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Divorce with a business involved: How does divorce impact a business?
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Business owners: how to choose the right matrimonial property regime when living in France
Business owner: choosing your business type
Business owner’s divorce: think about mediation
Business owner: financial impacts of a divorce
PacisLexis Family Law
Divorce with a business involved
Our firm, located in Paris, provides a comprehensive guide to divorce with a business involved.
The life of a company is shaped by economic and legislative changes, but these elements do not determine a company’s viability. Indeed, financial and management issues can come up when getting a divorce.
Despite private and emotional issues a business owner may have, you can face financial and legal consequences putting your company at risk.
When getting a divorce, the company’s future will be based on your matrimonial property regime and contractual agreements.
Therefore to avoid any issues, you have to take steps to protect your business and to seek for a divorce lawyer for business owners.
To assist you with legal aspects of a business, we can schedule an appointment within 48 hours in our offices.
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Divorce with a business involved
Business owners: how to choose the right matrimonial property regime when living in France
What kind of marital property regime for a business owner?
We strongly advise you to opt for ‘la separation de biens’, Separation of property in English.
“Séparation de biens” is a legal term in France that refers to a marital property regime where spouses maintain separate ownership of their assets and liabilities.
In this arrangement, each spouse owns and manages their own property independently, and there is typically no community property.
This means that assets and debts acquired during the marriage are generally considered the exclusive property and responsibility of the spouse who acquired them.
What kind of marital property regime should not be chosen?
- Le régime de la communauté universelle : To choose this regime, spouses must get a marital agreement contract. In this regime, assets and properties acquired before and during the marriage are considered joint.
- Le régime de la communauté réduite aux acquêts : This regime is also known as the default regime. Assets, liabilities and properties acquired before the marriage are considered separate. All assets, liabilities and properties acquired during the marriage are considered joint.
Indeed your business will be likely marital property leading to several issues:
- Operations, management and control of the business during the divorce as you could end-up being in a business partnership.
- Division of the business: the spouse business owner will have to give up half of the business in community property shares or a similar amount in equitable distribution,
- In case of bankruptcy, debtors will go after the business owner assets putting the whole family in danger .
What are the risks with ‘participation aux acquets’ regime?
Le régime de la participation aux acquêts : This regime is between ‘la communauté de biens’ and ‘la séparation de biens’. In case of a divorce or death, a spouse will get the benefits of getting half of the assets from the other if an increase in earnings and assets.
With a divorce, the ‘richest’ spouse will have to pay a “share debt maintenance”. It’s a subtraction between both spouses final assets and both spouses initial assets.
Thus, if you’re a business owner and have more assets and incomes, you are entitled to pay half of the additional assets and incomes you got. If you don’t have enough cash and properties within your assets, you will have to withdraw the money from your company. That’s why a divorce can have an impact on your business.
However, your ex-to-be partner will not be entitled to shares and stock shares.
This regime is quite interesting for a business owner as creditors will not go after your private assets and properties to repay the company’s debts.
What shall a business owner do when not sure about the regime to choose?
We strongly advise you to seek for a lawyer or a Notary.
The main goal of a family law lawyer is to protect you and your children and not your partner or fiancé.
Our firm is specialised in issues relating to business owners.
To assist you with legal aspects of a business, we can schedule an appointment within 48 hours in our offices or live video chat.
What to do if the chosen legal regime doesn’t fit the business owner circumstances?
When getting married and when the legal regime doesn’t fit the business owner circumstances, spouses will have to change their regime.
This is submitted to both spouses’ agreement.
How to change a marital property regime?
Changing a legal regime is done by a deed. Your notary drafts a legal convention of change.
Conditions to change your marital property regime:
- Both spouses’ agreement
- This new regime must be in accordance with the family and children’s best interests.
- Former marital property regime dissolution when necessary. There is no dissolution when spouses go from a legal marital property regime to a universal property regime as it’s only growing. This is different when going from a ‘communauté réduite aux aquets’ to a separate assets regime.
