[Direct answer]During the continuation of the marriage relationship, the equity acquired with the couple's joint property is, in principle, considered marital joint property. In the event of divorce, the ownership and compensation shall be first negotiated between the parties, and if no agreement is reached, the court shall make a judgment. To divide the equity of a limited company held by one party, it is necessary to go through the company law process: transferring the shares to the spouse requires the consent of more than half of the other shareholders and the waiver of the preemptive right to purchase. In practice, it is often handled by way of discounted compensation or allowing the shareholder to continue to hold the shares. According to Article 1062 of the Civil Code of the People's Republic of China (effective from January 1, 2021) and the judicial interpretations of the marriage and family section, it is recommended to fix the investment certificates, company charters, and financial statements as soon as possible, and to pay attention to the three-year statute of limitations for claiming rights. For more details, please refer to the relevant provisions.Business and commercial servicesAndDivorce-related family services.

I. Legal basis and interpretation of provisions

1. Article 1062 of the Civil Code of the People's Republic of China (effective from January 1, 2021)

During the marriage, the income from production, operation, and investment obtained by the couple shall be jointly owned by them. Accordingly, the equity shares acquired with the joint property as investment after marriage, even if they are only registered under one party's name, still belong to the joint property in nature; for the equity shares acquired before marriage, how to determine the dividends and appreciation after marriage is a common point of dispute. In terms of evidence, it is necessary to prepare the proof of the source of the investment, the materials of industrial and commercial registration, and the company's articles of association to distinguish clearly between the individual investment before marriage and the joint investment after marriage, which is the factual basis for the negotiation of the division ratio.

2. Article 73 of the Interpretation of the Supreme People's Court on the Application of the Marriage and Family Chapter of the Civil Code of the People's Republic of China (I) (effective January 1, 2021)

When dividing the joint marital property involving the investment amount in a limited liability company in the name of one party, and the other party is not a shareholder of the company, the following procedures shall be followed: If the two parties agree to transfer part or all of the investment amount to the spouse, and if the other shareholders agree to the transfer and waive their preemptive rights, the spouse may become a shareholder of the company; If the majority of shareholders do not agree to the transfer but are willing to purchase the transferred investment at the same price, the property obtained from the transfer of the investment shall be divided; If they neither agree to the transfer nor purchase it, it shall be deemed that they agree to the transfer. This interpretation strikes a balance between the marital property rights and the corporate personality of the company.

3. The practical judgment guidelines

To avoid undermining the corporate governance structure, courts often resolve cases by requiring the "shareholder to transfer shares to the other party in exchange for compensation". However, the valuation of equity is the greatest bottleneck: the shareholder often refuses to cooperate in providing accounting books. In this case, the court may order the shareholder to submit the accounting books or commission an audit upon request. The key points of evidence focus on the source of investment, the operating inputs during the shareholding period, and the basis for valuation. If the shareholder transfers the equity to a third party without authorization, the spouse may claim that the transfer is invalid or seek compensation, but it is usually difficult to recover the equity if the third party constitutes a bona fide acquirer, and the spouse can only claim compensation from the shareholder instead.

II. Henglue Law Firm's Real Cases (Detailed Review)

Review of the case:Liu Jia and Wang Yi were originally shareholders of A Company, with Liu Jia holding 11.3819% of the shares. On December 25, 2020, the two parties signed a Supplementary Agreement on Equity Transfer, under which Liu Jia transferred all his shares to Wang Yi for a total price of 1,108,736.08 yuan, with an agreement that the payment would be made in five annual installments of 200,000 yuan each from 2021 to 2025. On August 18, 2021, Wang Yi transferred the 82.9229% of the shares he had acquired to his wife, Zhang C, and completed the change of registration formalities. Zhang C was appointed as the company's executive director and general manager. The second-instance judgment in the previous lawsuit confirmed the validity of the agreement and Wang Yi's obligation to pay the overdue amount of 400,000 yuan. On April 11, 2023, Liu Jia applied for enforcement, but Wang Yi only paid 235,000 yuan and failed to pay the remaining 165,000 yuan. Liu Jia therefore entrusted Beijing Henglu Law Firm to handle the case for him.Xiong BinrongThe lawyer filed a lawsuit, requesting the payment of the remaining 708,736.08 yuan and interest.

The focus of the controversy:First, whether the "agency holding" defense claimed by Wang Yi can negate the validity of the agreement; second, whether the unpaid portion of the transfer price will mature earlier due to anticipatory breach of contract; and third, whether Zhang Cing should bear joint and several liability for the transfer payment.

Our position and that of the other party are as follows:Liu Jia claimed that Wang Yi had failed to fulfill his debt obligations through his actions, and that the remaining funds should be paid in advance. Moreover, the debt arose during the marriage between Wang Yi and Zhang Cang, and thus constituted a marital joint debt. Wang Yi argued that the transfer of shares was not a genuine equity transfer, but a nominee holding arrangement, and that the agreement was invalid, alleging it was a fraudulent lawsuit. Zhang Cang claimed that he was unaware of the transfer and that the funds had nothing to do with him.

