law has a very broad definition of old age pensions. The law not only applies to traditional pension funds, but also to military pensions, pension reserves in companies, pension agreements with an employer etc.
The law does not usually apply to private life insurance or endowment policies, even if they have been designated as retirement policies. If there is a community of property, then these policies will be divided as part of the marital property.
When do we have to share foreign pensions?
If Dutch law is applicable to the marital property, then the law also applies to all foreign pensions. Dutch law will usually apply to couples that live in The Netherlands at the time of their marriage, unless they have a different joint nationality or have concluded a prenuptial agreement electing another regime.
The Dutch Pension Equalisation Act (Wet pensioenverevening bij scheiding ‘Wvps’ ) declares Dutch law applicable to foreign pension schemes. The purpose of the Wvps is to ensure that foreign pension schemes that are equivalent to a Dutch pension scheme are treated equally. This raises the question what characteristics a foreign pension scheme must have in order to be regarded as ‘equivalent’.
The Dutch supreme court has ruled that the foreign scheme must fulfil a function in the context of social life in the country concerned that corresponds sufficiently with the function of Dutch pension schemes, namely a provision for retirement (‘oudedagsvoorziening‘ ). The same ruling declares American 401K schemes and IRA’s (individual retirement accounts) to be pension as defined in the Wvps. These US pension facilities must therefore be shared, but only if Dutch law is applicable to the spouses marital property. If this is not the case, then the Wvps is only applicable to Dutch pensions.
How do we share foreign pension schemes in practice?
That is a good question. Pension equalisation is not recognised in most other jurisdictions. There is no way to force pension funds to pay directly to the other spouse. The Wvps therefore states that the other spouse has a direct claim on the spouse receiving pension from the date they start receiving payment.
Sharing foreign pensions at a later date can be difficult in practice. It may be years before a pension commences and the ex-spouses may have long lost track of each other. As foreign pension funds are not obliged to cooperate or even provide information, this could mean that the pension claim cannot be effected. There are benefits to either transferring pension to the other spouse directly or buying off the foreign pension claim. However, both spouses must agree to an alternative to pension sharing.
Does pension sharing also apply to a state pension?
State old-age pensions are exempt from pension sharing. The pension is personal to the receiving party. In The Netherlands, this applies to the ‘AOW‘. There is also case law pointing to an exemption for foreign state pensions spouses may be entitled to. For example, a Dutch court ruled that a Belgian ‘rustpensioen‘ had the hallmarks of a state pension and therefore was exempt from equalisation. Some foreign pensions may have elements of both a state pension and of a private pension. Both the state and employer or employee may contribute to a pension scheme. It will be up to the courts to interpret whether the pension is exempt or not.
If you have any questions about sharing foreign pensions, please contact us. We regularly advise clients regarding foreign pensions and the implications of Dutch law.