Entrepreneur and married under the statutory regime: what if your business is thriving, but your marriage isn't?

Are you married under the statutory regime and do you own shares in a company that are considered part of your separate property (because the company was acquired before the marriage or with your own funds)? If so, a recent ruling by the Constitutional Court is particularly relevant should you ever face a divorce.

1. The Situation: Treasury Stock, Yet Still Impacting the Company’s Net Worth

When you married are under the legal system are there three powers:

• Each spouse has a equity, consisting of (1) the goods that he or she already before the wedding possessed and (2) the goods that during the wedding are obtained via legacy or donation;
• In addition, there is the common equity in which the income is held and goods acquired during the marriage be purchased. Income includes not only earned income but also income from personal assets, such as dividends on personal shares. These assets belong to both spouses and are divided equally upon dissolution of the marriage (e.g., in the event of a divorce).

Do you practice your profession in a company? Then the underlying principle of a legal system is that the community's assets must not suffer any detriment as a result. This disadvantage arises when:

• (1) the shares are owned by the company
• (2) Profits in the company are ‘hoarded,’ and
• (3) the correct compensation is not paid.

Especially when it comes to divorce There may be some debate on this matter, since the value of the shares is part of your separate property and no accumulation of assets has occurred in the community property due to the lack of distributions.

For a number of years now, the Civil Code has provided that, in the event of a divorce, your spouse retroactive entitlement may be based on what the partnership would reasonably have received had you not conducted your professional activities through a corporation.

However, a recent ruling by the Constitutional Court goes a step further.

2. What did the Constitutional Court decide?

The Court bases its reasoning on three pillars, based on the premise that the pooling of earned income is a fundamental characteristic of the legal system.

Under that principle, spouses may not to deviate from this through a prenuptial agreement, neither in whole nor in part.

2.1. Neutrality in the Practice of the Profession

When you carry out your professional activities as an employee or as a self-employed person through a sole proprietorship, you generate employment income that automatically form part of the common property.

The principle that this professional income is jointly owned must not be circumvented by carrying out the same activity through one’s own company and ‘pocketing’ the profits.

2.2. The shares and any appreciation in their value remain the owner’s property

Shares that you acquire with your own funds, remain our own, even if their value increases as a result of your efforts or professional activities during the marriage.

2.3. In the event of termination, compensation is due

To restore balance, one can equity is required to pay a fee to the common fund. According to the Constitutional Court, that compensation includes not only the lost earned income, but can it also capital gains on the shares include, to the extent that such added value results from your professional activity during the marriage.

That distinction is important. Suppose the company owns a piece of real estate that was not acquired with funds derived from your professional activities. You are not required to contribute the increase in value of this real estate to the joint assets.

3. A concrete example

4. What about a prenuptial agreement?

With a prenuptial agreement, you can appointments create one in which you differs of the legal rules, but the possibilities are limited.

What is possible, however, is: You can include in the prenuptial agreement valuation principles record, for example:

• the value of the company at the beginning of marriage;
• a explicit clause that increases in the value of real estate held by the company (and not financed with business income) not reimbursed must be.

Division of property as an alternative

Do you want to avoid such discussions about financial settlements in the event of a divorce and ensure clarity for both spouses from the outset?

In that case, entrepreneurs who hold their own shares may choose to marry under a regime of division of property, supplemented, if necessary, by solidarity mechanisms between the spouses.

5. Our Conclusion

The Constitutional Court's ruling confirms that the combination of a own company and a marriage under the statutory system can have a significant impact in the event of a divorce.

Apart from the principles governing compensation in the event of divorce, it will also become apparent in practice that the Calculating the compensation due is often complex . Determining the extent to which the capital gains on the shares result from your professional activity requires a thorough analysis and, in the absence of clear prior agreements, can lead to disputes.

This calls for a A well-thought-out approach before problems arise and thus from the very beginning of the marriage or partnership.