Are you getting divorced and have your own limited company? Or is your partner a director-major shareholder? Then the divorce can be complicated. Especially if one partner has to buy out the other. What should you pay attention to?
Nuptial agreements
If you are married under a prenuptial agreement, the agreement may stipulate that the private limited company falls outside the community of property. In that case the private limited company remains outside the divorce and nothing needs to be divided or settled. But beware: has a so-called periodic settlement clause been included in the prenuptial agreement, but you have not settled annually? Then you may still have to divide the value of the shares.
Community of property and buyout
AIf there is a community of property, for example because you did not settle annually or if you married before January 1, 2018 without a prenuptial agreement, the private limited company falls into the community. Because a private limited company consists of shares, this means that the shares must be divided. In practice, this does not happen often, usually the choice is made to buy out the other partner by settling the value of the shares.
This may also be necessary if you married after January 1, 2018 without a prenuptial agreement and the private limited company was started during the marriage with common assets. Indeed, under the law, you are then married in a limited community of property.
If you have any questions about this you can always contact us. We will be happy to answer your questions.
Valuation of the private limited company
Once it is clear that (the value of) the shares in the private limited company are to be divided upon divorce, you need to start determining how much those shares are worth. Business valuation is a complex issue that is the subject of many discussions in practice, so it is important to prioritize it.
How do you determine the value of the private limited company?
We recommend that you leave the valuation of the private limited company to an independent accountant or valuation expert, especially for a company of any size. These experts may use different calculation methods for this purpose:
The intrinsic value method.
With this method, the debts of the private limited company are deducted from the assets, after which the value of the company remains. A disadvantage of this method is that it is a snapshot, so future profits, for example, are not included.
The improved profitability method.
This involves determining a capitalized amount based on projected future net profit (historical profit/depreciation, incidental income/expenses and provisions/reserve). A disadvantage of this method is that it does not take into account the intrinsic value of the company.
The Discounted Cash Flow method.
This is considered the most complicated, but also the most reliable method. The premise of the Discounted Cash Flow method is that the value of the business is determined by the money that can be made from it.
Each method gives different results.
In addition, you and your partner may have conflicting interests in the valuation process. It is important that you choose a method that suits your company and that a buy-out arrangement does not jeopardize the liquidity and continuity of the company. We are happy to advise you on this, of course in consultation with your accountant and/or tax specialist.
Alimony
The calculation of spousal and child support is partially based on the income of the person paying the support. For someone employed, that income is usually quite straightforward to determine. However, for an entrepreneur, it’s different: the revenue of a business can vary from year to year or even from month to month. Additionally, most entrepreneurs periodically set aside a portion of their net profit to pay off debts and make investments. This, of course, affects the entrepreneur’s private income, and therefore the amount of support. You can also come to us for advice and calculations on this matter. Our lawyers specialize in spousal and child support issues and calculations.
You can also contact us if you would like a recalculation of alimony.
Pension in the private limited company
If you get divorced, by law you are mutually entitled to half of the pension accrued during the marriage, unless you agree otherwise in the prenuptial agreement or divorce covenant.
As an entrepreneur, you do not usually build up a pension with a pension fund. Usually, you build up your own pension and it is in the private limited company. Even then, your partner is entitled to half of the value of the pension. It is possible to make customized agreements about this. Because this may have tax consequences, we recommend that you seek legal and tax advice on this.
