From the Divorce Case of 'China's Warren Buffett' to the Identification and Judgment Rules of Shareholding Division in Limited Companies

One, Case Review

Zhao Bingxian and Lu Juan co-founded Zhongzheng Wanrong after their marriage. During the marriage, Lu Juan served as the company's Chief Financial Officer, while Zhao Bingxian led the company's investment and operational direction. The two collaborated to promote the development of Zhongzheng Wanrong into a core investment platform controlling multiple listed companies.

In April 2010, Lu Juan filed for divorce for the first time with the court, citing domestic violence and the husband's extramarital affair as reasons. The core demand was to divide the couple's joint property, including the shares of Zhongzheng Wanrong. At that time, the estimated value of the property involved exceeded 2 billion yuan, and the case immediately attracted extensive attention from the capital market. Over the following fifteen years, the case went through multiple trials and twists and turns, until November 2025, the Third Intermediate People's Court of Beijing made a final judgment in the second instance, upholding the core judgment content of the first instance, namely, an equal division of the shares of Zhongzheng Wanrong between the two parties.

Two, core dispute focus —— equity division

1. Dispute over the nature of equity rightsDuring the lawsuit, Zhao Bingxian claimed that the 80%:20% shareholding ratio in the business registration was a clear agreement between the two parties regarding the couple's property, and the division ratio should be determined accordingly; Lu Juancountered that the registration ratio was merely a public form required for the company's operations and not a property agreement, and as a founding shareholder and core management personnel, her substantial contribution to the company's development should be an important basis for determining the ownership of the equity. The two parties fundamentally disagreed on whether the equity belonged to "joint ownership" and the basis for division.

2. Dispute over the rationality of the division plan:Both parties and their agents engaged in a fierce debate over the proposal of "directly adjusting the equity ratio of the controlling shareholder from 80%:20% to 50%:50%." The Zhao Bingxian side argued that this proposal would disrupt the stability of the company's equity structure, harm the company's corporate personality and the efficiency of subsequent operational decision-making, and violate the basic requirements of the "Company Law" for corporate governance; the Lu Juan side claimed that the proposal conforms to the principle of "equal division of common property between husband and wife" in the "Marriage and Family Code" of the "Civil Code," and both parties are registered shareholders, so the division will not lead to the involvement of non-shareholders in the company, and there is no conflict of corporate personality.

III. Legal Applicability Logic Analysis of Court Judgment —— Share Splitting of Limited Companies

(1) Equity ownership identification: The registration ratio does not constitute an absolute agreement.

In this case, the court did not adopt the proposal to divide the equity in accordance with the proportion of business registration (80%:20%), but directly applied the principle of equal division.The core legal basis lies in the priority of the joint ownership attribute of the common property of married couples over the appearance of commercial registration.According to Article 10 of the "Interpretation (II) on the Application of the Marriage and Family Article of the Civil Code of the People's Republic of China" (hereinafter referred to as the "Interpretation (II) on Marriage and Family") effective as of February 1, 2025: "If the couple invests in a limited liability company with joint property and both are registered as shareholders, and there is no agreement or the agreement is unclear regarding the ownership of the corresponding equity, “When a divorce occurs, if one party requests that the proportion of equity division be determined according to the amount of capital each party has contributed as recorded in the shareholders' register or the company's articles of association, the People's Court shall not support this request; for the parties' requests to divide the joint property of the couple, the People's Court shall handle them in accordance with Article 1087 of the Civil Code.”

In conjunction with judicial practice, the identification of equity ownership in a limited liability company requires distinguishing three typical situations, and the judgment logic and practice rules in this case are highly consistent with them:

(2) Applicability of the division principle: balancing the consideration of the party without fault and the degree of contribution

The average division result of the final judgment in this case, while seemingly following the principle of "equal division," actually implies a judicial approach of "equal division as the principle and special adjustment as the exception," while also reflecting the protection of the rights and interests of the party without fault.

