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KMU-Magazin No. 10, October 2022 Entrepreneur and Divorce

The consequences of a divorce can have a serious and lasting impact on the assets of the spouses. This article is intended to show the entrepreneur, or business-owning, spouse the problem areas of divorce in connection with his or her assets and income, while at the same time pointing out possible solutions.

In Switzerland, spouses can choose between three different matrimonial property regimes: joint ownership, community of property and separation of property. Each matrimonial property regime has its own rules on how the assets are treated in the event of the dissolution of the marriage. If the spouses do not conclude a prenuptial agreement or if there is no court order for the separation of property, the spouses are automatically subject to the rules of the community of property. Since this applies to well over 50 percent of marriages, the focus below is on the matrimonial property regime of the division of property.

Legal starting position

Under the matrimonial property regime, the assets are divided into four different "pots" depending on their origin. Both spouses have a "personal property" pot and an "inheritance" pot. Personal property includes all assets that are exclusively for the personal use of one spouse - such as clothes, jewelry, etc. - as well as all assets that one spouse has brought into the marriage or that have subsequently accrued to him or her free of charge through inheritance or otherwise, as well as replacement acquisitions. The pot of acquired property includes, among other things, the income from work, i.e. the salary saved during the marriage, the income from personal property as well as any replacement acquisitions for acquired property.

In the event of dissolution of the marriage, each spouse is entitled to half of the net assets that are in the two pots "Errungenschaft", or acquisitions, at the time of dissolution. This can become a problem for a spouse who has more assets in his or her inheritance compared to the other spouse if there are not sufficient liquid assets.

In the worst case, the financially better-off spouse would have to sell assets to release sufficient funds for payment. If the assets in question are shares in a company owned by the entrepreneur, the entrepreneur spouse would have to sell his or her shares or take possession of them. This is a real disaster for any entrepreneur who wants to preserve the business beyond the divorce.

With prudent planning, the entrepreneur spouse can avert this horror scenario.

The own property

If one spouse establishes a company (AG/GmbH) before marriage, he or she does not have to share the shares with the other spouse in the event of a subsequent divorce, as the shares are to be allocated to his or her own property. The same applies if the shares accrue to the spouse by way of a gift or inheritance or if he or she acquires the shares from gift or inheritance funds or other personal property.

Irrespective of the allocation of the partners' shares, the law allocates the salary received by the company to the acquisition. Consequently, the entrepreneur spouse must share with the other spouse the salary saved up during the years of marriage.

The law also assigns the income from own property to the entrepreneur spouse's acquisition. This includes, among other things, the dividends received from the shareholder shares.

Consequently, the entrepreneurial spouse must share the dividends saved during the marriage with the other spouse in the property settlement. If the marriage lasts several years, this can mean a considerable sum which the entrepreneur spouse must pay to the other spouse.

This danger can be averted by means of a publicly notarized joint marriage contract. In order to preserve the business in the event of divorce, the spouses may agree that assets of the estate which are intended for the exercise of a profession or the operation of a trade constitute personal property. Such "assets" include, on the one hand, objects intended for the exercise of the business and, on the other hand, participations in the business of a certain importance that are connected with the business activity of the entrepreneur spouse.

What is probably more significant is the possibility for the spouses to allocate the income from the personal property to the personal property itself and not, as provided for by law, to the acquired property. Thus, in principle, all dividends from personal property shares fall into the personal property of the entrepreneur spouse and do not have to be divided with the other spouse in case of divorce.

It should be noted, however, that only that pecuniary income can be excluded from the inheritance which is attributable to the capital invested in an entrepreneurial capacity. Everything that can be attributed to the entrepreneurial activity in the sense of an appropriate compensation remains reserved for the inheritance. Thus the ruling of the Federal Supreme Court. What is to be understood by "reasonable compensation" must be assessed on a case-by-case basis, taking into account the relevant activity.

Consequently, a spouse who works in an entrepreneurial position must pay himself or herself an appropriate wage for his or her work, which is included in the inheritance. He or she may not have his or her entrepreneurial compensation paid out solely via dividend distributions, since otherwise the other spouse would be left empty-handed. This is not in line with the legislator's idea of wanting to protect the spouse's business alone by excluding investment income from the inheritance.

Postmarital maintenance contributions

The so-called "single-earner marriage" is still widespread in Switzerland. In this case, one spouse takes care of the joint offspring and for this reason does not work outside the home or works part-time. The other spouse usually works more or full-time.

If one spouse is active in business and for this reason generates family maintenance, the question arises upon dissolution of the marriage whether the other spouse can assert financial claims - so-called postmarital maintenance - to maintain the standard of living led during the marriage.

According to the case law of the Federal Supreme Court, postmarital maintenance is only owed if the specific marriage has shaped the lives of the spouses. In this context, one also speaks of a life-defining marriage.

In particular, according to the highest court, a marriage is life-defining if one spouse has given up his or her economic independence in favor of taking care of the household and children and it is therefore no longer possible for him or her to continue in his or her former professional position after many years of marriage, while the other spouse was able to concentrate on his or her professional advancement in view of the marital division of duties. However, the upper limit of the maintenance claim is always the last jointly lived standard.

This constellation is often found in spouses where one of the spouses is active in business and there are joint children. In the event of a separation or divorce, additional costs suddenly arise (financing of a second apartment including household goods, possibly a second car, etc.), the payment of which can put the family in financial difficulties.

This can be counteracted by the spouses consistently implementing the so-called school step rule of the Federal Supreme Court. As soon as the youngest child starts school (entry into kindergarten), the spouse who takes care of the children and the household can be expected to work 50 percent of the time. From the time the child enters secondary school, the spouse may be expected to work 80 percent of the time, and from the time the child reaches the age of 16, the spouse may be expected to work full time.

Occupational pension assets

In the event of divorce, the law stipulates that the occupational pension entitlements acquired during the marriage up to the time of the initiation of the divorce proceedings shall be settled.

If a person works in a self-employed, entrepreneurial position, there is no obligation to contribute or no pension assets. In the event of divorce, there would be no pension fund assets to divide. If the entrepreneur spouse has built up his or her pension provision via the third pillar and used his or her work earnings for this purpose, the amount of the third pillar falls under the acquisition and must be shared with the other spouse in the event of divorce.

For further information on the treatment of pension assets under divorce law, please refer to our article in "KMU Magazin" No. 10, October 2021 .

Concluding remarks

For the entrepreneur it is true that he or she has to deal with a possible divorce and its hypothetical consequences already at the time of the marriage if he or she does not want to experience any unpleasant surprises. It is understandable that such thoughts are completely unromantic at the time of marriage. However, such decisions at the beginning of the marriage are of utmost importance for the continuation of the business after the divorce. In many cases, an entrepreneur is not only responsible for his or her own happiness, but also for that of numerous other people, such as employees and customers.

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