Rozvod podnikatele a jeho praktické následky z pohledu zkušených advokátů

What is at Stake? Understand the Risks to Your Business

For most people, divorce is emotionally and financially demanding. For entrepreneurs, however, it becomes a much more complex challenge that goes beyond the mere division of joint property. It is often about the fate of the entire business, its financial stability, reputation, and even the entrepreneur's ability to continue leading the company effectively. The risks are immense and can threaten not only personal finances but also the future of employees and clients.

Joint Property of Spouses (SJM) and Your Business: What is Included and What is Not?

Under Czech legislation, everything acquired by spouses during the marriage falls into the joint property of spouses (SJM), unless agreed otherwise, for example, by a prenuptial agreement. This rule also applies to business income and the asset value of companies. To assess a specific situation, three questions are key: When was the business share or company established – before the wedding, or after? What funds were used to establish or develop the company – from your exclusive funds (e.g., inheritance, gift) or from joint savings? And what are the company's profits and debts?

It is important to realize that even if the company was established before the marriage or from your exclusive funds, business profits generated during the marriage and the appreciation of the company achieved during the marriage usually fall into the SJM.

If joint funds were invested in your exclusive company, your partner may demand compensation for these investments. In certain cases, a share in a business company can be part of the SJM, even if it is registered in the name of only one of the spouses. To use assets from the SJM for the business of one of the spouses, the consent of the other spouse is required in the case of higher value.

What typically falls and does not fall into the SJM in relation to business:

• Basic assets: Assets acquired during marriage (salary, business profits, rental income) fall into the SJM. Assets acquired by inheritance or gift (unless explicitly for both), personal items and compensation for bodily harm do not. Even if an asset does not belong to the SJM, the yields from it (e.g., rent from an exclusive apartment) fall into the SJM.

• Company and business share: The value of a business share created during marriage from joint funds and the appreciation of the company during marriage fall into the SJM. Assets acquired before marriage and assets acquired during marriage from exclusive funds (e.g., from inheritance or gift) do not. Note: even if the share itself does not belong to the SJM, business profits and company appreciation achieved during marriage usually fall into the SJM.

• Investments: Investments from the SJM into exclusive assets fall into the SJM; new assets paid for exclusively from exclusive funds do not. If joint funds were invested in an exclusive company, the partner may demand compensation.

• Debts: Debts incurred during the marriage fall into the SJM unless they served exclusively the personal needs of one spouse; debts incurred exclusively for the personal needs of one spouse do not fall into the SJM. An agreement on the assumption of debt between spouses is not binding on the creditor.

The Value of the Company Under Scrutiny: Why Valuation is Key and How It Works?

During a divorce, it is often necessary to carry out an expert valuation of the company or business share. This process is crucial for a fair settlement, but it can be costly and reveal weaknesses in your business. There are different approaches to valuation. Fair value is suitable for a conflict-free resolution of SJM and reflects the specific interests of both parties.

Market value is then determined based on a transaction between a willing seller and an independent buyer on the open market.

Expert opinions for SJM settlement cost around CZK 15,000 and are completed within a few business days. However, a court-ordered expert opinion is significantly more expensive (from CZK 60,000) and time-consuming (usually from 3 months), and is often required in corporate combinations (e.g., mergers) or at the request of the court. It often happens that each party submits its own opinion with different results, which can lead to the court ordering a third, independent opinion.

The Threat of Loss of Control and Risk to the Company's Future

In extreme cases, business shares may be divided between both spouses, leading to the risk that your former partner will participate in decision-making or attempt to sell their share to a third party, thereby introducing an unwanted partner into the company. The impacts of a so-called "corporate divorce" or parting of partners can be devastating. These include financial losses such as blocked accounts, delayed payments, litigation, loss of contracts, frozen bank accounts, termination of contracts by suppliers, and in the worst cases, insolvency and bankruptcy.

Public arguments between partners damage the company's reputation, leading to a loss of customer trust and hesitation of partners to continue cooperation. Negative publicity spreads quickly and can affect market confidence in the long term. Prolonging the conflict paralyzes management, prevents important decisions, and hinders development, leading to a loss of competitiveness, loss of investors, and employees.

In addition, during a divorce, attempts to manipulate assets often appear, such as transfers of assets to third parties, fictitious transactions to reduce the value of the company, or concealing profits. These practices are illegal and can have criminal consequences.

Prevention is Key: Protect Your Business in Time

The most effective way to protect your business is to conclude a prenuptial or postnuptial agreement in the form of a notarial deed. This agreement will clearly define what is part of the joint property of spouses and what remains the exclusive property of one of the partners. It can explicitly exclude the company or business share from the SJM regime.

