Our Services for Entrepreneurial Divorces: Advice on Division of Business Assets
At Schlun & Elseven Rechtsanwälte, our lawyers assist entrepreneurial clients in cases of divorce. As a full-service law firm our lawyers will assess the options available to you in German family law but also in corporate law and other legal fields. As experienced contract lawyers, our team expertly draft and thoroughly analyse contracts and can be relied upon in any negotiations which may take place. Here is a list of some of the services we offer:
- Comprehensive advice in corporate law and family law,
- Expertly drafted prenuptial agreements to protect the company in the event of separation or divorce,
- Drafting of divorce settlement agreements to protect business assets, company shares and the company itself,
- Representation in contentious divorce proceedings by our experienced German divorce lawyers,
- Advice on the division of property and assets in German divorce,
- Avoidance of tax risks of divorce,
- Valuation and sale of companies in and after the divorce.
The above-listed are just some of the services our legal advisors provide.
Importance of the Prenuptial Agreement
The prenuptial agreement is the surest way of protecting business assets following a divorce in Germany. The marriage contract (prenuptial agreement) is provided for under German law by § 1408 BGB, and all married couples should consider it as it provides certainty in the event of a divorce. A prenuptial agreement designed and agreed at the right time can prevent bitter disputes between the pair from arising. In addition, the agreement will provide clear guidance on gains made during the marriage, spousal maintenance and pension equalisation rights. It is before the marriage (during the engagement) and in the early stages of the marriage, that is the best time to draft the prenuptial agreement. The best agreements are drafted when the parties do not have a reason to believe that the marriage will end soon.
Although a marriage contract should be considered by all couples, for entrepreneurial partners, it is vital. In Germany, the assets obtained during the course of a marriage are seen as the accrued gains of the spouses and thus will be divided equally in the event of a marriage ending. Although assets gained pre-marriage are not counted, this still leaves you open to significant losses. This statutory requirement for accrued gains is provided for under § 1363 BGB and states that this is the statutory requirement if there has not been an agreement:
(§ 1363 BGB) Community of accrued gains
- The spouses live under the property regime of community of accrued gains if they do not by marriage contract agree otherwise.
- The property of the husband and the property of the wife do not become the common property of the spouses; the same applies to property that one spouse acquires after marriage. The accrued gains that the spouses acquire in the marriage, however, are equalised if the community of accrued gains ends.
Without the prenuptial agreement placing a limit on what the other spouse is entitled to in the event of a divorce, the entrepreneur leaves themselves open to major disruption, and, potentially, losing their business. Working alongside an expert family lawyer is crucial in drafting and assessing the prenuptial agreement.
Finally, it is noteworthy that prenuptial agreements can be altered in the future. It is advisable to consult with legal experts when making such changes to ensure that they remain in line with the requirements of German law. Improper actions can leave the individual open to legal conflicts in the future.
Limitations of the Prenuptial Agreement in Germany
The prenuptial agreement is the best means of ensuring that the risks involved with the division of business assets post-divorce are reduced, however, the prenuptial agreement also has limitations. Spouses who are in a significantly better financial position than the other cannot simply pressure the other spouse into signing a detrimental agreement. Courts will intervene in cases where a spouse seeks to completely avoid paying spousal maintenance when the other spouse would appear to require it. They will also likely intervene where one spouse tries to avoid paying child support payments. Essentially, in the event that there are children in the marriage, it is likely that one spouse may have reduced their earning potential to take a child-caring role. Courts want to ensure that this not exploited in the prenuptial agreement.
Trying to resolve such disputes out of court in an amicable fashion is usually in the best interests of the parties involved. Where it is in our client’s interests, our lawyers will seek such resolution to disputes. Time-consuming and costly legal disputes may cause major complications for clients seeking to protect their business assets in the event of a divorce case.
Amicable Divorce Proceedings and the Division of Business Assets
If the marriage contract has not been drawn up before now, and if you have reason to fear that this may damage your business assets, our German family lawyers will support you. The divorce does not prevent you from being a shareholder in a company, and it does necessarily mean that you need to lose business assets; however, without a pre-agreed marriage contract, it may mean that you need to negotiate carefully. An amicable divorce, where the key matters such as spousal maintenance, pension equalisation and gains equalisation are resolved outside of court, is strongly advisable. Consulting with experienced divorce lawyers ensures that you will receive expert advice concerning such negotiations and discussions.
Reaching an agreement that protects your business may involve negotiating on terms that include some of the following points. These points refer to the equalisation of gains.
- Reach an agreement to exclude the company and business assets from the equalisation of gains,
- Agree to only value the company at book value,
- Agree to set a maximum amount for the equalisation of gains,
- Defer the equalisation claim to allow you to get the business assets in order,
- Agree to have the equalisation claim paid in instalments.
These are just some of the recommended steps to take to reduce the impact of the divorce on your business assets. Should an agreement be reached which is favourable to all sides, make sure to prepare a notarially-designed legal agreement. Remember, an amicable divorce is usually the preferred option for all parties, especially in cases with children involved. An amicable divorce allows for easier future arrangements concerning child custody and access and allows for a smoother and less time-consuming divorce process. Antagonistic divorce proceedings can be destructive and cause more pain than is necessary.
Divorce in Germany and Entrepreneurial Spouses
It may be the case that both spouses are involved in the company, whether as shareholders, managers or partners. Of course, it is advisable to try and maintain a professional relationship for the sake of the business, but the trust element necessary for a business relationship may be permanently damaged following the divorce. In such situations, it is even more important for a mutually beneficial prenuptial agreement to be agreed beforehand, and even if not, to have an amicable divorce. Time spent focused on the divorce and conflict, is time diverted from achieving what is best for the business.
However, such an ideal arrangement is not always possible. To prevent private disputes between you as partners of the business from disrupting the company, it may be advisable to agree to a partnership agreement in advance. Such a partnership agreement can act as a defence against spouses from acting maliciously, such as by blocking necessary business decisions through their partnership position. Ensuring that there is an advisory board in the company is another means of protecting the company as they act as a go-between for the company and the shareholders. Having such an advisory board in the company is a means of preventing such disputes between shareholders from damaging the company
Other steps to protect the company are having one spouse buy the shares of the other, or have a mechanism enshrined that the current shareholders have a right of first refusal when another shareholder wishes to sell their shares. If both spouses have been heavily involved with the business, resolving the issue in a professional and amicable manner is the best means to ensure that the company can continue. Consulting with German divorce lawyers to discuss how best to achieve this result is strongly advised.