Entrepreneurs and divorce
Are you an entrepreneur who’s getting a divorce? When you have your own business, the proceedings are guaranteed to be different from those for a regular divorce. When an entrepreneur divorces, there are additional financial factors for both parties, since there are shares and additional ownership.
The value of the business and divorce
The value of the shares allocated to an entrepreneur must be settled with the ex-partner. The value of the business must be determined and the business must be divided. However, there is a difference between being married in a community of property or on the basis of a prenuptial agreement. The entrepreneur is also referred to as a director and principal shareholder of a company. Fruytier’s lawyers specialize in working with entrepreneurs and therefore know everything about entrepreneurship and its consequences. If you have questions or need advice, you can always contact us.
Married in a community of property
If you are married in a community of property, in the event of a divorce, the business is assigned to the spouse who runs it, i.e. the director and principal shareholder. The court is unlikely to allocate half of the shares to the ex-partner if the enterprising spouse objects. The ex-partner receives compensation for half of the shares. In principle, the acquiring spouse must then settle with the tax authorities. The acquiring spouse receives 50% of the shares in the business and must then pay 25% income tax on the value of those shares. The allocation of the shares to one of the spouses is in fact regarded as a “sale” of 50% of the shares to the ex-spouse. There are other things that need to be taken into account, or things that offer a solution.
Settlement in case of prenuptial agreement
If the prenuptial agreement stipulates that you are married outside any community of property, the ex-spouses retain the right to their respective private assets. In that case, the business of one of the spouses belongs entirely to that spouse and the other ex-spouse is not entitled to any compensation for the business. The divorce will have no tax consequences for the business, because the business or the shares do not change ownership. These are and remain the property of the entrepreneur. In the case of a marriage based on a prenuptial agreement, there are, indeed, settlement clauses.
Prenuptial agreement with settlement clauses
Final settlement clause A final settlement clause provides for settlement between the spouses at the end of the marriage, as if they were married in a community of property. Settlement does not mean there is a need to divide, it (merely) gives the ex-spouse a financial claim on the entrepreneur. In that case, the entrepreneur must settle the value of the business with the ex-spouse in the event of divorce. Annual settlement clause A prenuptial agreement often contains an annual settlement clause. In that case, the spouses share the remaining amount of their income at the end of the year after payment of the household costs. The consequences of not settling can be serious.
Maintenance and the entrepreneur
When an entrepreneur gets a divorce, the income the entrepreneur grants himself from the business is not always the income the court assumes when determining the amount of maintenance to be paid. When determining the amount of maintenance, the spouses’ income is taken into account, among other things. In the case of a regular employee, the salary is considered, but a director and principal shareholder determines the level of his own salary. This allows the director and principal shareholder to keep the salary low, within legal limits. Because of this special position of the director and principal shareholder, the court does not only look at the salary received from the private limited company, it also often considers the profits of that company over the past three years. This includes not only the taxable profit, but also the accumulated profit in the business.
Pension managed by the private limited company
The Dutch Equalization of Pension Rights in the Event of a Divorce Act stipulates that pension entitlements accrued between the ex-spouses must be shared in the event of a divorce. This also applies to pensions built up under the entrepreneur’s management. This rule also applies if the spouses are married under a prenuptial agreement. No equalization takes place if the prenuptial agreement or the divorce agreement explicitly stipulates this.
Deposit obligation pension obligation
The ex-spouse can demand that his or her accrued pension entitlement is paid to an external pension insurer. This is different if the company’s continuity is jeopardized by the deposit. In that case, the private limited company must prove there are insufficient liquid assets to arrange for the deposit and that there are no other options for releasing these funds without jeopardizing the company’s continuity. Are you an entrepreneur considering a divorce and want to know what the consequences are for you and your business? Don’t hesitate to obtain no-obligation information from one of our specialists in entrepreneurs and divorce.« Back to corporate law