GERMANY Trends and Developments Contributed by: Valentin Todorow, Benedikt Xylander and Franziska Kästle, Raue
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German family law is ever evolving, with case law developed by German courts and the Court of Jus ‑ tice of the European Union as well as legal reforms. The current trends and developments are as follows. Divorce and Financial Proceedings Asset compensation and financial remedies In complex financial disputes during divorce proceed ‑ ings, the valuation of assets plays a particularly impor ‑ tant role. Recently, German case law has dealt with two aspects of this issue. • Variable remuneration: company executives often receive variable remuneration components (long- term incentives, options, virtual shares). In divorce cases, disputes arise as to whether these remu ‑ neration components can be treated as an asset and thus be part of the financial settlement (even though they will only be realised in the future and in an as yet uncertain amount). There is no gen ‑ eral rule for this; rather, the specific contractual arrangement between executive and company needs to be analysed. Case law indicates that the courts would be reluctant to include variable remuneration components into asset compensa ‑ tion claims by the other spouse if the executive can still lose the entitlement completely if they leave the company in the future. • Company valuation: case law on financial pro ‑ ceedings has not yet conclusively clarified how company shares are to be valued if the shares are not transferable on the market (eg, due to transfer restrictions in the shareholder agreement, or because the business is owner-dependent). German courts are increasingly inclined to include
such companies in the financial settlement at a dis ‑ counted value of the annual income which exceeds the spouse’s work performance in the company. Compensation for implicit joint business by spouses When spouses pursue a common business purpose, they may be considered to form a co-owned compa ‑ ny, even without a formalised agreement and found ‑ ing act. Developed by case law, the typical company founded this way will be a real estate company, where one spouse contributes property or other funds and the other spouse contributes significantly to the mutu ‑ al success through their work. According to German case law, significant financial claims of the co-working spouse against the other spouse (who formally owns the company) may be considered upon separation of the spouses. According to EU regulation on matrimonial property regimes, any matrimonial property agreement shall be expressed in writing. A growing number of voices in legal literature argue that the founding of such com ‑ pany must be considered as a matrimonial property agreement and can thus only be formed in writing and no longer without a formalised founding act. The pre ‑ vailing opinion, however, does not apply said EU regu ‑ lation, so such implicit company can still be founded between spouses (and, consequently, become a basis for financial claims upon separation) without a written agreement. It is possible to exclude any claims possibly arising from any implicit company in a prenuptial agreement as a precaution.
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