Going through a divorce is always hard. However, the situation becomes even more complicated when the spouses are business partners. In this case, what happens to the company, and how should the business be divided ?
The choice of the matrimonial regime
Difficulties generally arise when the spouses are married under community of property.
When a spouse, married under community of property, acquires shares in a company on his or her own, or creates his or her own company during the marriage using common property (earnings and wages), the shares fall into the community. On the other hand, he or she will have the status of business partner and will exercise the financial and political prerogatives attached to it. A distinction is made between the title of business partner, which remains personal, and the value of the shares, which falls into the community.
When subscribing shares in a company other than a joint-stock company, the spouse in common property must be informed beforehand. He or she has the possibility to reclaim the quality of partner for half of the shares.
Similarly, if both spouses acquire shares together during marriage, the value falls to the community. On the other hand, they can freely decide how to distribute the ownership status attached to them. If nothing is specified, they are considered to be owning one-half of the shares.
When the matrimonial community is dissolved, whether by divorce or by death, the value of the shares acquired during marriage is divided equally between the spouses. However, only the spouse who is a business partner will keep the shares. He or she will have to pay a lump sum corresponding to half the value of the shares to his or her spouse.
When one of the spouses has created or acquired a business before marriage, it is considered private property. Therefore, it is not included in the couple’s common property nor in the equitable division of property after the divorce. The same principle applies to businesses obtained by succession or donation : they are only owned by the beneficiary.
The importance of the company’s articles of association
It is possible – and even recommended – to include clauses in the company’s articles of association that will be applicable in the event of a divorce. These will be intended to determine:
- the transfer of shares ;
- what happens to the management of the company in case of a disagreement between the partners;
- the terms and conditions regarding the dissolution of the partnership.
The spouses who become partners can also make a declaration of reinvestment, that will be attached to the articles of association of the company. This document specifies that personal funds have been used to invest in the company and that the shares are therefore not common property.
It is in the best interests of both spouses to draw up a partnership agreement and to include dispute resolution clauses, such as a buy or sell clause. Thanks to this clause, one of the partners will be able to propose to the other to buy his shares at a price agreed upon in advance.
Can the compensatory allowance be related to the family business?
The purpose of the compensatory allowance is to compensate, as much as possible, for the disparity that the divorce causes in the respective living conditions of the spouses (according to article 270 of the French Civil Code). It is set according to different criteria : assets of the parties, duration of the marriage, age and health of the spouses, etc.
The value of the shares held by one of the spouses, as part of his or her assets, is taken into account in the calculation of the compensatory allowance. In the context of a divorce proceeding, a chartered accountant can be mandated to estimate the company value. If the value of the shares is common to both spouses, it will be divided equally between them.
Compensatory allowance can take different forms: payment of a lump sum, attribution of property, right of use and habitation (temporary or life), annuity…
For example, a compensatory allowance may be paid by one spouse giving up shares in a company to the other. Generally, such a practice exists only if the spouses agree on it.
What happens to the family SCI (Société civile immobilière) ?
If the divorce results in the dissolution of the matrimonial regime, the SCI business owned by the spouses is not necessarily liquidated. The spouses remain partners and the SCI remains the owner of its real estate. Therefore, it is up to the spouses to decide on the fate of their company, whether it continues or it is dissolved.
It should be noted that the matrimonial regime of the spouses determines the nature of the shares. Under the regime of separation as to property, the partner of a SCI business is the sole owner of the shares acquired before or during the marriage. Under community of property, the shares acquired before the marriage are considered private property. The shares acquired during marriage are common property but the status of partner belongs to the spouse who bought the shares.
The nature of the matrimonial regime will therefore have consequences on the distribution of shares.