Pension equalization or conversion?

Questioner

Before our divorce we contacted a mediator. The intention is that I take over the house and my ex buys out part of the equity with the alimony. But there is still a considerable amount left, which means I have to take out a higher mortgage. I could reduce this with the pension. During our marriage he built up quite a bit. He would like to equalize it, so that if I die earlier he keeps his full pension, but if he dies earlier I get nothing, I read now. So it seems better to me to really divide it so that I get my share now and can put that into the mortgage. But what is smart from a legal/tax point of view?

Lawyer

Conversion of pension rights compared to equalisation can have several advantages. Firstly, conversion offers more flexibility. With equalisation, the ex-partner receives a portion of the participant’s pension during the retirement period. This means that the ex-partner has no control over the pension amount he or she receives and is dependent on the participant’s life expectancy. With conversion, the ex-partner can manage the pension amount themselves and it can be converted into their own pension scheme, so that they are no longer dependent on the participant. Secondly, conversion can lead to a higher pension amount for both parties. In the case of equalisation, the pension amount is divided between the participant and the ex-partner, which can lead to a lower amount for both parties. In the case of conversion, the participant's pension amount can be divided between two separate pension schemes, which allows both parties to receive a higher amount than in the case of equalisation. Thirdly, conversion can lead to tax advantages. In the event of equalisation, the pension amount is taxed with the ex-partner, while conversion can lead to tax advantages for both parties. It is important to note that conversion is not always the best option. It depends on the specific circumstances of the parties involved, including the age difference and life expectancy of each.

Questioner

Thank you for your clear answer. Then another additional question, I read that I could also buy it off regarding the buyout equity of my ex? Then that would save a considerable amount in my future mortgage. Or do I pay a lot of tax on that buyout amount?

Lawyer

Yes, that is possible. Buying out is generally highly discouraged and can be taxed because you are bringing forward a piece of future income. You are also exchanging unequal things for each other. A pension payment can possibly last 30 years, which you then cancel out with a lump sum.