Business division between spouses in a divorce in Russia

Business division in a divorce in Russia Subscribe to us: Website: 0:00 Beginning 0:34 Legal norms 1:32 Individual entrepreneur (ИП) business division 3:42 LLC division One of relevant, but at the same time complex issues in property relations is the division of business assets of spouses if their marriage ends. Difficulties in dividing a business between former spouses are due to the fact that relations associated with family business are regulated not only by family law, but also by corporate law, because in this case we’re talking not just about protecting the rights of each spouse, but also the rights of third parties (other business participants / counterparties). LEGAL NORMS The Russian Family Code states that ALL property acquired by spouses during marriage is their marital / common property. In addition, the marital property includes the income of each spouse from labor or entrepreneurial activity and the results of intellectual activity. It also includes securities acquired at the expense of the spouses’ common income and shares in capital contributed to commercial organizations, regardless of which spouse’s name the shares are registered in or which spouse contributed the money. But what is meant by the word “business” is not an independent object of rights, that is, it cannot be divided in the same way as a car, apartment or money. Business is an activity done either in a commercial organization or in the form of an individual entrepreneur. And their division is carried out differently. ---------------------- INDIVIDUAL ENTREPRENEUR BUSINESS DIVISION First, a simpler case, when the business was carried on in the form of an individual entrepreneur. It’s simple here: everything that the Individual Entrepreneur has is divided equally. The matter is a feature of individual entrepreneur business is that the entrepreneur’s property is inseparable from the same individual’s property, since an individual entrepreneur is, first of all, an individual who is engaged in entrepreneurial activities. That is, an individual entrepreneurial business is not an independent object of civil rights, and, thus, is not subject to assessment and division. However, PROPERTY acquired by an individual entrepreneur during marriage during their entrepreneurial activity, as well as income from this activity, ARE community property. In other words, if a divorce involves this type of business, then trade equipment, inventory, transport, revenue and funds in accounts will be divided. In general, everything that an entrepreneur owns is exactly the same as if he did not have this status. On the one hand, this position seems justified. But on the other hand, a spouse who does NOT have individual entrepreneur status may find themself in a losing position, since if the spouse who is an individual entrepreneur has a license, some property rights, for example, a lease right, or an established reputation, then they will not be taken into account. That is, if the same business were operated as an LLC, then a spouse who doesn’t have individual entrepreneur status could claim half the share or compensation in the amount of its actual value. In the case of an individual entrepreneur, he or she will not receive, let’s say, “compensation,” for such non-property rights, and even after the division of property, the individual entrepreneur will continue to make a profit, while the second spouse will receive only 50% of the value of the property after its division. ------------- LIMITED LIABILITY COMPANY DIVISION The second, much more complex case is the division of shares in an LLC (OOO in Russia). Shares in the authorized capital of a commercial organization acquired at the expense of the common income of the spouses are also marital property. Note that the right to a share in a company is a combination of property rights (receiving dividends, distributing profits, etc.) and liability, i. e. corporate rights (participating in managing the affairs of the company, getting acquainted with its documentation, etc.). These rights can only be exercised by the participant in the company. The mere transfer of a share in the authorized capital of an LLC to one of the spouses resulted from the marital property division doesn’t automatically entail the acquisition of the status of a participant in the company. ------------- The net assets value is the difference between the value of the organization’s assets accepted for calculation and the value of the organization’s liabilities accepted for calculation. Companies prepare annual accounting (financial) statements for a calendar year, and if an actual share value payment demand is made, for example, on June 15, 2023, then its value must be determined on the basis of financial statements as of December 31, 2022. #familylawyer #propertydivision #businesslawyers