1.Implicit consideration of the rights of the non-guilty party

According to Article 1087 of the Civil Code: "At the time of divorce, the joint property of the couple shall be handled by mutual agreement; if the agreement fails, the People's Court shall decide according to the specific circumstances of the property, in accordance with the principle of considering the interests of the children, the female party, and the party without fault." During the lawsuit, Lu Juan submitted evidence such as police records, medical diagnosis certificates, and witness testimony, claiming that the male party had committed acts of domestic violence, affairs, and other fault behaviors. Although the judgment did not explicitly use "the party without fault" as a direct basis, in conjunction with the tendency in judicial practice to prioritize the rights and interests of the party without fault, her claim constitutes a strengthened reason for an equal division, and is consistent with the logic that under joint ownership of shares, the party without fault should receive no less than 50% of the shares.

2.Balancing the dual attributes of equity

The equity of a limited liability company combines property attributes (such as dividend rights, rights to claim the transfer price of equity transfer, and rights to the distribution of remaining assets) and personal attributes (such as voting rights, rights to information, and rights to participate in major decision-making). In this case, the court's division plan effectively balanced the relationship between the two: in terms of property attributes, the equity value is considered as common property of the couple, and is divided equally according to the Marriage and Family Code; in terms of personal attributes, as both parties are registered shareholders of Zhongzheng Wanrong, they do not need to comply with the procedures for non-shareholder spouses to obtain consent under Article 71 of the Company Law, and can directly adjust the equity ratio without valuation compensation, thus ensuring property rights and interests while maintaining the corporate harmony.

(3) Consideration of special circumstances: the judicial boundary of listed companies' related-party influence

The uniqueness of this case lies in the fact that as the controlling shareholder of Wenhua Medicine, Zhongzheng Wanrong's equity division directly led to the actual controller of the listed company transitioning from "single control" to "no actual controller," which may affect the stock price of the listed company and the interests of minority shareholders. However, the court ultimately did not adjust the division plan due to such commercial impacts, highlighting the judicial boundary of "marriage and family disputes taking precedence over commercial appearances."

Firstly, the division of marital property in divorce is a family law dispute, and the Marriage and Family Code should be applied preferentially; the change in control of listed companies is an indirect consequence, not a legal reason to hinder fair division. Secondly, the announcement by Wenhua Medicine shows that its operations have not been substantially affected, and the court has determined based on this that the division poses no risk. Thirdly, Lu Juan has professional qualifications and has been involved in management for a long time, and her shareholder status is suitable for the company's governance needs.

In judicial practice,If the division of equity may lead to a deadlock in the company's operations (such as when both parties have intense conflicts and no management experience) or harm the interests of creditors (such as when the company has large outstanding debts and the division of equity leads to a decrease in its ability to repay), the court will usually adjust the method of division, such as adopting the scheme of "equity is owned by one party, and a discounted compensation is paid to the other party."But in this case, the aforementioned circumstances do not exist, therefore, the judgment for the direct division of equity has sufficient factual and legal basis.

Four, A deep analysis by the lawyers of Guangdong Dao Hua Law Firm on the practical risks and preventive approaches of equity division in a limited liability company.

(Topic 1) Typical equity division risks in entrepreneurs' marriages

In light of this case and judicial practice, the risks of equity division in limited liability companies faced by private entrepreneurs in marital relationships mainly concentrate on the following four categories:

1.Risk of missing the agreement:In this case, due to the absence of a written property agreement between the parties, the registered proportion cannot be used as a direct basis for division, which increases the uncertainty of the judgment. According to the "Judicial White Paper on Divorce Cases Involving Enterprises" released by the Supreme People's Court of Jiangsu Province in 2023, in practice, the proportion of cases involving disputes over equity division due to the lack of a property agreement reaches 62%, which is significantly higher than other types of property disputes.

