Pension and Divorce — Division of Pension Rights Through Legal Proceedings | Attorney Rozil Amir

What is a Pension in the Context of Divorce and Asset Division?

A pension is an economic right that accumulates during years of employment and marriage. In Israel, pension rights are considered joint assets when they were accumulated during the marriage period, and therefore are subject to division in the divorce process like any other joint asset.

Unlike the division of a house or vehicle, a pension is a complex and abstract asset. It includes various components: a pension fund managed by a provident fund, employer insurance (managers insurance), private supplementary insurance, and savings in investment portfolios. Each of these components may have a different value, different terms, and a different division process.

Why is Pension Division in Divorce Important?

The division of pension rights directly affects the financial security of both spouses after divorce. A pension is often the largest asset of a family, and sometimes even greater in value than the home. An error in valuation, calculation, or enforcement of rights may lead to significant financial losses that cannot be remedied retroactively.

Furthermore, pension division involves complex technical and legal issues: Are both spouses entitled to equal division? What is the sum to be divided? Is there a difference between a pension accumulated before marriage and one accumulated after? Each of these questions requires careful legal analysis.

What are the Pension Components Divided in Divorce?

To understand pension division, it is essential to be familiar with the various components:

• Pension Fund (Provident Fund): This is an investment fund managed by a pension company. The employee and employer participate in monthly contributions. The fund invests the funds in various investment portfolios. In divorce, each spouse's share in this fund is considered a joint asset to be divided.
• Employer Insurance (Managers Insurance): This is insurance that an employer pays for on behalf of an employee. It contains insurance expenses and savings. In divorce, valuation of the insurance requires examination of the specific terms and current value.
• Private Supplementary Insurance: Insurance that the employee purchased themselves, often in addition to employer insurance. This can have significant value and must be valued separately.
• Investment Portfolios and Savings: Some employees hold additional investment portfolios that are not part of the official fund, but are pension savings of a similar nature.

Each of these components may have a different legal status in the divorce process, and their division may vary accordingly.

Definition of Pension Rights — What Share is Divided in Divorce?

Under Israeli law, pension rights accumulated during the marriage are considered joint assets of the spouses. However, this division is not always exactly 50-50, nor are all pension rights divided in the same manner.

Division According to Time Periods

Pension rights are divided according to the period in which they were accumulated:

• Rights accumulated before marriage: These are considered the personal property of the spouse who accumulated them and are not divided in divorce (unless otherwise agreed).
• Rights accumulated during marriage: These are divided as joint assets, usually equally or fairly according to circumstances.
• Rights accumulated after the start of divorce proceedings: This is a more complex issue. Generally, rights accumulated after a divorce petition is filed with the court are excluded from division, but the court has discretion according to circumstances.

Considerations of Justice and Unequal Division

While equal division of pension rights is the norm, the court may order a different division if it finds this to be more just in the specific circumstances of the case. Factors that may affect the division include:

• Economic and social contribution of each spouse to the marriage.
• Childcare and household management.
• Career interruptions by one spouse.
• Valuation of other assets that were divided.
• Prior agreements between the spouses.

For this reason, it is important to consult with an experienced attorney who can assess the specific circumstances of your case and argue for a fair division.

Valuation of Pension Rights — A Critical Step

Before pension rights can be divided, their value must be assessed accurately. This assessment includes:

• Review of every pension account: Obtaining comprehensive reports from each pension fund and insurance company, indicating the current value of each account.
• Calculation of accumulated rights: Separation between rights accumulated before marriage (if any) and those accumulated during marriage.
• Evaluation of insurance conditions: How much of the value of management insurance is insurance (which is not divided in divorce) and how much is savings (which is divided).
• Review of legal provisions: Whether there are provisions in case law or judicial precedent that affect this valuation.

Errors in valuation can lead to significant losses. Therefore, it is essential to work with a qualified expert (asset appraiser or pension consultant) in coordination with your attorney.

