Your company, his half? What all (not) belongs to the community property

Are you in business and facing divorce? Then you may be surprised at how much of your business may belong to your (soon-to-be ex) partner. Did you know that community property (CP) includes not only income from employment, but also profits from the business, shares, even property acquired for the business? In this article, you'll find out what all can fall under division in a divorce - and how to prevent it early on.

Author of the article: ARROWS (Mgr. Vendula Růžková, LL.M., MBA, office@arws.cz, +420 245 007 740)

What all belongs to the community property?

The community property includes all assets acquired during the marriage. It does not matter who formally owns it. In practice, this means that entrepreneurs often find that their business is not just "theirs".

The profits from the business that your business generated during the marriage belong to the SJM. This is true even if the business is titled in only one spouse's name. From a legal standpoint, it is important that the profits were generated during the marriage - that is, at the time the property is created as community property.

Real estate and other business assets are similarly situated. If they were purchased with money from a joint account or company proceeds, they are also part of the community property. This applies, for example, to offices, cars or manufacturing equipment.

And finally, shares in companies - did you form an LLC or join a company during your marriage? Even if you are listed as the sole owner, the share is usually part of the community property. And this can be a very sensitive topic in a divorce.

When does a business not belong in the community property?

But there are exceptions that can protect your business. If you know what to look for and how to properly document it, you can save key assets for your other business.

A typical exception is property you owned before you were married. A business established before you were married remains your sole property. But watch out for the profits it generated after the wedding - those are already included in SJM.

Gifts and inheritances are another exception. Did you inherit real estate that the business now uses as an office? Unless the gift or inheritance was commingled with community assets, it should not be subject to division. However, you must have everything thoroughly documented.

Another interesting point is so-called personal property. For example, if you own a valuable art collection or tools that are not used for business, they may be recognized as sole property. But beware - the interpretation of the law is not always clear.

How to protect your business in a divorce?

The biggest mistake is hoping that "it will work out." It's much better to have a plan and know in advance how to protect your business.

If you started the business during your marriage, it falls under SJM. The exception is if you have a prenuptial or marital agreement that exempts the business from the SJM regime. Such an agreement can be a strong legal shield in times of crisis. You can read how to enter into one here: https://www.arws.cz/novinky-v-arrows/manzelstvi-bez-financnich-nejistot-proc-a-jak-uzavrit-predmanzelskou-smlouvu

A different scenario arises if the business was funded from sources that were sole property (such as an inheritance). In this case, it must be possible to clearly demonstrate that the funds came from these sources - ideally through accounting, statements and other evidence.

Example:

Imagine that you set up a business on your own before you got married, but expanded it during your marriage using your joint savings. In a divorce, the other spouse can then claim part of this increased value. Unless you had a clear agreement or separate funding, calculating the share can be complicated - and often leads to unnecessary litigation. You can read what claims your spouse may have here: https://www.arws.cz/novinky-v-arrows/podnikate-a-rozvadite-se.

What can you do today?

First, be clear about your assets. Do you know what belongs to you and what is joint? If you are not sure, a lawyer who is experienced in property settlement can help you.

Proper documentation is also important. Keeping separate accounts, keeping evidence of what you used to fund the business, and keeping your books in order can make all the difference in the outcome of a divorce.

Finally, consider the possibility of narrowing or separating your spouses' spouses.

Divorce doesn't have to mean the end of your business. Contact us today to find out how you can effectively protect your assets.