Альманах семейного права = Family Law Almanac. Вып. 2. Правовое регулирование имущественных отношений супругов современное состояние и перспективы = L

Financial consequences of divorce and separation in Germany

However, another point that was not changed on the occasion of the reform is regrettable: at present, such gains are also subject to equalisation, which, such as claims for compensation for pain and suffering or lottery winnings, are obviously not based on the contributions of the partner and have no connection with the marriage. Here, the provision that excludes gifts and inheritances from the equalisation of gains could have been extended to other cases of marriage-neutral acquisition1. This also corresponds to the legal situation in many foreign legal systems: in matrimonial property regimes of community of joint property, for example, payments for pain and suffering received by a spouse during the marriage, as well as what is acquired through inheritance and gifts, are regularly included in the personal property and not in the joint property2. However, systems that assume a separation of property also regularly exclude such gains3.

Nor has the legislator of the reform addressed the problem of accidental changes in the value of property of the initial assets. Thus, for example, the incidental increase in value of a property which already belonged to one spouse at the time of marriage has no connection to the partner‘s contributions and should therefore – in accordance with the legitimacy of the equalisation of gains – not be subject to any equalisation. Nevertheless, the increase in value increases the final assets of the spouse and thus flows into the equalisation of accrued gains. The fact that real increases in value are included in the equalisation of gains is primarily due to the lack of a consideration of objects in the applicable equalisation system. In contrast to that in systems of community of acquired property4, property existing at the time of marriage belongs to the spouses‘ own property, so that the partner does not share in increases in the value of these assets. In matrimonial property regimes of separation of property, this result can also be achieved, but requires much more complicated regulations.

b. Extended protection against abuse

In order to protect the spouse entitled to equalisation from abusive, disloyal manipulation of assets, there are different sets of rules which have been improved by the reform. First, provisions to harmonize the cut-off dates for the calculation of the gain and for the accrual of the equalisation claim

1  Critical as well Hilbig, Jura 2008, 922 (928).

2  I.e. in France: Art. 1404, 1405 CC; Spain: Art. 1346 CC; Italy: Art. 179 CC.

3  I.e. in Scotland: sec. 10(5) Family Law (Scotland) Act 1985; in Swiss: Art. 198 Nr. 2 ZGB. 4  I.e. in French law Art. 1405 ff. CC; in Spain Art. 1346 Nr. 1, 3, 1351 CC.

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(§ 1384 German Civil Code) were introduced. Before the reform, the pendency of the divorce petition was decisive for the calculation of the equalisation of gains1. However, the claim for equalisation of gains became, and still becomes, due only with the termination of the matrimonial property regime (§ 1378 para. 3 s. 1 German Civil Code), which can be considerably later. The former law thus limited the amount of the equalisation claim to the assets of the party obliged to equalise at the time of the divorce. This way it gave the spouse the possibility to set aside assets during the divorce proceedings and to exclude them from equalisation2. Since the reform the point in time of the pendency of the divorce petition is decisive in case of termination of the matrimonial property regime by divorce, for both the calculation of the gain and the amount of the equalisation of gains (§ 1384 German Civil Code). The harmonization of the cut-off dates now prevents a disloyal transfer of assets from reducing the assets subject to equalisation3.

Furthermore, the reform extended the mutual rights to information to the initial assets and the assets upon separation (Trennungsvermögen), so that the rights to information now include the final as well as the initial assets and those upon separation4. In addition, for the first time there is an obligation to submit documents on the assets upon request (§ 1379 para. 1 s. 2 German Civil Code)5. This enables the respective spouses to obtain detailed knowledge of the partner's existing assets6. In practice, however, the right to information at the time of separation according to § 1379 para. 2 in conjunction with § 1375 para. 2 German Civil Code proves to be problematic, as the spouse requesting information must state the exact date of separation7. This often leads to a long and contentious taking of evidence and creates the risk that the intended protection from disloyal reductions in assets is falling short8.

3. Equalisation of pension rights

The third and extremely important pillar of German law regarding the consequences of divorce is the equalisation of pension rights. The aim of

1  Kogel, NZFam (Neue Zeitschrift für Familienrecht) 2019, 701 (706 et seq.). 2  Büte, NJW 2009, 2776 (2779).

3  Kogel, NZFam 2019, 701 (706 et seq.).

4  Münchener Kommentar zum Bürgerlichen Gesetzbuch / Koch (9. Auflage), § 1379 para.1. 5  BT-Drs.: 16/10798, p. 12; Giers, NZFam 2015, 843 (845 et seq.).