Pension Division in Divorce — Steps and Documentation

Pension division in divorce is a process that unfolds over several months and requires coordination between spouses, pension funds, and also the court (in certain cases). Here is the standard process:

Step 1: Document Collection and Valuation Determination

The first step is to collect comprehensive documents from each pension fund and insurance provider. Typically, we send a formal request to the funds to obtain updated reports that specify:

• The current value of the account.
• The amount of investments and holdings in the portfolio.
• A description of insurance conditions (if relevant).
• Information on rights accrued before marriage (if any).

After collecting the documents, we request an expert valuation (if necessary) of management insurance and other insurances to determine the precise value of each component.

Step 2: Calculation of Rights Accrued During Marriage

After receiving the reports, we calculate the rights accrued solely during the marriage. This requires:

• Establishing the date of marriage commencement and termination date (typically, the date of divorce petition filing or the date of actual separation).
• Calculating the monthly contributions of each spouse to the pension (from their salary).
• Evaluating the value of assets at the beginning of the marriage and their value at the end, to determine the increase.

This calculation can be particularly complex when there are variable investments or when part of the rights were accrued before the marriage.

Step 3: Negotiation Between Spouses

Once the values are clear, we conduct negotiations between the spouses (or between their respective attorneys). During the negotiations, we present arguments for a fair division of rights while remaining open to reasonable settlements.

In many cases, spouses reach an agreement at this stage, which saves time and money compared to a full court procedure.

Step 4: Submission for Court Approval (or Full Legal Proceeding)

When a division is agreed upon, we prepare settlement documents that detail the terms of the division and submit them for court approval. Typically, the court will approve reasonable agreements without a full court proceeding.

If no agreement is reached, we file a petition with the court and argue for a fair division in accordance with the law and case law.

Step 5: Execution of the Division

After receiving a court judgment or agreement approval, we assist in executing the division. This includes:

• Filing documents with pension funds to execute the transfer.
• Updating rights in the pension accounts of each spouse.
• Obtaining confirmation from the pension funds that the division was successfully executed.

In some cases, the division is executed through a direct transfer of funds between accounts. In other cases, it may be necessary to reinvest the funds in a new pension account in the name of the receiving spouse.

Required Documentation

Throughout the entire process, accurate documentation is essential. The documents typically required include:

• Updated reports from pension funds.
• Confirmation of marriage and separation dates.
• Expert valuations (if necessary).
• Written agreements between spouses (if applicable).
• Court judgments or decisions.

Meticulous management of this documentation ensures that the process proceeds smoothly and without complications later.

Common Mistakes in Pension Division in Divorce — and How to Avoid Them

In our experience with divorce cases, we have seen recurring mistakes that can result in high costs and dissatisfaction. Here are the most common mistakes:

Mistake 1: Failure to Assess the Current Value of the Pension

Often, spouses agree to divide a pension according to the nominal amount (the amount stated in the report) without understanding that the actual value may be different. For example, if a pension fund invests in assets that have increased in value, the actual value may be higher than the amount stated in an older report.

How to Avoid It: Obtain updated reports immediately before division, verify the market value of each investment, and conduct an expert valuation if necessary.

Mistake 2: Failure to Distinguish Between Rights Accrued Before Marriage and Those Accrued During Marriage

Rights accrued before marriage are personal assets and are not subject to division in divorce. However, pension funds do not always distinguish between these two periods in their reports, which can lead to division errors.

How to Avoid It: Carefully review historical reports from the pension fund, establish a clear date for the start of the marriage, and calculate rights separately before and after the marriage.

Mistake 3: Neglecting Management Insurance and Other Securities

Often, spouses focus on the main pension fund and forget to check management insurance, supplementary insurance, and additional investment portfolios. Management insurance, in particular, can have significant value.

How to Avoid It: Conduct a comprehensive review of all pension and insurance portfolios of each spouse, not just the main pension fund. Request detailed reports that specify each insurance and portfolio separately.

Mistake 4: Failure to Consider Tax Implications

Pension division can have tax consequences. For example, in some cases, withdrawal of funds from a pension fund before retirement age may be subject to tax. Additionally, asset valuation for divorce purposes may result in future tax liabilities.

