Family business, divorce and claim for award of the share in assets acquired during the marriage

Family business, divorce and claim for award of the share in assets acquired during the marriage

Family businesses in our country are (as we have already seen in our previous article) the vast majority of all businesses. It is estimated that family owned businesses constitute 80% of all businesses (data from 2016) and 44.3% of all listed companies (data from 2020). These include companies with partners / shareholders that are spouses. Also, some others where the main (or sole) shareholder is one of the spouses. Things fact makes things a little complicated when there is a deviation from the evangelical: “Those who God has joined together, man should not separate” (Matthew 19: 6 & Mark 10: 9). From a theological, social, sociological (and not only) point of view. Of course also from the legal point of view. What is the luck of the assets acquired during a marriage that is now dissolved? And what, in particular, happens with participations in equity?

 

The claim for award of a share in the assets acquired during the marriage

In general

The claim for award of a share in the assets acquired during the marriage (: 1400 Civil Code) was introduced in 1983 in our legal system. The relevant law (: Law 1329/1983) aimed at “the application of the constitutional principle of equality of men and women in the Civil Code…”. And also: “… the partial modernization of the provisions of the Civil Code concerning Family Law”.

The claim for award of a share in the assets acquired during the marriage presupposes the application of the system of separate ownership of the spouses (1397 Civil Code). It does not apply when assets are jointly owned by them (articles 1403 et seq. of the Civil Code).

 

The claim for award of a share in the assets acquired during the marriage: the legislation.

It is not uncommon for the property of a single spouse to increase during a marriage. And this happens despite the other spouse’s contributions to this increase. This contribution often translates into the satisfaction of secondary (?) family needs. Indicative: housework, meeting the needs of the children of the family, etc. But sometimes it translates into a substantial contribution to the business activity of the other spouse (eg providing work in their business without pay, providing ideas for business development (1298 / 2016 Multimember Court of First Instance of Thessaloniki).

The legislator “took action” to redress this injustice. The provision of article 1400 par. 1 of the Civil Code stipulates that: “If the marriage is dissolved or annulled and the property of one spouse has, after the marriage has taken place, increased, the other spouse, if they have contributed in any way to this increase, has the right to demand the return of the part of the increase which comes from their contribution. It is presumed that this contribution amounts to one third of the increase, unless it turns out to be greater or lesser or to be no contribution at all.”

Simply put: After the dissolution (or annulment) of the marriage the (non-benefitted) spouse is entitled to claim from the other, whose assets increased during the marriage, their share (based on their own contribution) in augmentation. This contribution, however, must (in order to be compensated) go beyond the “expected”. That is, the (given) obligation between the spouses for contribution to the family needs according to their strengths (: 1389 Civil Code). Only then is the contribution taken into account in determining the amount of the claim on the assets acquired.

 

The system of separate ownership (or separation of assets)

The aforementioned claim for award of a share in the assets acquired during the marriage presupposes the application (otherwise not deviation from the system) of separate ownership (or separation of assets) of the spouses. This system is provided in the provision of article 1397 of the Civil Code. The specific provision states that: “… marriage does not change the separate ownership of assets by the spouses”. The assets of the two spouses are distinct.

Whether, therefore, it is movable or immovable property; whether it was acquired before or after the marriage, the property of each spouse constitutes their individual (separate from the other spouse’s) property. As a result, each spouse has the right to manage his or her personal property as he or she deems fit. And, of course, to manage it freely.

Acquisition of joint assets by both spouses (together) is common. Their relationship with respect to specific, common, assets is not affected from whether or not they are married. The specific relationship is governed, in this case as well, by the provisions of co-ownership and joint proprietorship (articles 785 et seq. And 1113 et seq. of the Civil Code).

 

The impossibility of claiming award of a share in the assets acquired during the marriage: The system of joint ownership

It is possible for the spouses to addopt (in deviation from the system of the aforementioned separate ownership of the spouses) the system of joint ownership (article 1403 et seq. of the Civil Code). The specific system refers to the case where the spouses choose, conventionally, the establishment of “… co-ownership in equal parts of their assets, without the right of each of them to dispose of their share”.

The application of a co-ownership system can take place either before or during the marriage. However, when it is selected, a claim for award of a share in the assets acquired during the marriage cannot be made a posteriori. The purpose for which this claim is to be made is covered by joint ownership.

 

The conditions of the generation of the claim for award of a share in the assets acquired during the marriage

We have already addressed the negative condition that must be met in order for the claim for award of a share in the assets acquired during the marriage to be born. Specifically: to not have applied the system of joint ownership.