Such an agreement will bring you clear rules, as you define that the company or business share belongs to only one of the spouses. It will provide protection during divorce, as the business will not be divided as part of the property settlement. And last but not least, it will prevent conflicts, as both parties know in advance where they stand, which reduces future disputes. In addition, the legal framework allows not only to narrow the joint property but also to set up a regime of separate property, where each spouse exclusively owns what they themselves acquired. This regime represents the highest level of protection.

Practical example from the ARROWS law firm: A client, co-owner of a family business, agreed with his wife on a postnuptial agreement that excluded the business share from the joint property. Thanks to the timely arrangement, he did not have to deal with complex transfers after the divorce or worry about the running of the company. Everything went smoothly and without interference in the business.

ARROWS lawyers will help you with the preparation or review of agreements that will protect your business.

Separate Finances and Thorough Documentation: Why a Clear Boundary is Essential

Setting up the legal regime correctly by agreement is important, but in itself, it is not enough. If business finances are mixed with family ones, there is a risk that the court will consider the company part of the SJM – despite the concluded agreement. Therefore, it is necessary to take practical steps. You can immediately separate the accounting so that company income and expenses are kept separately.

Set up a separate account for the company, thereby avoiding tracing the origin of money. And thoroughly document investments – if the company obtained money from joint property, keep a record of it. 

Example: A female entrepreneur invested her own funds in the company but was later unable to prove their origin. During the divorce, the partner demanded a share in the company. With maintained documentation and separate accounts, she would have completely avoided such a dispute.

For large investments, secure the written consent of the spouse if the transaction affects joint property. Get advice from a lawyer to prevent future claims, and regularly update agreements to match the company's current plans.

ARROWS law firm will help you with the preparation of documentation that will protect your business from fines and sanctions.

The Right Corporate Structure: Think Ahead

Consider an appropriate corporate structure, such as ownership through a holding company, which can reduce the risk of losing a share in the event of a divorce. Regularly review property relations and keep track of what financial resources are invested in the company.

Preventive legal steps, such as prenuptial agreements and consistent separation of business and personal finances, should not be seen as a sign of distrust, but as a strategic investment in legal certainty and peace of mind. This proactivity frees the entrepreneur's hands and mind to fully focus on the growth and innovation of their business, instead of constant worries about potential future disputes that could paralyze or destroy the company.

What Risks You Face and How ARROWS Helps

Divorce for an entrepreneur brings specific risks that can threaten not only personal finances but also the very existence of the company. It is crucial to identify these risks in time and actively address them to protect your business. The Prague-based legal team at ARROWS regularly deals with these issues and has rich experience with them.

When Divorce Happens: How to Minimize the Impact

The ideal solution for settling joint property is always a mutual agreement between the spouses. It is the fastest and most cost-effective way. An agreement can also be concluded additionally after the divorce, but a written form is always highly desirable to avoid future doubts.

If the spouses do not agree, the court will decide on the division of assets, which is associated with high costs, and the process can drag on for several years.

When deciding on the settlement of SJM, the court starts from the equality of shares, but it can also take into account other circumstances, such as care for the family and children, contribution to the acquisition of assets, or the needs of dependent children.

The Czech legal team at ARROWS will help you with the preparation or review of agreements for the settlement of SJM that will be legally correct and clear.

The Role of Mediation: A Peaceful Way to Resolve Disputes

If an agreement is difficult due to tense relations, it can be very useful to involve an impartial mediator. Mediation facilitates communication and helps find a compromise solution without the need for court litigation.

Mediation is often cheaper and faster than court proceedings and helps maintain at least basic relationships, which is crucial if you have children together or even a joint business. The court can refer the spouses to mediation if it sees potential for agreement and an effort to prioritize the interests of the children and a reasonable solution over conflict.

Settlement of a Business Share: Options and Strategies

The Czech legal team at ARROWS will help you design the best strategy for settling a business share that minimizes risks and financial problems. The options for settling a business share are diverse and depend on the specific situation.

The main strategies for settling a business share during a divorce:

• Buyout of the share: One partner buys out the share from the other; key is the correct valuation of the share, often with the help of an expert opinion. This is the most common and often least painful option if the parties agree on the price, and it preserves the integrity of the company. However, it requires financial resources to pay out the partner and an objective valuation.