Once the change is complete, the Notary will get in touch with a civil registration clerk where the marriage has been celebrated to modify the spouses certificate of marriage.
The approval of the marital regime change agreement is required in case it faces opposition from third parties, the children, or creditors.
Divorce with a business involved
Business owner: choosing your business type
Does an EIRL interesting for a married business owner?
Yes!
In the United Kingdom, there isn’t an exact equivalent to the French “Entrepreneur individuel à responsabilité limitée” (EIRL), which is a form of business structure that allows individuals in France to limit their personal liability while operating as a sole trader. However, in the UK, there are similar structures that individuals can consider, each with its own characteristics such as sole trader, LTD and LLP.
This type of structure in France allows the business owner to set a non-insolvency statement.
In other words, company creditors can’t claim money from the debtor private assets.
Sole trader type (in France it’s commonly known as entreprise individuelle):
Being a sole trader in France means that you will be responsible for the company’s debts.
There is no distinction between your private assets and the assets of your company.
Therefore, your partner could also be a debtor.
How to choose an operation model for your company when getting a divorce?
When getting a divorce and you want to protect your company you could:
- Draft a contract to protect your company
- Getting from your ex-to-be partner a statement outlining the terms and conditions not to get involved in the company and being a shareholder.
- Submit for approval the inclusion of the spouse as a partner upon dissolution of the community (Article L. 227-14 of the Commercial Code)
- Hold your company’s shares throughout a holding company.
- Drafting a buy-sell agreement to provide protection in the event of any owner’s determination of divorce.
What are the issues regarding the date of incorporation?
It will depend on your marital property regime.
- Communauté réduite aux acquets regime:
When you’re married under this regime, the date of incorporation is really important :
- Getting married before the date of incorporation:
The company is a private asset, and your partner cannot claim any right on your company.
- Getting married after the date of incorporation:
- If the managing spouse is the main shareholder and has given cash and other assets in exchange for stock, a clause within the deed can be included by a Notary to highlight the sole ownership of a business by the managing spouse.
- Additionally, with cash and assets considered jointly owned by the spouses, they share equal ownership of the business, including business shares and other assets.
- The spouses are married under either the regime of participation aux acquets or separation of property.
In such conditions, the company is a private asset of the business owner.
- Communauté universelle regime:
The company is a private asset of the business owner.
Sole ownership clause
This clause highlights the sole ownership of a business by the managing spouse.
This clause mentions that cash and other assets in exchange for stock come from the business owner and remove the company from joint assets.
This clause can be included before or after the date of incorporation.
If it has been included after the date of incorporation the company is removed from joint assets but not from third-parties assets.
Partnership buyout clause
With the community regime, a buy-out clause will determine who gets your ownership interest in the business.
This clause will specify the shareholders’ agreement to buy-out a share in a business.
Thus, if your ex-to-be partner requests shares from your company or to be a business partner, you could agree or disagree.
How to value a company?
In France, there are 2 ways to value a company:
- Comparison value: You have to look at financial of similar public companies and appy their price to earnings ratio to your business. Valuing assets, comparing stock price and earnings and discounted cash flow are just some examples of evaluation methods.
- The NBV: to get the NBV of your business, you need to get the numbers of your liabilities and assets (expenditures, turnover, profits, …).
Divorce with a business involved
Business owner’s divorce: think about mediation
What are the advantages of mediation?
Mediation is a confidential process used to sort any differences with the help of a third party who won’t take sides. The mediation is held by a neutral person called a mediator who is in charge of setting up several appointments and help the parties talk through the issues, negotiate and come to an agreeable solution.
Mediation will help you and your partner to come to an agreement regarding the management and the ownership of your company in a private manner.
Learn more:
What to do when spouses can’t come to an agreeable solution despite mediation?
If you can not come to an agreement, you can take legal action and seize the family law judge.
As mediation is a confidential process, anything that hasn’t been discussed during the mediation appointments cannot be used before the family law judge.