However, in order for the relevant claim to be raised, three more, cumulative, conditions must be met. Specifically:

(a) The marriage must have been dissolved or annulled (or, by analogy, the seperation of the spouses for at least three years must have been completed – article 1400 par. 2 of the Civil Code).

The dissolution of the marriage occurs either with the death of one of the spouses or with the issuance of a divorce. In the latter case (: issuance of divorce) as well as the annulment of the marriage, the claim for award of a share in the assets acquired during the marriage is born after the irrevocability of the relevant court decision (1438 par. 2, 1381 CC). Possible fault of one or the other spouse is indifferent.

(b) The property of one (or of both) of the spouses has been increased during the marriage.

The increase of the property must have taken place during the marriage. The increase is calculated by comparing the property of each spouse at the beginning and end of the marriage.

As property at the beginning of the marriage the net property of each spouse is taken into account. The sum, in other words, that arise after deducting liabilities from assets.

The property at the end of the marriage is the net property at the time. The time point of calculation of the “final” property in case of termination of the marriage with a divorce or with an annulment, as well as in case of a three-year separation is a controversial issue. Various opinions have been expressed.

A first opinion accepts, as the time of calculation of the “final” property, the time of the irrevocability of the separation of divorce or annulment of the marriage or of the completion of the three-year separation.

A second opinion (more correct, more efficient and fairer in the view of the signatory) wants the time of calculation of the “final” property to be at the time of filing for divorce or for an annulment of marriage, or of the commencement of the three-year separation. In this way, the possibility of the liable spouse trying to “reduce their wealth” is avoided.

A third, interim, opinion is that after the time of filing for divorce or annulment of the marriage or the commencement of the three-year separation, the presumption of contribution by 1/3 ceases to be valid in favor of the beneficiary spouse. The beneficiary spouse, therefore, is then required to prove any percentage of their contribution.

(c) The other spouse has contributed to the aforementioned property increase.

The contribution of one spouse to the increase of the other’s property is taken into account regardless of the way in which it takes place. That is to say, as contribution is considered any activity of the beneficiary spouse, which is in relation of cause and effect with the property increase of the property of the liable spouse.

 

The legal nature of the claim for award of a share in the assets acquired during the marriage

The claim for award of a share in the assets acquired during the marriage constitutes a liability property claim. The fact that it stems from the bond of marriage makes it personal. That is, only the beneficiary spouse has that right, which is extinguished upon said spouse’s death, as it cannot constitute a claim of an heir. Additionally: it cannot be assigned to a third party by the beneficiary spouse. Exception to the above exists if the claim has been contractually recognized or the beneficiary spouse has filed a relevant lawsuit.

On the basis of its obligatory and property character, the controversial issue of its fulfillment with monetary (compulsory) or actual return of the assets acquired is raised.

One view is that the claim for award of a share in the assets acquired during the marriage is necessarily monetary. In this context, exercising their claim, the beneficiary spouse may not receive the same assets that belong to the other spouse and are part of the increase of their property. On the contrary, the increase of their property is calculated only in accounting and is returned to the beneficiary spouse in cash.

Another, more correct, view is that the provision of the increase, in its actual form, is possible. Many times, in fact, it is what is desired by the parties. According to this view, the beneficiary spouse is entitled to claim and the liable to request to pay the corresponding part of the assets acquired as such. In such cases the court may order, on the basis of similar requests, the return of either a percentage of co-ownership of the assets acquired or of a certain or certain things of equal value with the percentage of the beneficiary’s participation in the increase of the other’s property (Plenary session of the Supreme Court 28/1996).

 

The assets included in the assets acquired and the claim on shares

The concept of assets acquired during the marriage does not include all, without exception, the assets acquired by the liable spouse, after the beginning of the marriage. What was acquired through donation, inheritance or bequest or by disposing of the assets acquired during the marriage are excluded.

The assets acquired during the marriage may include rights in rem, as well as prefecture and possession rights in movable or immovable property, money and cash deposits, credit securities, copyrights, bonds and future receivables (eg rents, dividends). Also any shares of an SA. Likewise the shares in LTDs, Private Companies or partnerships and cooperatives.

However, the assets of the legal entity must be distinguished from the assets of the shareholder / partner-spouse. The latter owns shares, stocks or other types of corporate holdings. The property of the company belongs to the legal entity (in which the spouse participates). Even in the case of a single-member company, owned by the liable spouse.

 

Securing the claim for award of a share in the assets acquired during the marriage – The case of claiming shares

The recognition of the claim for award of a share in the assets acquired during the marriage aims at the restoration of justice between the spouses. Restoration which, however, may be rendered impossible. The cause of the rendering of restoration impossible is the awareness by the spouses of the impending dissolution of the marriage.

