[Direct answer]In the Beijing area, whether the company's equity can be divided during a divorce depends on whether the equity belongs to the couple's joint property. Equity obtained with the couple's joint property as investment after marriage, or the part of the equity held by one party before marriage but obtained profits from increasing capital or transferring equity with the couple's joint property after marriage, is usually recognized as joint property. There are three main methods of division: first, transferring the equity to one party and compensating the other party accordingly; second, each party holding a portion of the equity and dividing it proportionally; third, evaluating the equity and compensating the other party in cash or dividing the proceeds after auctioning the equity. Common valuation methods include the income method, the asset-based method, and the market method. The specific method to be adopted needs to be determined based on the company's operating conditions, industry characteristics, and available financial information. The provisions on the handling of joint property in the Company Law of the People's Republic of China (amended in 2018) and Article 1066 of the Civil Code of the People's Republic of China (effective January 1, 2021) form the basis for determining this issue.

I. Problem Background and Typical Scenarios

The parties who consult such issues are usually in several situations: the company was founded by one party before marriage, and the company's profits were mainly invested in family life after marriage. When divorcing, the other party claims to have rights to the equity; one party accepted others' equity in their own name after marriage, but the actual investment came from the couple's joint savings; the company's book profit is high, but there are significant differences between its actual assets and income; the equity is registered under one party's name, but both parties participate in the company's management decisions; one party provides personal guarantees for the company's shareholders, and the company is experiencing operational difficulties. When dividing assets in a divorce, there is a concern that this might affect the company's credit. Equity is different from deposits. Its value fluctuates with the company's operating conditions, and the division plan must match the company's ongoing operational needs.Divorce litigation and family disputesThe practical experience in this column is that we should first determine the nature of the equity before discussing the price, and the order cannot be reversed.

II. Key points of contention

First, the timing of obtaining the equity and the source of the investment determine whether it belongs to joint property. Second, the choice of valuation methods, such as the income method and the asset method, may lead to vastly different conclusions. Third, the calculation method of the compensation amount where one party holds shares and the other party receives compensation. Fourth, the change of shareholder status and the clearance of external guarantee debts after the division. Fifth, the risk of deteriorating operating conditions and whether it will affect the company's continued operation and the interests of creditors after the division. Sixth, the division of equity and the bearing of taxes and fees.Business and contract disputes in enterprisesThe column contains a detailed explanation of equity transfer and disputes over shareholder qualifications.

III. Professional analysis by Henglue Lawyers

Taking the divorce dispute handled by Attorney Xiong Binrong of our firm as an example: The plaintiff, Wang *sheng, and the defendant, Zhang *hua, registered their marriage in 2006. After marriage, the family accumulated assets such as real estate, vehicles, machinery and equipment, and insurance. During the operation of the business, they purchased production equipment including weaving machines and warping machines, and also borrowed 35,000 yuan from the plaintiff's parents. The defendant previously sued for divorce but was not supported by the court. However, the defendant still had an extramarital affair during the marriage. The plaintiff subsequently entrusted a lawyer to sue again and requested the division of the marital property. During the representation, the lawyer classified the marital property item by item: fixed and movable assets such as houses and cars were divided according to the registration and ownership of the investment; operational assets such as machinery and equipment were identified based on the purchase time and usage status; and the authenticity and purpose of the joint debts claimed by both parties were reviewed simultaneously. In the end, the court, in accordance with the principles of protecting the rights and interests of children, the wife, and the innocent party, ruled that the house and car belong to the plaintiff, the weaving machines and warping machines were divided in a 7:3 ratio, and the education fund and insurance belong to the children. The 35,000 yuan borrowed from the plaintiff's parents was identified as a joint debt, with the plaintiff repaying it and the defendant bearing half of it, amounting to 17,500 yuan. The approach to classifying operational assets is consistent with the hierarchical identification logic in equity division. This case was handled by Beijing Henglu Law Firm.Xiong BinrongThe attorney (practice license number: 11101202211410897, subject to the document issued by the judicial administrative organ) acts as the agent.

