Company Valuation in the Event of Divorce in Germany

The first challenge in company valuation in divorce is the company valuation itself. Only when a binding value has been established can the assets be divided. For the correct division of assets in the context of divorce proceedings, the value of the business at the beginning of the marriage is particularly relevant. This value is then compared with the company value at the time of the application for divorce to determine the gain – which forms the relevant asset value in a divorce.

When dividing assets at the end of a marriage, the exact value of the assets – and therefore also the objective market value of the company – is essential. There are different methods for calculating the precise value of the company, which can and should be applied cumulatively to make a statement about the company’s actual value as reliable as possible. Two calculation methods, in particular, have been established. The capitalised earnings value method estimates the future earnings, considering the profits from the previous year. For freelance practices of doctors, tax consultants, lawyers, and other owner-managed businesses, distinctive features apply that make it necessary to use a modified capitalised earnings value method. The net asset value method recognises all assets and hidden reserves, and liabilities are deducted from this value. In addition, an intangible value, known as goodwill, is added to the total value.

The following factors are decisive for determining the company value:

• Profit situation,
• future earnings prospects,
• asset values,
• goodwill,
• customer base and contracts,
• risk profiles,
• competitive environment,
• market development.

Mutual rights to information exist so that the spouses can determine the company’s value objectively without failing to provide certain information. These ensure that all the information required to determine the value of the business can be collated. There are claims of submitting an inventory to the valuation by the spouse and an expert. To avoid disputes about the valuation of the business and to be able to present a bindingly determined value in the event of any legal proceedings, it is always advisable, and in some circumstances even necessary, for the valuation to be carried out by an expert within the framework of an expert report.

Without a prenuptial agreement, the statutory standard case of the community of accrued gains applies following Section 1363 of the German Civil Code (BGB). The assets accumulated during the marriage (accrued gains) are divided equally between the spouses. Both spouses’ initial and final assets must be considered under Sections 1373 et seq. BGB, whereby companies or company shares are also included to calculate the accrued gains. To determine the gain, the difference between each spouse’s initial and final assets is calculated. If one spouse’s gain exceeds the other’s gain, the other spouse is entitled to half of the difference as an equalisation claim.

Alternatively, a divorce settlement agreement can be reached in which the spouses agree on a specific equalisation amount. Such an agreement ensures that no further payment claims from the marriage can be asserted. Both spouses should be legally represented to ensure that a fair settlement is agreed upon and their rights are protected.

The most common constellation is that one of the spouses is the owner or shareholder of the business, and the other spouse is not involved in the business. The company’s division is primarily about the division of value. There is no obligation to divide the shares in the business. In most cases, it is, therefore, a matter of paying out the value of the business as part of the equalisation of gains.

Often, most of the assets, or at least a significant part, are in the form of the company value. In a divorce, the company may have a considerable value on paper, but the liquidity for an equivalent equalisation payment may not be available. This can cause significant problems, even jeopardising the business’s existence should a forced sale be necessary to meet the divorced spouse’s equalisation claim.

A marriage contract can decide to avoid the equalisation of accrued gains entirely by agreeing on the separation of property. Alternatively, it can be decided that company assets are excluded from the equalisation of gains or limited. A prenuptial agreement is as individual as the couple concluding it. There are countless possibilities and nuances in its layout. Our German family and contract lawyers are experienced in drafting and reviewing prenuptial agreements. They will ensure a legally effective agreement that protects your rights and interests in every respect.