6  BT-Drs.: 16/10798, p. 12.

7  Kohlenburg, NZFam 2019, 86 (86).

8  Kogel, NZFam 2019, 701 (706); Kohlenburg, NZFam 2019, 86 (86).

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Financial consequences of divorce and separation in Germany

this instrument is to provide the divorced partner, who has acquired no or less retirement benefits or pension rights during the marriage, with an independent pension. Therefore, the rights acquired by the partners during the marriage are divided equally between the spouses in the event of divorce (§ 1 para. 1 VersAusglG). As in the case of the equalisation of accrued gains, the underlying rationale is that both spouses have earned the pension rights acquired during the period of marriage in equal shares, regardless of with whom they actually arose. The equalisation of pension rights in particular is thus an important instrument for counteracting existing as well as potentially worsening corona-induced gender inequalities.

The fundamental innovation of the provisions transferred from the German Civil Code to a separate Pension Equalisation Act in 2009 is that now, in principle, each pension right acquired during the marriage is to be divided in half, so that each spouse is both entitled to equalisation and obliged to equalise. Thus, a so-called back and forth equalisation takes place. Previously, it was necessary to enter all entitlements in a balance sheet, with the consequence that only one equalisation claim resulted. However, this often led to serious distribution injustices, as the pension entitlements are often of different types and quality, depending on whether they are statutory, occupational or private pensions. During the conversion, which was necessary for the purpose of the balance sheet comparison, large value distortions could occur, which the law has since then intended to prevent1.

III. Separation of de facto unions

In contrast to this elaborate system of financial relief in case of divorce, almost none exists for cohabitating partners or parents upon the breakup of their relationship2.

As concerns maintenance the current law only recognizes the right to maintenance due to childcare (§ 1615l para. 2 s. 2, 3 German Civil Code). This claim which is basically granted to both unmarried and married parents is directly linked to parenthood and does not presuppose the existence of a cohabiting relationship. If a parent cannot pursue gainful employment

1  BT-Drs.: 16/10144, p. 29–31; see as well Dethloff, Verhandlungen des 67. Deutschen Juristentages Erfurt 2008, Gutachten Band I: Teil A: Unterhalt, Zugewinn, Versorgungsausgleich, A 126–128.

2  In depth Dethloff/Martiny/Zschoche, CEFL National Report: Germany, Informal relationships (2015), available under: http://ceflonline.net/wp-content/uploads/Germany-IR. pdf, last retrieved 23.01.2025.

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because of the care of children, in particular during the first three years, she or he may claim maintenance from the other parent (§ 1615l para. 2 s. 3 German Civil Code).

Beyond this entitlement to maintenance due to childcare there are no maintenance claims between partners in a de facto partnership upon its dissolution. However, also in a de facto partnership, one party’s need after separation may be caused by the division of roles during the partnership, especially if the partner has reduced his or her own gainful employment in favor of taking over child care work. In cases of such relationship-related disadvantages, maintenance should therefore also be granted on termination of de facto cohabitation for reasons of protection of legitimate expectations1.

Moreover, in case of a breakup of a de facto partnership there are no statutory claims regarding the financial gains or the pension rights, as is the case for divorced couples2. If they have not concluded a partnership agreement beforehand, which is only very rarely done, generally no financial claims arise. In order to avoid harshly unjust results only in exceptional cases courts will grant claims, based on such notions as unjust enrichment or other concepts of general civil law3. This is generally limited to substantial financial contributions of one partner during the partnership, such as a payment toward the acquisition of real property. However, if the contributions merely consist of care work, no claims are granted, even if caring for both partners’ children enabled the other parent to pursue his career and accumulate wealth4.

Consequently, the breakup of de facto partnerships primarily leads to financial losses for women and only rarely for men5. This is especially true for cohabitating couples with children, since, even with de facto partners, still more women than men reduce their working hours and thus are left with less assets upon separation than men6. As there neither exists a pension sharing scheme, gender inequality increases7. This would be counteracted by creating

1  BMFSFJ, Neunter Familienbericht, BT-Drs.: 19/27200, p. 73; Dethloff, Verhandlungen des 67. Deutschen Juristentages Erfurt 2008, Gutachten Band I: Teil A: Unterhalt, Zugewinn, Versorgungsausgleich – Sind unsere familienrechtlichen Ausgleichssysteme noch zeitgemäß?, A 143 et seq.

