An entrepreneur/director and principal shareholder or stock holder and divorce
When a business owner or a director and principal shareholder is involved in a divorce, the divorce will become more complicated and lengthy proceedings about all kinds of aspects may follow if the parties concerned cannot work things out through mediation or a collaborative divorce. First of all, it is difficult to determine what a businessman really earns – in salaried employment or as a director and principal shareholder – which means it is more difficult to determine the need for child and spousal maintenance. The net family income often fluctuates.
The financial capacity of a director or principal shareholder and hence how much he can pay for child and spousal maintenance, is also more difficult to determine.
For the consequences of a pension accrued in the company, please see the section on pension rights. When the spouses were married in community of property, the division of the business may result in income tax being levied, because the tax authorities consider the division as a partial discontinuation of the company. Chambers Advocaten will advise you on this, if necessary – and in consultation with you – with the help of an expert tax consultant.
In the case of a marriage settlement, other questions arise. Some of those questions are listed below.
Am I entitled to any hoarded profit?
A marriage settlement often includes a set-off clause. This set-off clause states that at the end of the year, that which both parties have got left of their net income, will be shared. The question then of course is what the income is if one of the spouses owns a business. Does income then mean the salary he or she has withdrawn from the company or the income he or she could have withdrawn?
It all depends on the definition of income. A marriage settlement usually includes a definition of income. If the marriage settlement does not include a definition of income, the law will prevail and the income the entrepreneur is deemed to have been able to withdraw from the company, will be used for calculations. Whatever an entrepreneur left in the company is called ‘hoarded profit’.
Am I entitled to shares or stocks in my husband’s company?
First the list of property brought into the marriage for the purpose of the marriage settlement will have to be looked at. If the company shares are listed on the list of property brought into the marriage by one of the spouses, the other spouse is not entitled to the shares themselves, because they are considered to be private assets, but there may be an entitlement to the increase in share value during the marriage. When the shares were obtained during the marriage with money that is subject to a set-off, the shares are considered to be an investment of saved income. The value is then subject to a set-off.
Can I request an inspection of the annual report and accounts of my husband’s company?
To be able to quantify what may be owed in maintenance or alimony, the full annual report and accounts are required, also to see whether there is any so-called hoarded profit. For the proceedings, the court will need the annual reports and accounts concerning the three preceding years to be able to calculate the need for maintenance and financial capacity. Annual reports and accounts may also be required to have an expert calculate the value of the company or of the shares in the company. These accounts may therefore be requested.
How will a company be divided?
A company needs not be divided if there is no community of property. If the company “- the shares in a company – was on the list of property brought into the marriage, attached to the prenuptial agreement, there need not be any division, but at the most the increase in share value arisen during the marriage needs to be set-off, that is, if there is a set-off clause.
What happens to the company’s shares?
Naturally, the shares in a limited company will remain with the spouse/director who continues the company. The share value may have to be shared or set off. This does not mean the shares are attached to the spouse who is an entrepreneur. If, within two years after the divorce, the shares are divided and provided to the spouse/entrepreneur, no material interest tax need be paid and the so-called transfer facility may be used. If the shares are provided (transferred) after this two-year term, tax will have to be paid by the spouse transferring the shares. This concerns a levy of 25% of the value. Fiscal assistance in this process is essential.
We are experienced in guiding divorcing entrepreneurs through the process and know the right fiscal consultants and valuators to bring your divorce to a favourable conclusion.