Divorcing if you own your own business: this is how it works

It is important that you consider the consequences for your business when you divorce. It is an important part of your life and your source of income. 

Make sure you keep talking to your partner and make good agreements. Two things are important in this situation: how your marriage or partnership is legally defined and what legal structure your business has.

Status of your relationship

The official status of your relationship determines how you divide your assets and debts in the event of a divorce.

Prenuptial agreements

If you have drawn up a prenuptial agreement, it will state how you divide the assets between you and your partner if you separate. For example, you can agree not to share the business. When divorcing, check whether the prenuptial agreement is still up to date.

Prenuptial agreements often include a settlement clause. This is about dividing income or assets during your marriage and in case of a divorce. It is important to know whether the arrangements in this settlement clause were followed during the marriage. If not, it could affect the division in a divorce.

For example, you leave the profit in your business instead of distributing it. But the settlement clause states that you must share those profits with your partner every year. Then your partner is still entitled to their share upon divorce.

Community of property and limited community of property

Did you marry before 1 January 2018, and you did not draw up a prenuptial agreement? Then you are married in community of property. All assets and debts belong to both of you. Including your business.

Were you married from that date onwards and you did not draw up a prenuptial agreement? Then you are married in limited community of property. Only the assets you built up during the marriage belong to you together. Assets and debts you already had before the marriage are not joint. 

If you already had a business before your marriage, then it is private property. But you may have to pay compensation to your partner in case of divorce for the assets you accumulated with your business during the marriage.

Registered partnership

A registered partnership is the same as a marriage and can be entered into with a prenuptial agreement or on (limited) community of property terms. Again, if you entered a registered partnership after 2017, it is automatically in limited community of property.

The only difference between registered partnership and marriage is the method of ending it. If you are married, you must go to court to divorce. For a registered partnership this is not necessary unless you have children.

Cohabitation contract

Do you and your partner have a cohabitation contract? If so, check what agreements it contains about joint assets, joint debts and sharing pensions.

Legal structure of your business and divorce

The legal structure of your business is important in a divorce. The consequences of a divorce for private property and liability for the 3 most common legal structures are:

Divorce and sole proprietorship

Private ownership: Your business is yours, but the value of your business falls into the community of property. This means that your partner is entitled to half the value in the event of a divorce. Unless there are prenuptial agreements. Or if you married in limited community of property after 2017.

Liability: The owner of a sole proprietorship is personally liable for all debts of the company. If you are married in community of property, your partner is also liable. Your partner’s liability ends at the time of divorce.

Divorce and general partnership (VOF)

Private property: If you and your partner have a general partnership (VOF), the value and assets of the business fall into the community of property. Unless there are prenuptial agreements.

Liability: The partners are personally responsible for the debts of the VOF. If your partner leaves the VOF at the time of divorce, they remain liable for debts incurred during the time they were a partner.

Divorce and private limited company (BV)

Private property: The shares of your private limited company (BV) determine the value of the company, which is included in the community of property. This means you must share the value of the shares with your partner upon divorce. Unless you have a prenuptial agreement which includes other arrangements.

If your partner is a shareholder and wants to sell the shares, they must first offer them to you or other shareholders. Unless the BV's articles of association do not require this.

Liability: Shareholders of a BV are not personally responsible for the debts of the company. Liability is limited to the amount they have invested in the company. Upon divorce, this limited liability does not change. Shareholders remain liable only for their investment in the BV and not for any debts of the company.

Buying out your partner and the value of your business

During a divorce, it is important to know what your business is worth. If you have to buy out your partner, the value of the business will determine the amount you have to pay. You can agree to pay that amount in instalments to keep your business financially sound.

How do you calculate the value of your business?

1. Balance of accounts: see what your business's financial situation is now.
2. Future earnings and risks: Estimate profits and possible risks in the future.
3. Goodwill: Consider the added value of your business, such as a good name or staff with specialist knowledge and experience.

An accountant can help you calculate the value of your business.

Help with divorce

When you get divorced, you have a lot to deal with. Ideally, you want to come to an agreement with your partner and avoid court cases. You can seek help from a mediator.
Together with the mediator, you and your partner write down the agreements in a divorce covenant. These may include alimony, pensions, and the division of assets.
In the covenant, you also record what happens to the business. This can remain private property, but detailed agreements are needed on this. For example, on the value of compensation for your partner.

Do you have questions on divorce and your business, and are you unable to figure things out? Just get in touch with KVK. Together, we can explore your situation and see how we can help you further.