How to Avoid It: Consult with a tax advisor or accountant familiar with divorce tax laws to understand the tax implications of each division scenario.

Mistake 5: Failure to Execute the Division in Accordance with the Court Decision

Often, spouses agree on a division but fail to implement it properly. This can lead to complications later, when one spouse retains rights that were supposed to be transferred to the other spouse.

How to Avoid It: Execute the division under the guidance of an attorney, submit documents to the pension funds, and obtain written confirmation from the funds that the division has been completed.

Mistake 6: Failure to Align Pension Division with Division of Other Assets

Often, spouses divide the house, car, and bank accounts separately from the pension. This can result in an overall unfair division. For example, if one spouse receives the entire house, they should also receive less of the pension to maintain overall fairness.

How to Avoid It: Conduct a comprehensive analysis of all family assets (house, car, pension, savings, etc.), and divide them in a way that ensures overall fairness between the spouses.

Scenario Examples — How Pension is Divided in Divorce

To illustrate the process, here are several examples of typical scenarios:

Example 1: A Couple with a Simple Pension Fund

Danny and Ronit have been married for 20 years. Both work for different companies and are members of different pension funds. At the beginning of their marriage, Danny had 50,000 shekels in his pension fund, and Ronit had 30,000 shekels in hers. After 20 years, Danny has 350,000 shekels in his fund, and Ronit has 280,000 shekels in hers.

The pension division will be made as follows:

• Rights accrued before marriage (50,000 for Danny and 30,000 for Ronit) remain with each of them.
• Rights accrued during the marriage are: (350,000 - 50,000) = 300,000 for Danny, and (280,000 - 30,000) = 250,000 for Ronit, totaling 550,000.
• Equal division of rights accrued during the marriage: Each will receive 275,000 shekels from the shared portion.
• Danny will have in total: 50,000 (his pre-marriage amount) + 275,000 (his share of the shared portion) = 325,000 shekels.
• Ronit will have in total: 30,000 (her pre-marriage amount) + 275,000 (her share of the shared portion) = 305,000 shekels.

In this example, the division is relatively straightforward because both spouses have only basic pension funds without insurance policies or additional investments.

Example 2: A Couple with Insurance Policies and Supplementary Insurance

Michael and Dina have been married for 15 years. Michael works for a large company that provides additional insurance coverage in addition to the pension fund. Dina has only a pension fund.

In Michael's statement:

• Pension fund: 200,000 shekels (80,000 before marriage, 120,000 during marriage).
• Insurance policy: 150,000 shekels (all accrued during marriage).

In Dina's statement:

• Pension fund: 100,000 shekels (all accrued during marriage).

In the division:

• Michael's pension fund: 80,000 shekels remains with Michael, and 120,000 shekels is divided (each receives 60,000).
• Michael's insurance policy: 150,000 shekels is divided (each receives 75,000, but typically Dina does not receive the insurance itself, but an equivalent monetary amount).
• Dina's pension fund: 100,000 shekels is divided (each receives 50,000).

Total that Michael receives: 80,000 + 60,000 + (monetary amount of 75,000) = ~215,000.

Total that Dina receives: 50,000 + 75,000 + 60,000 = 185,000.

In this example, valuation of the insurance policy is critical, as it can have substantial value.

Example 3: Unequal Division Due to Unequal Contribution

Solomon and Mary have been married for 25 years. Solomon worked for a company with a high salary and accumulated a large pension of 500,000 shekels (all accrued during marriage). Mary worked part-time due to childcare and accumulated a pension of 150,000 shekels (all accrued during marriage).

While an equal division would have given each of them 325,000 shekels, the court may order a different division taking into account Mary's contribution to household management and childcare. For example, the court may order that Solomon receives 400,000 shekels and Mary receives 250,000 shekels, which reflects Solomon's greater contribution to pension accumulation, but also recognizes Mary's contribution.

This example highlights the importance of legal counsel, as a fair division is not always an equal one.