Divorce and business: how to protect your business and investments from loss of assets

Divorce is a topic that no one wants to think about when entering into marriage. However, the reality in Slovakia is relentless, according to statistics, every third marriage breaks up. In addition to the emotional impact, divorce always has serious property consequences, which can threaten the stability of not only the family, but also the business or investments.

In this article, we look at how assets are divided in a divorce, what the risks are for entrepreneurs and investors, and what options exist to protect assets before problems arise.

Divorce and division of property: How BSM works in Slovakia

In Slovakia, property acquired during the marriage belongs to the community of property of the spouses (BSM). Thus, upon divorce, the property is dissolved and subsequently settled.

Three ways to settle property:

1. Spouses’ agreement – the quickest way if they can agree on the division of property (e.g. who keeps the property, who keeps the company, who keeps the investments),

2. Court decision – if no agreement is possible, the court decides. This is usually based on the principle of equal shares (each spouse 50:50),

3. Statutory presumption – if the property is not settled within 3 years of the divorce, a presumption applies that the assets in the BSM are community of property (50:50).

Divorce of an entrepreneur: risks for the company and investments

If one of the spouses runs a business, the situation becomes more complicated in a divorce. The rights of the shareholder (such as his/her status, decision-making and management of the company, e.g. in a limited liability company) belong to the spouse who is registered in the commercial register. However, the value of the shareholding is already included in the BSM.

That is:

• even if the company “belongs” to one of the spouses, its value is divided in the divorce,
• on the sale of shares or payment of dividends, the other spouse is entitled to a share of the profits,
• transfer of a business share to another person often requires the spouse’s consent as it is not a “normal business matter”.

Practical example: a businessman opened a restaurant while still married. Although the company was registered in his name, after the divorce his ex-wife was entitled to half of the value of the shares and the profits paid out. As a result, the business was sold because the entrepreneur was unable to pay her share in a lump sum and thus the husband’s business came to an end.

Divorce and investments

Divorce is not only about business, but also about investments. If during the marriage you acquire:

• Property,
• securities,
• works of art or other valuable property,

all this is divided in the BSM settlement. It does not matter who made the investments, what is important is that the funds were shared or that the acquisition took place during the marriage.

Protecting assets in divorce: practical solutions

1. Preventive measures (before divorce)

• agreement on the narrowing of the BSM (notarial deed) – allows to exclude the business from the BSM in the future,
• Setting up structures (holding, foundation, trust) – the company can be “kept” outside the BSM, but this needs to be addressed in advance.

2. During the divorce

• good record keeping – it is important to be able to prove what belonged to the BSM and what was exclusive property,
• Expert witness and solicitor – valuation of the business, investments or artwork will be key to the settlement,
• the possibility of an agreement – if you want to keep the business without jeopardising it, look for a way of agreement (e.g. paying off the spouse with other assets).

Estate Vault: solutions for divorce situations

Divorce does not only mean the end of the relationship, but also a fundamental change in the property situation. Especially for entrepreneurs and investors, divorce can be a risk that can destroy years of building a business or portfolio. The solution is to prepare in advance through legal instruments and an appropriate property structure.

V Estate Vault we’ll show you how to:

• Prepare the company and investments for eventual divorce,
• set up structures that minimise risks,
• conduct negotiations in a way that keeps you in control of the business.

Book a consultation and get a tailored solution to protect your assets.