Do you have questions about dividing property in a family company?
Obviously, you have something to lose in a divorce battle and not just money!
You may lose control of your business, your freedom and your relationship with the children if you do not manage things wisely. With 2 decades of experience in achieving fair divorce agreements, I will answer you in advance on a large part of your questions and concerns and show you how to avoid legal and financial problems. In a small family company that is a kind of sole proprietorship, it is advisable not to divide the shares between the spouses, in order to avoid personal friction which will eventually lead to destructive harm to the company.
Setting the determining date for the valuation
The determining date for examining the value of a company is also in dispute. There are several ways to determine this date, including the date the couple separated “on paper” but have not yet divorced, the date a divorce claim was filed by one of the spouses or the date of the divorce itself.
If the divorce date is set as the determining date, this can be a real problem, since a situation may arise in which there is a large time gap between the determining date and the date of the outbreak of the conflict.
Davison of property in the divorce of a family company
According to the Financial Relations Law 5733-1973, all the rights and assets accrued by the spouses during the marriage belong to both spouses in equal parts.
What will be shared between the couple when it comes to the business?
* The value of the business – In order to quantify the value of the business, a professional must be appointed, who will be an actuary or an appraiser who will evaluate the value according to the past incomes and the expected future income.
* The tangible assets of the business – tools, vehicles, real estate, etc., which the professional will value.
* Career assets and reputation of the business – these are all the intangible assets that pertain to the business. For example: degree, license, certificate, good name of the business and the professional reputation. At the time of division we proceed from the premise that all intangible assets result in the earning capacity and potential of the business.
We can already understand from the above mentioned that the division of the business is not a simple thing at all. In a family company the division of the business is even more difficult and complex due to the family structure and the emotions involved.
There are 3 situations for resolving the division of family business at the time of divorce:
* Both parties are on good terms, able to run the company in partnership after the divorce, and decide to leave the company as it is.
* The parties are interested in the division of the company, but are interested in reaching an agreement on how to do so. The arrangement will have to receive the approval of the court.
* The parties could not reach an agreement, and then the court is the one to determine what is the correct arrangement in this case.
First, two different situations should be noted: In the first, only one spouse actually works for the company while the other spouse is a passive partner. In the second, both spouses work and control the company equally or in a situation where both are active employees in the company.
According to the ruling, most of the cases relate to situations of the first type, in which one of the spouses is active and the other is passive. When such a case comes before the court, in most cases it is ruled that the active partner will buy the passive partner’s share in order to create a final separation between the parties. Thus, in fact, the company remains under the control of the active party.
In other cases, when there is no division of an active and passive spouse, the spouses will be treated as two partners in a business dispute. Then the usual rules of dissolving a partnership will apply, in a way that each partner will have the option to purchase the other’s share.
When dividing assets, the principle of reciprocity usually applies and each of the spouses can acquire the rights of his or her spouse.
The court considers a number of options for the division of shared assets between the spouses:
∙ Distribution in kind, ie actual distribution, of the shares.
∙ Payment of money or equivalent value for the shares.
∙ Sale of the shares for the maximum price and distribution in exchange for the sale between the spouses.
One should keep in mind that in the case of distribution a family company, aside from the divorce proceedings, there remains a need to manage the company and establish rules to protect its financial interests. Typically, court rulings set the valuation date for shares and assets as the day of separation to ensure a fair distribution a family company process, preventing value manipulation post-separation and excluding profits made by one spouse alone.
In what situations can a partner reduce the value of the company? For example, one of the parties will take actions to improve the company which will cost a lot of money. That party will be able to carry out financial transactions in the business up to that point in time according to which the court ruled that the value of the company should be assessed by an actuary on its behalf. The same expert will estimate the value of the company by that date according to which value it will be divided between the spouses.