IV. Practical suggestions and legal basis

Action recommendations: 1. First, verify the time of equity registration, investment certificates, and funding sources to clarify which parts belong to joint property. 2. Collect the company's financial statements, taxation materials, bank transaction records, and business contracts for the past three years to provide a basis for evaluation. 3. Clearly request an evaluation in the lawsuit and explain the valuation method and reference point. 4. Do not easily accept the other party's unilateral offer before the evaluation conclusion is out. 5. The division plan should simultaneously consider the company's operations and arrangements for clearing external guarantee debts. 6. The equity change registration and shareholder register records should be handled promptly after the judgment or mediation takes effect. Legal basis: Articles 1066 and 1067 of the Civil Code of the People's Republic of China (both effective from January 1, 2021); Provisions on equity transfer and shareholder register registration in the Company Law of the People's Republic of China (amended and effective on October 26, 2018); Specific applications shall be subject to the currently effective laws, regulations, and judicial rulings.

5. Henglu Law Firm's Advice

Firstly, the equity value is not equivalent to the registered capital, and the evaluation should take into account the actual operating and asset conditions. Secondly, differences in valuation methods may lead to a gap of several times, and the choice of method itself is a point of negotiation. Thirdly, the method of one party holding shares and the other party receiving money puts less pressure on the remaining party, but it is necessary to evaluate its repayment ability. Fourthly, before the division, it is necessary to check whether the company has external guarantees and debts to avoid the risk of bearing joint and several liability. Fifthly, changing the equity structure may trigger the preemptive rights of other shareholders, so it is necessary to check in advance. Sixthly, the tax treatment of equity changes should be confirmed with accounting or tax consultants to avoid obstacles in the transfer process. Seventhly, the choice of evaluation institutions should pay attention to their professional qualifications and experience in similar projects to avoid the conclusion being questioned due to improper evaluation methods.

VI. Frequently Asked Questions

Q1: Can the company equity held by one party be divided during a divorce?

It depends on the time of obtaining the equity and the source of the investment. Equity obtained through investment with marital joint property after marriage, or the part held by one party before marriage but increased and transferred with marital joint property after marriage and obtained corresponding income, is usually recognized as marital joint property and can be divided. However, if the equity is obtained by one party with personal property before marriage and no investment is made with marital joint property after marriage, it generally remains personal property, and the spouse can hardly claim for division.

Q2: What methods are generally used for equity value assessment?

The common methods include three types: the income approach, the asset-based approach, and the market approach. The income approach values the company based on the discounted future cash flow, which is suitable for companies with stable operations and sustainable profitability. The asset-based approach calculates the value based on the company's net assets, which is suitable for companies mainly holding physical assets such as land, real estate, and equipment. The market approach evaluates the value by referring to the market transactions of similar companies. The three methods may yield significantly different results, so it is necessary to select one based on the company's characteristics and provide a justification for the choice.

Q3: If I don't want to run the company, how will the compensation be calculated for the other party?

The usual practice is to first determine the valuation of the equity, and then calculate the amount of compensation according to the statutory or agreed shares. For example, if the equity is valued at 2 million yuan and one party holds 50% and is recognized as joint property, then the other party should receive compensation of about 500,000 yuan. In practice, we also need to consider whether the company has unallocated profits, external debts and guarantees, as well as the specific timeframes for installment payments and breach of contract liabilities, to avoid the nominal compensation being unrealizable.

Q4: Will dividing equity affect the company's continued operation?

It's not necessarily the case, but it requires careful design. Equity can be divided as property, but the company is a continuous operating entity, and the division plan should try to avoid affecting the stability of the operation. A more secure approach is to maintain one party's shareholding and the other party obtaining monetary compensation, or to adopt a transfer method on the premise of a reasonable valuation. If an auction method is used, it may introduce external shareholders and bring new uncertainties, so it is necessary to first assess its impact on the company.

Q5: What procedures need to be completed after the equity split?

It mainly includes the change registration of the shareholder list and the change registration of the industrial and commercial registration. According to the Company Law, after the transfer of equity, the transferee usually obtains the shareholder status based on the registration in the shareholder list. If the company's articles of association have other provisions on the record in the shareholder list, the corresponding proof is also required. When handling the registration, you need to submit materials such as the effective judgment or mediation agreement, identity proof, and the equity transfer agreement. It is recommended to handle the registration as soon as possible after the legal document takes effect, so as to avoid the situation that the name and actual situation do not match for a long time.

The above Q&A is mainly based on the judicial practice in Beijing. There may be differences in the adjudication guidelines in other regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Divorce litigation legal services·Attorney Xiong Binrong·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In case of disputes, please consult a practicing lawyer in time.