Keywords: how to divide equity in divorce, division of company equity, community marital property, Shenzhen family law lawyer

In many business-owner families in Shenzhen, the core asset is not the house—it is the company. When clients come in for a consultation, they often hold one of two opposite misconceptions: one is that because the business license bears only the husband's name, the company has nothing to do with them; the other is that because they believe the company is worth a certain amount, they are naturally entitled to half. The first misconception leads people to give up benefits they are entitled to; the second tends to blow up negotiations. Equity division is both a property issue and a corporate-governance issue, and the two need to be looked at separately.

Under Article 1062 of the Civil Code, income from production, business operations, and investment during the marriage constitutes community marital property. Equity acquired after marriage through contributions made from community property is, in principle, community marital property in terms of its corresponding property value, even if registered in only one spouse's name. Note, however, that the property value of equity and shareholder status are two different things: the money can be divided, but whether one can join the company as a shareholder depends on the Company Law and the wishes of the other shareholders.

In practice, there are generally three approaches. First, offset compensation: after the equity is valued, the spouse holding the equity pays the other spouse cash in proportion to their share—the most commonly used method and the one that least disrupts company operations. Second, transferring part of the capital contribution so that the spouse becomes a shareholder: under Article 73 of Interpretation (I) on the Marriage and Family Book, more than half of the other shareholders must consent and expressly waive their right of first refusal before the spouse can be registered as a shareholder; where more than half of the other shareholders object to the transfer but are willing to purchase on the same terms, the court may divide the proceeds of the transfer. Third, where the equity was obtained before marriage: the pre-marital contribution is in principle separate property, but post-marital appreciation generated by business operations—other than fruits and natural appreciation—is generally treated as community marital property and may still be subject to division. In a divorce case our firm handled involving a business owner, the parties' valuations of a Shenzhen manufacturing company differed by nearly a factor of three; we relied on both audit reports and industry peer price-to-earnings ratios, and ultimately closed the case through offset compensation, without affecting the company's operations.

Evidence that should be carefully preserved and secured includes: the company's articles of association and register of shareholders, records of all capital contributions and capital verification, the company's financial statements and audit reports for the past three years, records of nominee shareholding or contributions paid on another's behalf, and registration records of changes to equity held in the other spouse's name. In summary, company equity can be divided, but in practice it is usually resolved by dividing value rather than status. Before filing for divorce, we recommend having a lawyer experienced in the intersection of company law and family law conduct a preliminary equity review and valuation assessment.