Severance Fund in Divorce — Rights and Legal Division

A severance fund (Keren Hishtalmut) is one of the most important assets evaluated in divorce proceedings in Israel. In recent years, there has been an increase in cases addressing how a severance fund should be divided between spouses when dissolving a marriage. This is not a simple process and involves a deep understanding of the law, the legal rights of each party, and the economic situation of each spouse.

The law office of Attorney David Vaserman in Modi'in specializes in assisting families in family law and complex divorce proceedings. Over the years, we have represented dozens of clients in cases related to severance fund division in divorce and have built extensive experience in understanding the legal nuances of this matter.

What is a Severance Fund and Why is it Important in Divorce Proceedings?

A severance fund is savings accumulated over an employee's years of work, with contributions from both the employee and the employer. When dissolving a marriage, this fund is considered joint property requiring fair division between the spouses. The value of a severance fund can be substantial, and in certain cases, it constitutes a significant portion of the couple's assets.

Under the Law of Marriage (Dissolution) 5731 (1970) and the Law of Succession 5725 (1965), and in accordance with Israeli court rulings, a severance fund is considered joint property of the spouses during the marriage. This means that upon divorce, both spouses are entitled to a share in accordance with family law provisions.

How is a Severance Fund Divided in Divorce?

Division of a severance fund in divorce is typically carried out in two main ways. The first is through an agreement between the spouses — meaning both parties agree on the division themselves. The second is through court, where the court determines the division according to legal principles and the specific circumstances of the case. In both cases, it is important to be represented by an experienced family law attorney who understands the nuances of family law and asset division.

Stages of the Procedure for Dividing a Severance Compensation Fund in Divorce

The procedure for dividing a severance compensation fund in divorce consists of several important stages, each requiring professional attention and deep legal knowledge:

First Stage: Valuation of the Severance Compensation Fund

The first step in the process is to assess the value of the severance compensation fund of both spouses. This includes obtaining reports from insurance companies or the bodies managing the funds, and carefully reviewing every detail in them. An experienced attorney knows how to read these reports and extract the relevant information. It is important to note that severance compensation funds often contain contributions made during marriage and contributions made before marriage, and this distinction affects how the fund is divided.

Second Stage: Determining Each Spouse's Share

After valuing the severance compensation fund, it must be decided how to divide it between the spouses. Under the Marriage (Dissolution) Law, division of joint assets is not necessarily equal to fifty-fifty. The court considers many factors, such as each spouse's contribution to the joint assets, each spouse's ability to earn in the future, the needs of children (if any), and more. In many cases, an agreement between the spouses can be simpler and more cost-effective in terms of expense and time.

Third Stage: Choosing a Distribution Method

There are several ways to divide a severance compensation fund in divorce. One is a direct distribution of funds from the fund, with each spouse receiving their share in cash. Another way is for one spouse to waive their rights to the fund in favor of the other spouse, in exchange for receiving compensation in other assets. There is also the option of gradual distribution, in which the fund remains in the hands of one spouse but they are obligated to pay the other spouse over a certain period of time. Each of these options has different legal and financial implications, and it is important to seek professional legal advice before making a decision.

Fourth Stage: Court Approval or Family Agreement

After determining the manner of division, legal approval must be obtained. If the spouses have agreed themselves on the division of the severance compensation fund, they can sign a family agreement that will be approved by the court. If they have not agreed, the court will determine the manner of division in accordance with family law. In both cases, it is important that a client is represented by an attorney who understands all the details of their case.

Legal Factors in the Division of Severance Pay in Divorce

The Principle of Fair Division of Joint Assets

Under the Marital Status Law (Dissolution) 5731 (1970), joint assets must be divided fairly between spouses upon divorce. This principle also applies to severance pay (Keren Hishtalmut). The court considers several factors when determining what is considered "fair":

• Contribution of each spouse — How much did each spouse contribute to joint assets, both through paid work and domestic labor.
• Needs of the children — If there are children, their needs and especially the determination of which parent will receive child support affects asset division.
• Future earning capacity — Each spouse's ability to earn in the future affects the division, particularly if there is a significant difference in the spouses' incomes.
• Length of marriage — The duration for which the spouses were married influences how assets are divided.
• Health status and age — The age and health status of each spouse may influence the court's decision.

Contributions to Severance Pay Before and After Marriage

A very important point in dividing severance pay is the distinction between contributions made to the fund before marriage and those made during the marriage. Generally, only contributions made during the marriage are considered joint assets. Contributions made before marriage are considered personal property of the spouse to whom they belong. However, in some cases, the court may also consider contributions made before the marriage, especially if there was a significant change in the value of the fund during the marriage.

Interest and Earnings Component in Severance Pay

Severance pay accumulates interest and earnings over the years. When dividing the fund in divorce, it is important to distinguish between the principal (contributions) and the interest and earnings. In some cases, the court may divide the principal differently from the interest and earnings. This requires in-depth analysis of fund statements and precise calculation of each component.

Common Scenarios and Division of Severance Pay (Keren Hashlomot)

Scenario 1: Both spouses are employed and have accumulated severance pay funds

When both spouses are employed and have accumulated their own severance pay funds, the division of these funds can be more complex. Generally, each spouse retains their own fund, but if there is a significant difference between the funds, the court may order compensation from the spouse with the larger fund to the other spouse. In other cases, spouses may agree on a different division of the funds as part of a broader family agreement.

Scenario 2: Only one spouse is employed and has accumulated severance pay

When only one spouse is employed and has accumulated severance pay, the other spouse (who worked at home or in employment where no severance pay fund was created) is entitled to a share of the fund. The court will assess the contribution of the non-working spouse in the formal labor market and determine their share of the fund accordingly. This can be significant, especially if the spouse worked at home and cared for children.

Scenario 3: Severance pay fund with substantial interest

When a severance pay fund has accumulated substantial interest over the years, the division of the fund can be more complex. In some cases, the court may order a different division of the principal and interest to ensure fair distribution. An experienced family law attorney will ensure that all interest and gains are calculated correctly and taken into account in the division.

Scenario 4: Severance pay fund with a loan or mortgage

In some cases, a severance pay fund may serve as collateral for a loan or be used to pay a mortgage. When dividing the fund in a divorce, these debts must be considered. It is important to obtain professional legal advice to ensure that the division of the fund takes these debts into account fairly.