2  BMFSFJ, Neunter Familienbericht, BT-Drs.: 19/27200, p. 68 et seq.

3  BGH (Bundesgerichtshof), FamRZ 2008, 1822; BGH FamRZ 2011, 1563 with comment from Grziwotz.

4  BMFSFJ, Neunter Familienbericht, BT-Drs.: 19/27200, p. 71.

5  Boertien/Lersch, Gendered Wealth Losses after Dissolution of Cohabitation but not Marriage in Germany (2019); BMFSFJ, Neunter Familienbericht, BT-Drs.: 19/27200, p. 64–65.

6  Ibid.

7  Wellenhofer, FamRZ 2015, 973 et seq.

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J. Thomas Oldham

ECONOMIC CONSEQUENCES OF DIVORCE

IN COMMON LAW STATES IN THE UNITED STATES

I. Introduction

In the United States, economic rights of married couples at divorce are based on state law. A small number of states have adopted a “community property” system as a result of their historic connection to France or Spain. Forty-one states (and the District of Columbia), however, have adopted family law rules based on English family law principles. These states are commonly referred to as “common law” family law states.

When spouses divorce in the United States, the basic remedies are

(i) the division of property, (ii) the potential award of spousal support, and (iii) the award of child support (if there are minor children). In this article I will generally describe the rules applicable to the division of property and the award of spousal support.

During the last 50 years, all states have accepted that people planning to marry can sign a premarital agreement addressing their rights and obligations if they divorce. Different states have adopted different standards for when such agreements will be enforced. This article will briefly summarize these different standards

II. Division of Property

A. In General

There are three different models for divorce property division in common law states in the U.S. In one model, all property owned by either spouse can be divided1. (This might be thought of as a system of “universal community property”.) This is sometimes referred to as a “hotchpot” system. The property is to be divided equitably at divorce.

1  See J. Thomas Oldham, Divorce Separation and the Distribution of Property sec. 3.03[2] (2021).

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Economic consequences of divorce in common law states in the United States

The two other models distinguish between “separate” property and “marital” property. Separate property is generally defined as including premarital acquisitions and a gift or inheritance received by one spouse during marriage. Marital property includes most other acquisitions by either spouse during marriage. Under the most commonly adopted property division model, separate property cannot be divided, while marital property is to be equitably divided1. This model is referred to as an “equitable distribution” system, and is by far the most common property division approach in common law states2. In the other type of system, adopted in a few states, separate property generally is not to be divided, but can be divided to avoid severe hardship. This has been referred to as a “hybrid” system3.

B. Issues That Arise Under a Marital Property

Equitable Distribution System

1. Pensions

One of the most valuable assets in U. S. divorces can be the pension rights of one or both spouses. In the U.S., there are two basic types of pensions. One is a “defined contribution” plan right, while the other is a “defined benefit” plan right4. Employees of private companies today almost always have defined contribution rights, while it is more common for government employees to have defined benefit rights.

In a defined contribution plan, there is a separate account for each employee. The employer generally contributes a certain percentage of the employee's salary into the plan account, and each contribution is invested in some manner. At any given time, it is possible to ascertain the balance in the account.

In a defined benefit plan, the employer (or the government entity) has one large pension fund. The employer specifies the formula pursuant to which the retirement benefit amount is to be calculated for each retiring employee. Most formulas take into consideration both the employee's length of service and last monthly salary.

For a defined contribution plan benefit, if there was no pre-marriage service, the balance in the account at divorce is the value of the marital claim.

1  Id. Sec. 3.03[3].

2  See generally Harry Krause, Linda Elrod & J. Thomas Oldham, Family Law (8th Ed. 2018), chapter 15.

3  See Divorce, Separation and the Distribution of Property Sec. 3.03[4]. 4  See generally Krause, Elrod & Oldham, Family Law, chapter 15.

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If there was premarital service, in most states the marital claim is the difference between the balance at divorce and balance at the time of marriage1. If the court wants to divide the marital property portion of the account balance at divorce, a specified amount can be removed from the employee's account and deposited into a pension account in the name of the other spouse.

Dividing a defined benefit plan right is more complicated because there is no separate account balance for the employee. The most common approach that has been applied to divide a defined benefit plan right is to provide that the spouses will share the eventual pension benefit when the employee retires. The marital portion of the retirement benefit is to be determined based on the portion of the employee's career that he or she was married2. So, for example, if the employee was married for half of the career, half of the pension benefit would be marital. So, if the marital portion of the pension benefit would be divided equally, the employee would retain 75 % of the eventual benefit and the non-employee would get 25 %.

2. Houses

If a house was purchased during marriage with all marital funds, the house would be 100 % marital property at divorce. However, if separate property was used to make a down payment in connection with the purchase or to make a capital improvement to the house, there would be a separate property claim relating to the house3.

