Division of a company after divorce – what is worth knowing?

The matrimonial property regime applicable to the spouses has a direct impact on how property is settled following the dissolution of the marriage, particularly following a divorce, including the division of a business run by one or both spouses.

Procedure for the division of property following divorce

The division of assets following divorce may take place either by mutual agreement between the parties or through court proceedings. In the first case, the division of joint property, which includes a business, must be in writing with signatures certified by a notary, or in the form of a notarial deed if the business also includes real estate. This is advantageous in that the spouses are free to determine how the business assets are divided, or to set the amount and timing of payments or additional contributions. However, if the spouses are unable to reach a mutual agreement on how to divide the assets, the matter is dealt with by the court, which assesses, amongst other things, whether the business was established before or after the marriage, and subsequently whether it formed part of the joint property. During proceedings for the division of joint property, the court also appoints an expert valuer to assess the total value of the business. It is worth bearing in mind that the costs of the expert are shared equally between the divorcing parties.

Division of a company following divorce

The method of dividing business assets after divorce depends on a number of factors, including the form of the business, the date of its establishment and the matrimonial property regime applicable to the marriage.

In the case of limited companies, if the spouses have a community of property, then in external (company) relations the shares are attributed exclusively to the spouse who is a partner, with all the consequences that entails. However, in relations between the spouses, these shares are subject to the community of property.

According to the case law of the Supreme Court, shares acquired by one spouse through a legal transaction to which only that spouse was a party, but using funds derived from the joint property, form part of that property; however, only the spouse who was a party to the transaction leading to the acquisition of the shares becomes a partner. This means that although shares in a company form part of the spouses’ joint property, only one of them has the right to act as a partner. Consequently, the legal and property status of the shares, arising from the provisions of the Family and Guardianship Code, must be distinguished from the status of a partner in the company and the right to exercise rights vis-à-vis the company arising directly from the Commercial Companies Code and the company’s articles of association.

This issue is of particular significance in the context of divorce. Upon the granting of a divorce, assets forming part of the joint property become subject to joint ownership in fractional shares. Consequently, a former spouse who is not a partner may bring a claim for the division of property, demanding that a portion of the shares be allocated to them. Therefore, in the absence of provisions in the articles of association restricting or excluding the possibility of a spouse joining the company, such a spouse may become a partner.

In the case of limited companies, the division of assets may take various forms. In addition to the division of shares between former spouses, the following is possible:

1. Allocating all shares to one spouse, with an obligation to compensate the other;
2. Selling the company’s shares to a third party and dividing the proceeds from this transaction between the spouses.

The solutions outlined above apply exclusively to capital companies and do not apply to partnerships, due to the close link between such companies and the person of the partner. General partnerships, professional partnerships, limited partnerships and limited joint-stock partnerships are not subject to division in the manner provided for capital companies, as a change in a partner could lead to changes in the structure of the partnership itself. With regard to partnerships, it must be assumed that a spouse who is not a partner has no right to demand the transfer of shares in the partnership. However, they may claim reimbursement of financial outlays made from the joint property for the benefit of the partnership.

Is a sole proprietorship the exclusive property of the spouse who runs it?

During proceedings for the division of joint property, a sole proprietorship is subject to the same rules as other assets; therefore, if it was established during a marriage under the community of property regime, it forms part of the joint property of both spouses, regardless of whether only one spouse is registered as the business owner. In practice, in such a case, the division takes place by awarding the business as the sole property of one of the spouses (the person running the business) and ordering payment to the other. It should be borne in mind that even if, following the divorce decree, the former partner was entitled to specific assets of the business, this does not entail any non-pecuniary claim to that business. There is therefore no basis for granting such a person access to the company’s records or any information relating to its operations.

Specifics of the division of a civil law partnership

Pursuant to Article 860 § 1 of the Civil Code, by virtue of the partnership agreement, the partners undertake to pursue a common economic objective by acting in a specified manner, in particular by making contributions. To ensure the achievement of this objective, the legislator has conferred a special legal status on the assets of a civil law partnership – these assets constitute joint ownership of the partners, analogous in structure to the joint property of spouses. Due to the lack of legal personality of a civil law partnership, a partner’s contribution results in the transfer of ownership to the other partners. The partners dispose of the partnership’s assets jointly, with each of them having equal rights to both the entire assets and their individual components. This means that where both spouses were partners in a civil partnership, divorce does not terminate the joint ownership of the partnership’s assets. Importantly, whilst the partnership is in existence, it is not possible to demand the division of its assets between the partners.

The situation is different when only one of the spouses is a partner in a civil partnership. In that case, the assets accumulated through the partnership’s activities constitute joint ownership of the partners, to which the spouse not participating in the partnership acquires no rights. When dividing joint property following a divorce, the non-participating spouse is therefore not entitled to a share in the partnership’s assets – until the partnership is dissolved. Only after the partnership has ceased trading and its assets have been liquidated may the assets allocated to the partner be included in the division, provided that separate property has not been established beforehand.

What if we made contributions to a business that forms part of the spouse’s personal property?

This situation usually arises when the business was established before the marriage and, consequently, in the absence of any contrary provisions, remains part of the personal property of one of the spouses. If, during the marriage, certain assets of the business were financed from the joint property, the spouse who has no legal title to that business is entitled to claim reimbursement of the expenses and investments made from the joint property into the personal property of the spouse running the business. In such a case, the court determines the value of the contribution made by the spouse according to its value on the date of the division, not on the date of the termination of the matrimonial property regime.

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