Divorce with a business involved
Business owner: financial impacts of a divorce
What type of divorce should a business owner go for?
If no abuse, we advise you to go for a mutual consent divorce.
A mutual consent divorce involves that spouses come to an agreement both on the terms and conditions of a divorce.
Furthermore, spouses can decide on an agreement that is most suitable regarding their circumstances.
In addition, this type of divorce allows to remove the post-divorce joint ownership regime existing in a contested divorce. This type of divorce is less time consuming, less expensive and preserve both parties’ interests.
Is my partner entitled to half of the business?
Yes!
If your company has been set up or purchased with joint assets, it’s considered a community property so you ex-to-be partner is entitled to half of your business shares.
Will your ex-to-be partner be legally owner of a company that you own?
No!
You will remain the legal owner of your company.
Is paying spousal maintenance has an impact on my company?
Yes!
If you are entitled to pay a spousal maintenance and don’t own any private cash or assets or even cant get a loan, you will have to get the money from your company assets.
Indeed, selling shares in a business can generate cash which can pay down debts so spousal maintenance.
Divorce for business owner in the UK
In the United Kingdom, divorce for business owners involves several considerations, as the business assets may be considered part of the marital assets subject to division. Here are key points to keep in mind:
- Business Valuation: The value of the business will typically be assessed, and this valuation may influence the financial settlement in the divorce. Professional business valuation experts may be involved in this process.
- Financial Disclosure: Both spouses are required to provide full financial disclosure, including details about the business’s financial health. This is crucial for an equitable division of assets.
- Negotiation and Settlement: Spouses can negotiate a financial settlement that considers the value of the business. This may involve one spouse buying out the other’s share or a different arrangement based on the overall assets.
- Court Proceedings: If an agreement cannot be reached amicably, court proceedings may be necessary. In such cases, the court will decide on the division of assets, taking into account factors like the contribution of each spouse to the business and the financial needs of both parties.
- Pre-nuptial or Post-nuptial Agreements: Having a pre-nuptial or post-nuptial agreement in place can provide clarity on how business assets will be treated in the event of a divorce. While not always legally binding, they can carry significant weight in court.
- Tax Implications: Consideration of the tax implications of any financial settlement is essential, especially when it involves business assets. Professional advice may be needed to navigate potential tax liabilities.
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PacisLexis Family Law
You want to learn more about impacts on your company with a divorce?
Given the complexity of divorce involving business ownership, seeking legal advice from family law specialists and potentially involving financial and business valuation experts is advisable to ensure a fair and equitable resolution. Laws and procedures may change, so it’s important to consult with legal professionals familiar with the international current regulations.
PacisLexis Family Law
Our divorce articles
High net worth divorce
Divorcing is financial and time consuming and is also emotionally difficult.
In France, high net worth divorces are more complex due to the nature and size of the assets but also depending on the matrimonial property regime chosen in the first place.
Moreover, in a high net worth divorce, spouses have become used to a high standard of living too and their needs and expectations are thus different to a standard divorce.
As the expectations are higher, disputes can also be more important.
Civil partnership agreement
What is a PACS in France?
PACS stands for civil partnership between two people who do not wish to get married but look for a legal recognition. PACS is available to both same-sex or opposite-sex couples.
In France you can go to your town hall to register a PACS but also to bring it to an end whenever you want. In England to end a civil partnership, you have to wait until it has lasted for at least a year.
Calculating child maintenance payments
Child maintenance calculations can vary between countries, and both France and the UK have their own systems for determining child maintenance payments.
United Kingdom (UK):
In the UK, child maintenance payments are typically determined by the Child Maintenance Service (CMS), which is a government agency. The CMS uses a formula to calculate the amount of child maintenance that the non-residential parent (the parent who doesn’t have the main day-to-day care of the child) should pay. The formula considers factors such as the non-residential parent’s gross income, the number of children involved, and the number of nights the children spend with the non-residential parent.