Entrepreneurs and divorce

Are you getting divorced and are you an entrepreneur? If you own your own business, the procedure will certainly be different from a regular divorce. When an entrepreneur gets divorced, there are additional financial factors at play for both parties, as there are shares and additional assets involved.

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 therefore be determined and the business divided. However, there is a difference between being married in community of property or under a prenuptial agreement. The entrepreneur is also referred to as a director and major shareholder of a company (DGA).

Fruytier’s solicitors specialise in working with entrepreneurs and therefore know everything about entrepreneurship and its consequences. For all your questions and for advice, please contact us.

Married in community of property

If you are married in community of property, in the event of divorce, the business will be awarded to the spouse who runs the business, i.e. the DGA. The court will not readily award half of the shares to the ex-partner if the entrepreneurial spouse objects. The ex-partner will receive 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 company and must then pay 25% income tax on the value of those shares. The allocation of the shares to one of the spouses is regarded as a “sale” of 50% of the shares to the ex-spouse. There are other matters that need to be taken into account, or matters that offer a solution.

Settlement in prenuptial agreements

If the prenuptial agreement stipulates that you are married outside of any community of property, the ex-spouses retain the right to their private assets. In that case, the business owned by 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. They are and remain the property of the entrepreneur. In the case of a marriage with a prenuptial agreement, there are settlement clauses.

Prenuptial agreements with settlement clauses

Final settlement clause

A final settlement clause stipulates that at the end of the marriage, the spouses will settle as if they were married in community of property. Settlement does not mean that there has to be a division of assets; it (only) gives the ex-spouse a financial claim on the entrepreneur. In the event of divorce, the entrepreneur must therefore settle with the ex-spouse on the value of the business.

Annual settlement clause

Prenuptial agreements often include an annual settlement clause. The spouses then share the amount of their income remaining at the end of the year after payment of household expenses. The consequences of not settling can be far-reaching.

Alimony and the entrepreneur

When an entrepreneur divorces, the income that the entrepreneur allocates to himself from the company is not always the income that the court takes as a basis for determining the amount of alimony to be paid. When determining the amount of alimony, the income of the spouses is taken into account, among other things. In the case of a regular employee, the salary is taken into account, but a director and major shareholder (DMS) determines the amount of his or her own salary. This allows the DMS to keep the salary low, within legal limits. Because of this special position of the DGA, the court doesn’t just look at the salary they get from their own company. The court also looks at the company’s profits, often over the last three years. This includes not only the taxable profit, but also the profits saved up in the company.

Pension under the private company’s own management

The WVPS (Pension Rights Equalisation Act in the Event of Divorce) stipulates that in the event of divorce, accrued pension entitlements must be divided between the former spouses. This also applies to pensions accrued under the company’s own management. This rule also applies if the spouses are married under a prenuptial agreement. No equalisation takes place if the prenuptial agreement or the divorce agreement explicitly stipulates this.

Contribution obligation pension obligation

The ex-spouse may demand that their accrued pension entitlement be paid into an external pension insurer. This is different if the continuity of the company is jeopardised by the payment. The private limited company must then prove that there are insufficient liquid assets to make the transfer and that there are no other options for freeing up these assets without jeopardising the continuity of the private limited company.

Are you an entrepreneur considering divorce and would you like to know what the consequences will be for you and your company? Please do not hesitate to request information from one of our specialists in entrepreneurs and divorce, without obligation.