It may be decidedly unromantic to consider the possibility of a split on the cusp of getting married, but for entrepreneurs it’s a question that may need some serious thought. The possibility of having to hand over half the value of their assets in a divorce settlement, when most of the assets consist of the company they have built, could have serious consequences for the future of the business, and even threaten its continued existence.
At the very least, a contested division of ownership is liable to lead to considerable disruption, especially for relatively small businesses in which founders, and perhaps their spouses, too, continue to play a central role.
There are three matrimonial regimes in Luxembourg that govern the way assets are treated during the marriage, and how they would be divided in the event of divorce. Entrepreneurs should give careful consideration to how these regimes operate if and when they get married in order to minimise personal turbulence affecting the business and putting its long-term survival at risk.
The default arrangement is the statutory regime, which stipulates different treatment for different types of assets. Those acquired before the marriage, personal items acquired during the marriage, and any assets that have been inherited or received as a gift during the marriage are deemed to be the individual’s personal property and do not have to be split upon divorce.
The regime also deals with assets jointly owned by the spouses, which include “the products of each spouse’s labour” – that is, any money they make from employment or self-employment, income from investments or from their joint assets, plus anything bought by the spouses during the marriage. This distinction means that a company owned prior to the marriage would remain the founder’s personal property, but a company established in the course the marriage will be considered jointly owned.
As an alternative, spouses can elect on their marriage to be subject to the separation of property regime. Under this, there are no jointly-owned assets and all property remains separate, including the spouses’ respective incomes. This regime may entail certain tax disadvantages – for example, it does not permit the efficient sharing of tax allowances between the spouses. However, it is one way for entrepreneurs to ensure that their business will not be collateral damage in a divorce settlement.
At the other end of the scale is the universal community of property regime, under which all assets apart from personal belongings are treated as jointly owned by the spouses, even assets they owned individually before the marriage. In the event of a divorce, the property will be shared equally, with each spouse receiving half of every asset, from refrigerators to entire businesses.
As the default option, the statutory regime can be amended by a pre-nuptial agreement, which must be drawn up by a notary. These agreements can be customised to suit the particular requirements of each couple, and they can be changed by common accord at any time during the marriage.
One issue that should be considered in the event of the break-up of a relationship is debt. In all regimes, including separation of property, joint debt incurred by one spouse may be binding on the other, except where it is “manifestly excessive”, although each spouse is liable for personal debts. In cases of default, creditors may seize common assets, but they are not entitled to take the separate property of the other spouse.
For entrepreneurs, deciding on the appropriate regime is a vital consideration before taking on a lifelong personal commitment – just in case it turns out not to be lifelong.