Marriage and life partnership: The financial implications

Marriage and life partnership: The financial implications

Should we get married, or just continue living together as life partners? This is a worthwhile question to ask, as being married or in a registered partnership has significant legal and financial ramifications — for your state and other pensions and with regard to taxes.
A great celebration is in the planning — at the lake in the summer, together with family and friends. There's going to be suckling pig as part of a generous buffet, and late in the evening there might even be karaoke. That's how Nina and Tom envision celebrating their entering into a formalized arrangement for their relationship.
However, the question remains whether they want to become officially married at the registry office or simply continue being life partners — they haven't yet decided. First they want to find out more about the legal and financial consequences of marriage.

Every year some 40,000 couples in Switzerland answer "I do" to the question of marriage. In addition, roughly 700 same-sex couples register their life partnerships. Marriage and registered life partnerships are nearly equivalent under Swiss law, as marital and life partners are obligated to support each other and jointly provide for their family members. Thus in this article, any references to "marriage" or getting/being "married" are equally applicable to registered life partnerships.

Points in favor of and against registered and unregistered life partnerships

The decision on whether to get married is primarily made on an emotional level. However, there are certain financial and legal consequences that Nina, Tom and others in their situation should give thought to.

First pillar: Old-age and survivors' insurance (AHV)

If married: If Nina and Tom marry, each will receive spousal AHV benefits for the contributions made by the other. The total pension amount married couples may receive is limited to 1.5 times (150 percent of) CHF 2,370, the maximum pension amount which an individual may receive. This means that spouses who have continuously contributed toward a first-pillar pension can receive a maximum of CHF 3,555 per month.
If Tom were to die, as his wife, Nina may be entitled to a lifelong widow's pension. This would apply if Nina were over age 45 and had either been married to Tom for at least five years or had children with him. If the situation were reversed, Tom would receive a widower's pension until the youngest child reaches the age of 18. Their children would receive an orphan's pension, were their parents to die.

Life partnership:
Couples in a life partnership enjoy an advantage over married couples when it comes to retirement pensions. If both have continuously contributed, Nina and Tom can receive individual pensions (in each case 100 percent) of a maximum of CHF 2,370 per month, or CHF 4,740 in total: 25 percent more than a married couple. However, they have no entitlement to a survivors' pension if one of them dies. Their children and children from outside the marriage would still receive orphan's pensions.

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1st Pilllar
Marriage Partnership 
Retirement   Both receive a joint AHV retirement pension, max. CHF 3,555 monthly (150%) Both receive a separate AHV retirement pension (max. CHF 2,370/month – 100%), together max. CHF 4,740 monthly (200%)
Taxes Incomes are jointly taxed Incomes are individually taxed
Death Widow’s/widower’s pension, orphan’s pension Orphan’s pension

 

 

Second pillar: Occupational retirement plan (pension fund)

If married: If either spouse dies, Nina or Tom would receive a survivor's pension from the other's occupational retirement provisions. To qualify for such a pension they must have been married for at least five years, Nina and/or Tom must be over age 45, or they must have parental child support obligations.

Life partnership: The Federal Occupational Pensions Act does not provide for benefits in the case of an unregistered life partner’s death. Some pension funds however, such as the Vita Joint Foundation, offer "partner pensions". It is recommended that couples who live in a marriage-like arrangement or have children together send a written registration notice to their pension fund. The partner pension can then be applied for in case of death.

Vested benefits

If married: The bank or insurance company with custody of the vested benefits account of the deceased spouse distributes a lump sum to the surviving spouse. Orphans and ex-spouses may also receive benefits if entitled.

Life partnership: Nina and Tom would be able to name each other as beneficiary, enabling the capital benefit from their vested benefits accounts to be paid out to the survivor in case of death. They should communicate this wish in writing to their vested benefits institution.

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2nd Pillar
Marriage Partnership
Retirement    Pension payments in accordance with the regulations of the partner’s respective pension fund Pension payments in accordance with the regulations of the partner’s respective pension fund
Taxes Tax-advantaged pension fund buy-ins allowed Tax-advantaged pension fund buy-ins allowed
Death Survivors’ pension in accordance with the regulations of the partner’s respective pension fund Survivors’ pension in accordance with the regulations of the partner’s respective pension fund

 

Third pillar: Restricted (3a) and unrestricted (3b) pension plans

If married: Pillar 3a pension assets are first distributed to the surviving spouse in the event of the account holder's death. Nina or Tom, as the case may be, would receive all capital accumulated in a restricted pension plan.

Life partnership: If unmarried, Nina and Tom would not be entitled to withdraw the accumulated capital from a restricted pension plan. Under certain circumstances however, the surviving life partner may have entitlements if, for example, he/she lived with the deceased during the five years prior or has support obligations for one or more children. In such a case, the life partner has the same rank in the order of beneficiaries as the children. Notification of such must however be submitted in writing to the insurance company. It is generally recommended that life partners name one another as a surviving beneficiary of a life insurance policy in an unrestricted pension plan. The order of beneficiaries for life insurance policies can be freely determined.