Reasonably, once the relationship between the spouses is disrupted, the spouse whose fortune has increased may seek to reduce his or her wealth. Fictitious dispositions of their assets, fictitious commitments and liquidations, transactions without receiving a consideration (gifts) and unjustified spending, are common ways of minimizing the property of the liable spouse. During this period, the beneficiary spouse simply has an expectation of a right. They do not, legally, have the possibility to file the lawsuit of the article 1400 of the Civil Code (Supreme Court 87/1998).

Thus, effective temporary protection of the claim until its final satisfaction is sometimes highlighted as vital. This is because, according to what has already been mentioned, the initiation of proceedings for the final satisfaction of this claim should follow the dissolution or annulment of the marriage by an irrevocable court decision. Alternatively, the completion of a three-year separation.

 

The provision of a legal mortgage title

The legislator chose to include the beneficiary spouse of article 1400 of the Civil Code in the persons to whom a mortgage registration title can be granted by law (1262 no. 4 of the Civil Code). This proves that the legislator treats the latter as a creditor to whom they provide special protection.

It is noteworthy that the provision of a legal mortgage registration title (1262 no. 4 of the Civil Code) does not presuppose the filing of a divorce or a lawsuit for a claim for a share in the assets acquired during the marriage. The mortgage can be registered at any time during the marriage – even before its dissolution or cancellation or the completion of a three-year separation.

 

The temporary protection of article 1402 of the Civil Code

An explicit and independent claim for the provision of security to the beneficiary spouse is also provided under article 1402 of the Civil Code which, in particular, states that: “Without prejudice to the provision of article 1262 no. 4, each of the spouses has the right, in the event that a divorce or marriage annulment action has been brought or that they have brought a claim under Article 1400, to request insurances from the other spouse or their heirs, if it can be deducted by their behavior that there is a reasonable fear that the beneficiary’s claim is in jeopardy.”

The conditions for the provision of such insurances, which must be met cumulatively, are: (a) on the one hand the previous exercise (by either spouse) of a divorce or marriage annulment action or of an action for participation in the assets acquired during the marriage (especially by the spouse seeking insurances), (b) on the other hand the existence of a reasonable fear that the request provided under article 1400 of the Civil Code is in jeopardy, due to the behavior of the other spouse or of their heirs.

 

The possibility of applying for interim measures

The possibility of applying for interim measures, in parallel with the aforementioned measures of articles 1262 no. 4 and 1402 of the Civil Code were explicitly challenged by and have divided legal theory. Until recently.

After the amendment of the provision of article 682 of the Code of Civil Procedure (with law 4335/2015), the claim for award of a share in the assets acquired during the marriage may, before it is even born, become the subject of temporary judicial protection in the form of interim measures. That is, even before the irrevocable dissolution or annulment of the marriage and / or the completion of three (3) years from the separation of the spouses. And this is because it constitutes a future requirement, which is subject to article 682 of the Code of Civil Procedure (1298/2016 Multimember Court of First Instance of Thessaloniki).

There is a prerequisite for an emergency or for an imminent danger to exist, in order to qualify for interim measures.

 

The (possible) interim measures

The beneficiary spouse may intend to acquire shares of the SA (or of a corporate holding in another type of company) in the development of which they contributed, or they may aim to their financial compensation through it. In this case, they are entitled to request from the competent Court, in order to secure their right, the issuance of interim measures. Specifically: precautionary seizure (707p. Code of Civil Procedure) or escrow (725et seq. Code of Civil Procedure).

The specific measures seek to impose a legal burden on the shares. Particularly:

The interim measure of precautionary seizure binds temporary assets of the debtor in order to ensure the satisfaction of the monetary or convertible to monetary claim.

The interim measure of the court guarantee is ordered to secure non-monetary claims. In particular, in disputes concerning the ownership, the occupancy or the possession of a thing,  or any other dispute concerning the thing (of course also of shares).

In any case, the Court rules and orders any appropriate and necessary interim measure to protect any future claim for award of a share in the assets acquired during the marriage.

 

A possible dissolution of a marriage raises a lot of problems. Among them is the splitting of joint assets but also the claim for award of a share in the assets acquired during the marriage by one of the two spouses. In commonly owned by the spouses assets it is not uncommon to come across a company in which the spouses will participate 50/50 (in this case see our previous article).

Problematic (also) seems the case where the sole (principal or ordinary) shareholder, partner or owner of a legal entity is one of the spouses. The other has, basically, a claim for a share in the shares (or in any other type of corporate equity) of the owner spouse.

Of course, the settlement of the entire dispute outside the courtrooms is desirable.

In any other case, the business will certainly not benefit.

And, to a significant extent, neither will the spouses.-

Stavros Koumentakis
Managing Partner

 

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (October 25, 2020).

 

Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

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