2.Risk of control being transferred to othersAfter the controlling shareholder's equity is divided, they may lose control over the company. In this case, Zhao Bingxian's shareholding dropped from 80% to 50%, directly leading to the loss of the actual controller of the listed company; similarly, in 2022, a shareholder of a Shenzhen technology company had their equity divided due to a divorce, their shareholding dropped from 51% to 49%, ultimately losing control of the board, and the company's business direction was forced to be adjusted.

3.Valuation dispute risk:The equity value of unlisted limited companies lacks a public market pricing, making it prone to valuation manipulation behaviors such as "inflated debt" and "hiding assets." In practice, controlling shareholders may lower the equity valuation by means such as related-party transactions (e.g., transferring core assets to related parties at a low price) and inflating accounts payable, resulting in the rights and interests of non-shareholders being damaged.

4.Agent holding disclosure risk:Equity hidden through holding-in-trust methods may not be recognized as joint property during divorce if there is a lack of a complete evidence chain (such as holding-in-trust agreements, financial transaction records, and actual participation in business operations).

(2) Path for preventing systemic risks

In response to the aforementioned risks, private entrepreneurs can build a risk prevention system for equity division from the three dimensions of "pre-event prevention, in-process control, and post-event relief."

1.Preventive measures: Establish a clear equity ownership system

lSign a written property agreement:Before or during marriage, sign a "Marital Property Agreement" to clearly define the ownership of equity, the division method, and compensation standards, clearly distinguish the industrial and commercial registration ratio from the actual equity ratio, and avoid conflicts between the public display and the actual agreement.

lCompany Articles of Association Special Design:Add the "Divorce Equity Disposal Clause". For example, it is agreed that when shareholders divorce, the spouse may only claim compensation for property value and may not directly acquire shareholder status; other shareholders have the right of first refusal; the spouse must obtain the consent of more than half of the shareholders in the shareholders' meeting to become a shareholder, etc.

lRegulate equity proxy holding:Sign a written agreement of proxy holding, indicating that the source of funds is the joint property of the couple, retain the investment proof, business participation records, and proxy confirmation letter, forming a complete evidence chain.

2.On-site control: Grasp litigation strategies and key evidence points

lAccurately lock in the segmentation range:Distinguish between "pre-marital equity" and "post-marital equity," "equity principal" and "appreciation portion": ① Equity acquired before marriage, and "passive appreciation" caused by market fluctuations after marriage, belongs to personal property; "active appreciation" caused by the spouse's participation in business operations and reinvestment of company dividends belongs to joint property; ② Equity acquired after marriage is presumed to be joint property regardless of whose name it is registered under.

lDealing with valuation disputes:① Apply for a court-appointed valuation institution with qualifications in securities and futures related businesses to ensure the professionalism of valuation; ② Provide the "Comparable Company Valuation Report" (such as financing valuation and merger valuation of companies in the same industry and scale) and the "Company Internal Financial Audit Report" as counter-evidence to refute the artificially low valuation; ③ For listed company equity, an application can be made to the court to freeze the equity, and an agreement on "adjusting the discount compensation amount with the fluctuation of stock prices" can be made in the lawsuit to avoid equity losses caused by stock price fluctuations.

lStrengthening the collection of evidence of fault:In cases of domestic violence, extramarital affairs, property transfer, and other fault situations, it is necessary to preserve relevant evidence, including official records, written proof, and testimony from third parties, to ensure that the evidence is genuine, legal, and complete, and to avoid the evidence being inadmissible due to defects.

3. Post-event relief: Prioritize the protection of control and the realization of rights and interests

If it is necessary to continue maintaining control over the company, one party may opt for a discounted compensation plan first, claim in the lawsuit that "the equity belongs to the party itself, and pay the discounted compensation to the other party," and design safeguard clauses. For example, determine the compensation amount based on the court's valuation, adopt the "installment payment + equity pledge" model, or agree to pay according to the company's annual net profit ratio, reducing the pressure of one-time payment.