• Division of the company: The company is divided into two or more independent entities. This is suitable if the partners want to dedicate themselves to different business areas or have different visions, and it requires careful legal and tax analysis. It allows partners to go their own way and preserve part of the business, but it is a very complex process with high legal and tax costs.

• Liquidation of the company: The company is terminated and assets are divided; this is a final solution with specific legal and accounting requirements. It terminates all obligations and disputes associated with the company, but it means the loss of the business and its value and is a long and bureaucratic process.

• Exclusion of a partner: A very complex process that requires meeting strict legal conditions and professional legal assistance, usually in the event of a serious breach of duties. It can save the company from the destructive behavior of a partner, but it is an extremely demanding, lengthy, and costly court process with a high risk to reputation.

• Continuation of joint business: In some cases, spouses can continue to cooperate under the same conditions despite the divorce. This preserves business continuity and jobs, but it requires a high level of mutual trust and the ability to separate personal and professional relationships.

The choice of strategy for settling a business share is a critical decision that has long-term impacts on the survival and future direction of the company. Instead of a general "division of assets," specific "corporate divorce" strategies need to be considered. Each option has its legal, financial, and operational implications, and without deep analysis and legal advice, an inappropriate path may be chosen that will harm the company rather than protect it. ARROWS law firm will provide you with legal opinions and representation in courts so that your interests are maximally protected.

Watch Out for Deadlines: The Three-Year Rule and Its Consequences

Spouses have the right to decide on the settlement of assets no later than three years from the divorce. After this period, the so-called automatic settlement occurs. The consequences of automatic settlement are such that everyone keeps what they exclusively use for their needs or the needs of the household. Other joint property, including debts, remains in co-ownership, with the shares of both spouses being equal (each has half).

It is strongly recommended not to wait with the settlement of SJM – until everything is resolved, you continue to be jointly liable for the debts incurred. Inaction after divorce is extremely costly and risky for an entrepreneur. The three-year period for settling SJM is not just an administrative deadline, but a "time bomb," after which automatic settlement occurs, which can be disadvantageous for the entrepreneur and leave them in involuntary co-ownership with their former partner, including joint liability for debts. This represents a huge risk for corporate finances and stability, and therefore immediate legal action after divorce is critical.

Not Just Assets: Other Practical Consequences of Divorce

Debts incurred during the marriage are part of the joint property of spouses (SJM), unless they served exclusively the personal needs of one of the spouses or are excluded from the SJM regime. A key risk is that even if the spouses agree among themselves that one of them will assume a certain debt (e.g., a loan), this agreement only has effect between the spouses, not towards the creditor.

This means that if one of the former spouses stops paying, the creditor can turn to the other spouse.

ARROWS law firm can provide you with legal consultations and help with the preparation or review of agreements that minimize the risks associated with debts after divorce.

Spousal Support: When and Under What Conditions Does the Claim Arise?

Spousal support after divorce is not automatic. It can be granted only to the partner who does not have sufficient means of subsistence or is unable to support themselves through their own work. For example, the long-term unemployed, those with insufficient qualifications, or with a serious health problem that prevents them from working may have a claim. Furthermore, a spouse caring for minor children, if the care limits them from working full-time.

A key condition is that the inability to support oneself must have its origin in the marriage or in connection with it (e.g., giving up a career for the family). It is not enough that the applicant is unable to find suitable employment after the divorce for other reasons. When determining the amount of support, the court takes into account the income and assets of both parties, the needs of the entitled spouse, and the abilities and possibilities of the obligated spouse.

Support does not have to ensure the same standard of living as in marriage; it can be lower. The claim to support expires if the entitled spouse remarries, their financial situation improves, or they start working full-time. So-called punitive support (for the breakdown of marriage) is granted for a maximum of 3 years.

Tax Impacts: What Awaits You After SJM Settlement and Sale of Assets?

SJM settlement is tax-neutral; income from expanding the scope or settling the joint property of spouses is not subject to income tax. However, the taxation of business income and assets in SJM has its specifics. Income from capital assets (dividends, interest, profit shares) is taxed for the spouse in whose business assets the source is placed. If it is not placed in the business assets of either spouse, it is taxed for one of them by agreement, and they can take turns.

Rental income is always taxed by only one of the spouses by agreement, and they can also take turns. Income from the sale of a share in a business corporation is exempt from tax if the period between acquisition and sale exceeds 5 years. When selling real estate after a divorce, if it is a transfer between spouses within the SJM settlement, it is usually not taxed. However, if one of the spouses sells their share to a third party, they should tax the income. Exemption from income tax applies if the seller owned the property for at least 5 years or used it for their own housing for at least 2 years.