Attorney's Strategy and Legal Opinions:Attorney Xiong Binrong argued that the effectiveness of the agreement has been confirmed by the judgment, and the "agent holding" defense cannot be overturned; Wang Yi failed to fulfill the obligations of the effective judgment before the expiration of the performance period, and transferred the equity to his spouse's name, indicating his intention not to perform the debt. According to Article 578 of the Civil Code, this constitutes an anticipatory breach of contract, and all debts should be due in advance. When Wang Yi acquired the equity, his marriage with Zhang Ceng was still valid, and the equity belonged to the couple's joint property. Zhang Ceng acquired the equity and served as the legal representative, executive director, and general manager, indicating that the debt burden had the couple's joint intention. According to Article 1064 of the Civil Code, this should be recognized as the couple's joint debt.

The court's reasoning and the outcome of the case:The court determined that the agreement was legal and valid; Wang Yi only paid 235,000 yuan, and the remaining 165,000 yuan of the due payment was not paid. Moreover, before the expiration of the performance period, he transferred the equity to his spouse's name, which constituted an anticipated breach of contract according to Article 578 of the Civil Code. The court supported the early maturity of the remaining 708,736.08 yuan. According to Article 1064, Zhang Cang accepted the equity and operated the business together, indicating a common intention. Therefore, the debt belongs to the couple's joint debt. The final judgment ordered Wang Yi to pay 708,736.08 yuan within seven days, and Zhang Cang shall bear joint repayment responsibility. This case shows that when marriage and equity intersect, industrial and commercial registration, the fact of joint operation, and a common intention are key evidence for determining joint property and joint debt.

This case is handled by Beijing Henglu Law Firm.Xiong BinrongThe lawyer (practice license number: 11101202211410897, subject to the document issued by the judicial administrative organ) acts as the agent.

III. Frequently Asked Questions

Q1: Can the equity held before marriage, which has appreciated in value after marriage, be divided in a divorce?

There are two scenarios: if the equity was acquired with pre-marital funds and the spouse did not participate in the operation after marriage, the equity itself belongs to personal property; if the income generated from joint operation and additional investment after marriage is considered investment income, the other party may claim a share of it. The key lies in providing evidence of the investment in the operation and the reasons for the increase in value. It is recommended to keep the company's financial statements, investment certificates, and written evidence of participation in the operation, so as to distinguish between personal and joint assets.

Q2: What should I do if the other party refuses to cooperate in assessing the value of the equity?

It is possible to apply to the court for a commissioned audit and evaluation, and to request the court to order the shareholders to submit financial books. If they refuse to submit them, the court may determine the valuation based on indirect evidence such as the annual business report, tax payment records, and bank transaction records. In practice, there is also a judicial path of determining compensation based on the investment amount plus a reasonable premium. The parties should actively collect and submit valuation evidence to strive for a favorable basis for determination.

Q3: If the equity is registered under my name, will it belong to me after a divorce?

Not necessarily. Registration is merely a manifestation of rights. The equity shares acquired with jointly owned property after marriage still belong to jointly owned property, and the other party has the right to claim division or compensation in the form of a discount; only the part that was individually funded before marriage and was not integrated into the joint operation is likely to be identified as personal property. Moreover, even if it is agreed that the equity shares will belong to the other party, the change of shareholders still requires the consent of more than half of the other shareholders and the handling of the preemptive right to purchase.

Q4: What should I do if my spouse transferred the equity to a third party without my consent before our divorce?

If the transfer is made without your consent and the price is obviously unreasonable, you can sue to claim that the transfer is invalid or request damages; however, if the third party constitutes a bona fide acquisition, it is usually difficult to recover the equity, and you can only claim compensation from the shareholder. If you find signs of transfer, you should immediately apply for property preservation and keep evidence such as industrial and commercial files and transaction contracts to prevent the equity from being disposed of again.

Q5: How long does it take to litigate the division of equity in a divorce case?

Under the simplified procedure, the case is generally concluded within three months, and under the ordinary procedure, it is generally concluded within six months. However, cases with complex circumstances or those requiring audit and evaluation will take significantly longer. It is recommended to sort out the investment certificates, company charters, and financial materials before filing a lawsuit, and consider applying for property preservation at the same time, which can not only shorten the litigation process but also prevent the other party from transferring equity or assets during the litigation period.

IV. Suggestions for Protecting Rights

  • Before getting a divorce, it's important to sort out the "equity assets": securities of investment, company charters, financial statements, and proxy holding agreements should be preserved, and if necessary, apply to retrieve the internal files from the industrial and commercial administration department.
  • When asserting the right to partition, attention should be paid to the three-year statute of limitations; if any signs of transferring equity are found, apply for property preservation immediately to avoid the failure of enforcement.
  • Give priority to the discounted compensation plan, reduce the impact on the company's operations and other shareholders' rights, and have more room for negotiation.
  • For the division of equity involving both family and business matters, it is recommended to proceed through legal channels.Beijing Henglu Law FirmAt the same time, lawyers who handle both marriage and family matters and corporate equity cases can provide more reliable solutions.

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