V. The Tang Code Interpretation

The fifteen-year litigation process of Zhao Bingxian and Lu Juan's divorce case is not only the end of a dispute over a wealthy marriage, but also a vivid interpretation of the judicial rules for the division of shares in a limited liability company after the implementation of the Civil Code. The division of shares in a limited liability company is not a simple "adjustment of numerical proportions," but a precise balance between the fair principle of the Marriage and Family Chapter of the Civil Code and the efficiency principle of the Company Law. It is the dual realization of "division of property value" and "stability of corporate governance," as well as a comprehensive consideration of "protection of individual rights and interests" and "consideration of external interests."

The case also rings the alarm bell for private entrepreneurs and high-net-worth individuals regarding the governance of equity ownership, as litigation is difficult to compensate for the commercial losses caused by disputes over the division of equity in divorce. Therefore, it is necessary to fully anticipate risks and make timely preparations for responses. Under both the dimensions of entrepreneurship and marriage, a comprehensive risk prevention system needs to be established: "pre-nuptial property agreement" as the first line of defense against risks, "special design of the company bylaws" as the second barrier against crises, and "evidence construction in litigation" as the last guarantee for protecting rights and interests. The combination of these three measures can effectively reduce the impact of divorce equity division on business operations and prevent commercial interests from being damaged due to marital disputes.

Chapter 6, Index of Relevant Laws and Regulations

《Civil Code, Article 1062:

The following property acquired by the couple during the existence of the marriage relationship shall be the joint property of the couple, jointly owned by both: (1) wages, bonuses, and remuneration for labor; (2) profits from production, operation, and investment; (3) income from intellectual property rights; (4) property inherited or gifted, except for the exceptions stipulated in Article 1063, third paragraph, of this Law; (5) other property that should be jointly owned. The couple has an equal right to dispose of the joint property.

Article 1087 of the Civil Code:

In the event of divorce, the joint property of the couple shall be handled by mutual agreement; if an agreement cannot be reached, the People's Court shall make a judgment based on the specific circumstances of the property, in accordance with the principles of considering the rights and interests of the children, the female party, and the innocent party.

Article 73 of the Interpretation (I) on the Application of the "Civil Code of the People's Republic of China" on the Chapter on Marriage and the Family

The People's Court shall handle divorce cases involving the division of the investment amount in a limited liability company in the name of one party, where the other party is not a shareholder of the company, in accordance with the following situations:

(1) If both spouses agree to transfer part or all of the capital contribution to the spouse of the shareholder, and if more than half of the other shareholders agree, and if all other shareholders explicitly state that they renounce their right of first refusal, the spouse of the shareholder may become a shareholder of the company.

(2) After the husband and wife reach a consensus on matters such as the transfer of capital contribution shares and the transfer price, if more than half of the other shareholders disagree with the transfer but are willing to purchase the capital contribution at the same conditions, the People's Court may divide the property obtained from the transfer of capital contribution. If more than half of the other shareholders disagree with the transfer and are also unwilling to purchase the capital contribution at the same conditions, it is deemed as their agreement to the transfer, and the spouse of the shareholder may become a shareholder of the company.

The evidence for proving the shareholders' consent as stipulated in the preceding clause may be the materials of the shareholders' meeting, or the written statement materials of the shareholders obtained through other legal channels by the parties.

Article 10 of the Interpretation (II) on the Application of the Marriage and Family Article of the Civil Code of the People's Republic of China by the Supreme People's Court

The couple invested in a limited liability company with their joint property and were both registered as shareholders. There was no agreement or an unclear agreement on the ownership of the corresponding shares. When they divorced, if one party requested that the proportion of equity division be determined according to the amount of capital contributed as recorded in the shareholders' register or the company's articles of association, the People's Court would not support this. For the parties' requests to divide the joint property of the couple, the People's Court shall handle them in accordance with Article 1087 of the Civil Code.