If a house was purchased before marriage, the house initially would separate property of the spouse who acquired it. However, if marital funds were used to make house payments during marriage or to make an improvement to the house during marriage, there would be a marital claim for that contribution4.

3. Increases in Value of Separate Property During Marriage

To characterize the character of an increase in value of separate property during marriage, the cause of the increase is important to determine. If the increase in value was due to market forces, the increase in value is considered separate. So, for example, if a spouse purchased stock or real estate before

1  See Divorce, Separation and the Distribution of Property Sec. 7.10. 2  See Griffiths v. Griffiths, 563 So.2d 773 (Fla. App. 1990).

3  See Malmquist v. Malmquist, 792 P.2d 372 (Nev. 1990); Marriage of Snow, 660 N.E.2d 1347 (Ill. App. 1996).

4  See generally Krause, Elrod & Oldham, Family Law, chapter 15.

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Economic consequences of divorce in common law states in the United States

marriage and the value increases during marriage due to market forces, that increase would also be separate1. To the extent that an increase is due to the efforts of the owning spouse, however, the increase is marital, due to the “active” cause of the appreciation2.

4. The Issue of Commingling

In most states, the spouse claiming a separate property interest in any property must prove why the property is partially or totally separate. (In other words, that it is derived from pre-marriage savings or a gift or inheritance). A fairly common problem arises when a spouse has pre-marriage savings in a bank or brokerage account and then during marriage deposits marital funds into the account. States have had to promulgate rules regarding how a spouse can “trace” his or her separate funds in the “commingled” account3.

5. Income from Separate Property

In some states, income from separate property generated during marriage is separate4. In others, such income is marital5.

6. Closely-Held Businesses Started During Marriage

If a spouse starts a closely-held business during marriage, the business generally will be marital property. But an important issue is how the divorce court should value the business for purposes of the property division. In connection with the valuation of such a business, courts generally will include its “commercial” goodwill, goodwill that is not tied to the reputation or skill of the spouse6. Courts disagree regarding whether the value should also include the value of any “personal” goodwill, goodwill that relates to the reputation or skill of the owner. In some states, such personal goodwill is included in the valuation7. In others, personal goodwill is not included8.

1  See Brown v. Brown, 611 N.Y.S.2d 65 (N.Y. App. Div. 1994). 2  See S.C. Code. Sec. 209-7-473.

3  See J. Thomas Oldham, Tracing, Commingling and Transmutation, 23 Fam. L. Q. 219 (1989). 4  See Rowe v. Rowe, 480 S.E.2d 760 (Va. App. 1997).

5  See MacDonald v. MacDonald, 532 A.2d 1046 (Me. 1987).

6  See generally Krause, Elrod & Oldham, Family Law, chapter 15. 7  See Marriage of Martin, 707 P.2d 1935 (Col. App. 1985).

8  See Dugan v. Dugan, 457 A.2d 1 (N. J. 1985).

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7.University Degrees Received During Marriage

U. S. courts have agreed that, for purposes of equitable distribution, a university degree received during marriage is not property that should be valued and included in the marital estate1. As will be discussed below, it might be grounds for a type of alimony award.

8.When Parties Stop Accumulating Marital Property

In some states, spouses continue to accumulate marital property until the divorce is completed. In others, spouses stop accumulating marital property when the divorce petition is filed2 or when the spouses permanently separate3.

9. How Marital Property Is Divided

In all common law equitable distribution states, the marital estate is to be divided “equitably”. Many state statutes list numerous factors the court should consider when making such an award, such as each spouse’s contributions to the marital estate, as well as the health, debts, needs, and earning capacity of each spouse. In some states, the fault of either spouse in causing the divorce can be considered4. In many instances, the marital estate appears to be divided approximately equally.

The extent to which either spouse's career was enhanced during marriage (or deteriorated) is not directly considered in connection with the division of the marital estate. As will be mentioned below, it can be an important factor in connection with the decision to award alimony.

III.Alimony A. In General

It was mentioned above that the equitable distribution property division system does not consider directly whether either spouse’s career was enhanced or negatively impacted during the marriage. So, after the property division (and any child support award) the parties might be leaving the marriage with

1  See Joachim v. Joachim, 942 So.2d 3 (Fla. App. 2006). 2  See Fla. Stat. Sec. 61.075.

3  See Va. Code Sec. 20-107.3.

4  See generally, Krause, Elrod & Oldham, Family Law, p. 954 et seq.

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