The real estate acquisition tax was abolished as of December 1, 2019. Mortgage interest (if the property is in SJM) can be claimed by one of the spouses at 100%, or both equally (50%), up to a maximum of CZK 150,000 in total per household. A parent who has a child in custody can claim a tax benefit for the child; in the case of joint custody, they can agree on the division.

It is important to realize that an inappropriately set settlement can have adverse tax impacts, so consultation with a tax advisor is essential. ARROWS lawyers will provide you with legal consultations and legal opinions to help you optimize the tax impacts of divorce.

The Psychological Toll of Divorce: How to Cope and Protect the Family

Personal Stress and Exhaustion: Impacts on Entrepreneurs and Their Productivity

Divorce proceedings are extremely stressful and emotionally exhausting. Endless negotiations, arguments, and legal battles take a toll on the health and psyche of entrepreneurs, which can lead to burnout, insomnia, and anxiety.

Energy that should be invested in business development is consumed by resolving disputes, leading to frustration, feelings of helplessness, and reduced productivity.

Impact on Children: How to Minimize Negative Impacts on the Most Vulnerable

Children often find themselves in the middle of their parents' conflict, which can lead to the suppression of their own needs, feelings of betrayal, and long-term psychological problems, including the so-called parental alienation syndrome. To protect children, it is crucial to tell them clearly that you are divorcing for reasons that do not relate to them and that they are not to blame for the breakup.

Emphasize that you will both remain their parents and that they do not have to choose between you. Let them know that it is normal to feel anger, sadness, or confusion, and that they can talk about it. Investing in a peaceful divorce process is an investment in the happy future of your children.

The psychological toll of divorce for entrepreneurs is often underestimated, even though it directly threatens their ability to lead the company and make key decisions. In addition, conflicts are transferred to children, which can lead to long-term trauma and even the phenomenon of parental alienation syndrome.

This underlines that a successful divorce for an entrepreneur is not just about protecting assets, but about minimizing the overall "human cost" – protecting one's own health, productivity, and above all, the mental health of children. The legal solution should therefore include a strategy to minimize emotional conflict.

Why is Legal Help Essential? ARROWS is Your Partner for a Peaceful Solution

Comprehensive Legal Analysis and Strategy: Know What You Have in Hand

Given the complexity of SJM and business issues, it is essential to have an experienced lawyer by your side. They will perform a thorough legal analysis of your situation, assess your rights and obligations, and identify all risks.

The Prague-based legal team at ARROWS will help you design the best strategy, whether it is preventive steps or resolving an ongoing divorce.

Negotiation and Preparation of Agreements: Securing Your Interests and Minimizing Risks

An experienced divorce lawyer will help you prepare an SJM settlement agreement that is legally correct, clear, and comprehensible. They will ensure that all conditions of the divorce (financial settlement, division of assets, transfer of contracts, resolution of liabilities, confidentiality, non-compete clauses) are precisely drafted in a legally binding agreement.

In the event of a dispute, they will defend your interests in court and help communicate effectively with the other party, and potentially with creditors as well.

Risk Prevention and Legal Certainty: Peace of Mind for Your Business

With ARROWS law firm by your side, you can be sure that your company is legally protected. We help you prevent disputes, ambiguities, and disadvantageous conditions that could threaten your family relationships or business.

Our specialists prepare clear and practical solutions for you so that you do not have to worry about complex legal phrasing.

ARROWS Lawyers Regularly Resolve These Issues and Offer Clear and Effective Solutions

ARROWS law firm has rich experience in resolving divorces and property settlements of companies. We are recognized as the "Law Firm of the Year 2024" and are trusted by over 2,000 clients.

We offer an individual approach, a clear strategy, and professional legal support to minimize risks and losses during divorce.

For an entrepreneur, the choice of legal representative in a divorce is a strategic decision that goes beyond mere representation in court. The key is the lawyer's ability to act as a proactive partner for a peaceful solution, who not only resolves current disputes but primarily prevents future risks and ensures legal certainty for the company.

For further information and practical advice, you can use our webinar "Family, Business, Property: How to Make Sure You Don't Neglect Anything?". It will help you better navigate legal processes and protect your assets and future.

Final Summary

Divorce is undoubtedly one of life's hardest trials, and for an entrepreneur, it also represents a direct threat to their company. Do not let emotional strain and legal complexities threaten what you have built for years. Remember that timely and professional legal help is key to minimizing risks – from protecting your assets and company, through resolving debts and support, to reducing the psychological impact on you and your family.