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3rd Pillar
Marriage Partnership 
Retirement  
  • 3a: The policyholder is the beneficiary.
  • 3b: The beneficiary is freely selectable.
  • 3a: The policyholder is the beneficiary
  • 3b: The beneficiary is freely selectable
Taxes
  • 3a: Contributions are deductible from taxable income. Upon distribution: different, lower tax rate than for other income.
  • 3b: Balances are generally income tax-exempt at distribution.*
  • 3a: Contributions are deductible from taxable income. Upon distribution: different, lower tax rate than for other income.
  • 3b: Balances are generally income tax-exempt at distribution.*
Death
  • 3a: Beneficiaries by rank: 1. spouse, 2. children, 3. parents, 4. siblings, 5. other heirs
  • 3b: Beneficiaries freely selectable (subject to obligatory statutory portions)
  • 3a: Beneficiaries by rank: 1. life partner and children, 2. parents, 3. siblings, 4. other heirs
  • 3b: Beneficiaries freely selectable (subject to obligatory statutory portions)

   * applies to regular premium payments and one-time pension contributions

 

Taxation

If married: If Tom and Nina are married, they file jointly; their incomes are added together. The more they earn, the higher the tax rate. Since they both have earnings they pay more federal tax than they would if they were life partners. The Swiss Federal Tax Administration estimates that 700,000 married couples are currently affected by this so-called "marriage penalty" for direct federal tax. Efforts to change this situation have been underway for quite some time.

Unregistered life partnership: Life partners file separate tax returns. They pay income and wealth tax individually. Unmarried couples have an advantage over married couples because the tax rate progression has less of an impact on them, particularly in the case of direct federal tax.

Estate law

If married: Swiss law regulates who receives what when someone dies. The spouse takes precedence. If Tom and Nina have children, the survivor of the two must share half the estate with the descendants, if any. If the deceased has no surviving children, the surviving spouse receives more — three quarters.

Life partnership: If Tom and Nina are not married, the law does not provide for any inheritance. The statutory laws of descent and distribution apply in case of death, these favor the descendants in terms of precedence. If there are no children and no testamentary contract or will, the deceased's estate goes to the parents. It is thus recommended that life partners name each other as beneficiary to avoid the survivor being left with nothing in case of death.

 

Life partnership contracts

Nina and Tom conclude that, if one of them were to die, the survivor would be more financially secure if they were married than if they are simply life partners. If they were to remain life partners however, they would be better off with regard to pensions and taxes.
But what are the ramifications regarding children if they are simply life partners? What if one of them works less or stops working altogether to take care of the children?

Nina and Tom's financial adviser suggests a life partnership contract as a solution. This contract regulates what support funding is to be provided from which bank accounts and in what proportions household and housing costs and assets are to be shared. The adviser also recommends making a list of their assets and property items and implementing medical powers of attorney. He gives them the forms for applying to their pension fund for a partner's pension (notification of life partnership and specification of death benefit beneficiary). With a partner's pension, Nina and Tom can name each other as beneficiary in the event that one of them should die. Their pension adviser also recommends implementing a will and living will as well as taking out life insurance. "It's not the most streamlined solution," he agrees, giving an encouraging smile upon seeing the long faces of Nina and Tom.

But for Nina and Tom the emotional aspects are more important than the pragmatic ones, and they want to declare in the most significant possible way their love for each other along with their enduring bond. The day before the wedding ceremony, Nina and Tom go to the civil registry office to be officially married in the presence of their parents and other witnesses.
The weather is absolutely fantastic on the day of the big barbecue by the lake. The reception and party carry on into the small hours of the morning, and apart from the best man falling into the water, the evening turns out to be just as perfect as they envisioned.

What does their pension fund require after they get married?

While Nina and Tom are on their honeymoon in Canada, a number of administrative processes are going on behind the scenes. Nina and Tom's employers notify their pension funds that they are now married. The funds will then calculate the value of their accumulated retirement assets (vested benefits) to date. This is necessary so that, in case of divorce, the increase in their retirement assets during the period of marriage can be calculated separately for each spouse. In a divorce, the respective partners are generally entitled to half of the increase in retirement assets.
When Nina and Tom return from their honeymoon, their new pension cards are waiting for them in their mailbox. Now they can focus on the future and all that it may bring.

What our clients say about the topic of marriage versus life partnership:

Adrienne V.: Her feelings changed when she had her daughter

Adrienne always wanted to be independent, as is evident from her employment background. She had worked as a diving teacher in the Seychelles and visited remote areas as a travel writer. When she met sailing instructor Timo on an Atlantic crossing at age 35, her life radically changed. During those two years they traveled around the world, and when their daughter Iris was born, Adrienne started feeling a need she'd never felt before: to provide for this little person as best she possibly could. Adrienne and Timo don't want to get married even though their financial adviser has pointed out the advantages. But upon moving back to Switzerland, they prepared a detailed life partnership agreement. They drafted wills regulating their estate, took out life insurance and applied to their pension fund for a partner's pension. As a woman who values her freedom, Adrienne enjoys being able to feel secure yet independent.

Sebastian G.: Back on his feet after a stroke of fate

Sebastian remembers how he felt leaving the civil registry office hand in hand with Reto: They were so happy, filled with an almost child-like delight to have found the right partner to go through life with. And their happiness lasted ... until three years ago when Reto died in a car accident at the age of 50, about the same age as Sebastian. This tragedy took away all of Sebastian's positive energy and optimism toward life. He was unable to work and needed to somehow find new strength. When Reto died, the fact that they had registered their partnership helped Sebastian through a financially difficult time, as he received a survivor's pension from the OASI social security administration and from a pension fund, plus benefits under Reto's life insurance. Sebastian was able to gradually put his life back together, and now five years down the road from Reto's death, Sebastian has met someone new. They may even move in together soon.

Further articles

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Retirement planning becomes a key issue when you turn 50

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"Pension or lump-sum payment?" A question of happiness for Kurt and Franziska

They are currently debating whether to have their retirement assets paid out as a lump sum or whether to draw a pension. We put three suggestions to the test.
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