Marriage And Divorce For Entrepreneurs And Managers

Author:Dr. Christoph Philipp and Lisa Beck
Profession:P+P Pollath + Partners
 
FREE EXCERPT
  1. INTRODUCTION

    Marriage is not simply a legal transaction like any other. Primarily marriage is a very private matter. Nevertheless, entrepreneurs, managers and others with significant assets should not avoid taking the proprietary aspects of marriage into account. This article outlines the relevant proprietary questions arising from marriage and identifies economic risks that can be avoided through careful individual planning.

    The article also takes questions regarding taxes and international law into consideration.

  2. PROPRIETARY ASPECTS OF ENTERING INTO MARRIAGE

    II.1. Legal Starting Point: The Community of Accrued Gains

    In Germany, marriage does not lead to the spouses' properties becoming joint property. However, property acquired during the course of the marriage is subject to a certain degree of economic equalization when the marriage ends. Generally speaking, if the marriage ends, the spouse who has accrued fewer gains during the marriage receives an equalization claim amounting to half of the difference (= community of accrued gains).

    Example: The spouses enter into marriage with initial assets of EUR 1 M each (value indexed). When the marriage ends, one spouse has accumulated assets amounting to EUR 10 M while the other spouse possesses assets of only EUR 2 M. The spouse with fewer assets then has an equalization claim against the other spouse in the amount of EUR 4 M (Calculation: [EUR 10 M - EUR 2 M] / 2 = EUR 4 M).

    II.2. Marriage Contract as an Instrument for Asset Protection

    For this reason, conclusion of a marriage contract before entering into marriage becomes an issue for entrepreneurs, managers and others with significant assets. Particularly, due to the fact that the equalization claim is due in money according to law, this can lead to forced sales, disclosure of hidden reserves or other financial disadvantages, depending on the specific structure of assets. The idea of a marriage contract unfortunately still has a negative connotation and is often deemed unromantic, especially in Germany. Hence only one in four couples in Germany concludes a marriage contract before getting married. This aversion often turns out to be a mistake later, for example, when one spouse has a significantly larger fortune or income than the other, or if one spouse expects significant increases in the value of his or her assets in the future. Articles of association often provide that the partners are obligated to conclude a marriage contract excluding participations in the corporation from the community of accrued gains before entering into marriage. Similar provisions are common in contracts of donation and contracts of inheritance - here the donor or testator often demands that the donated or bequeathed property is secured by a marriage contract.

    II.3. Marriage Contracts for Founders of New Business

    Entrepreneurs whose businesses are still in the development phase should nevertheless consider a marriage contract. Take the example of a successful internet billionaire from the United States: He had married more than 20 years ago without concluding a marriage contract - this was before his future company had even been founded. By the time his marriage fell apart, he had built up an enormous fortune. According to applicable law (State of Washington) the property accumulated during the marriage was to be divided equally. The German community of accrued gains would have led to a similar result. Luckily, the spouses in this case were able to reach an amicable agreement. Our experience shows, however, that this seems to be the exception. Oftentimes these cases lead to full-blown divorce battles that could have been prevented by a suitable marriage contract.

    II.4. Conclusion

    Entrepreneurs, managers and others with significant assets should carefully and matter-offactly consider the proprietary consequences of marriage. The conclusion of a marriage contract may even eliminate potential conflicts and thereby allow for an unburdened beginning to the couple's future.

  3. CONTENT OF THE MARRIAGE CONTRACT

    The marriage contract usually contains provisions regarding the following set of issues.

    III.1. Property Regime

    The property regime of community of accrued gains can be modified by the marriage contract. Certain items can be excluded from the calculation. The equalization claim can be pre-agreed or capped. There is even the possibility to agree on complete separation of property which prevents any kind...

To continue reading

REQUEST YOUR TRIAL