Spousal maintenance on divorce: what does this mean for you as a DGA?
Divorce is rarely straightforward. But if you are a director and majority shareholder (DGA), determining spousal maintenance becomes even more complex. After all, your financial position is not limited to a payslip. You have a Dutch private limited company (BV), potentially receive dividend distributions, may have retained profits and may have bought out your former partner by acquiring shares. So how is your ability to pay spousal maintenance fairly determined?
How is a DGA’s ability to pay spousal maintenance calculated?
That question was at the heart of a recent judgment of the Dutch Supreme Court. A DGA had bought out his former partner and argued that future profits from the BV should no longer be taken into account in the maintenance calculation. After all, those profits had already been ‘accounted for’ in the price of the shares. The court took a different view.
According to the Dutch Supreme Court, expected profits and dividends may indeed be taken into account when calculating spousal maintenance. Unless it is clear that those future earnings have already been fully reflected in the valuation of the business, there is no double counting. This means that your ability to pay is assessed more broadly: not only on the basis of salary, but also on the basis of your company’s profit-generating capacity.
What does this mean for you as a DGA?
For you as a business owner, this is an important point. You cannot simply keep your income low in order to pay less maintenance. Courts look at your actual economic means. It is therefore crucial, on divorce, to record clearly how your business is valued, what the profit expectations are and whether future earnings have already been taken into account in the financial settlement. And if the company’s results change, you may be able to apply for a variation of the maintenance arrangement.
Are you the former partner of a DGA?
This judgment is also important if you are the former partner of a DGA. The court looks not only at your former partner’s salary, but at their overall financial ability to pay, including dividends and business profits. This provides greater assurance that the maintenance reflects the actual financial position. Are you unsure whether the current maintenance amount is still appropriate? You can have it assessed whether a variation may be possible.
Would you like clarity about your ability to pay as a DGA?
Divorce is complicated enough as it is. As a DGA, you want to know where you stand. This judgment of the Dutch Supreme Court underlines the importance of a careful analysis of your financial position, taking into account not only your salary but also your business.
Would you like to know how your ability to pay will be assessed, or do you have doubts about the current maintenance calculation? Please contact me or one of our other divorce lawyers for a clear analysis and tailored advice.
Frequently asked questions about spousal maintenance
for business owners and DGAs
What does ‘ability to pay’ mean in the context of spousal maintenance?
Ability to pay is the amount a person has available to pay maintenance. For business owners and DGAs, this is determined not only on the basis of salary, but also by reference to dividends, business profits and other sources of income.
How is the ability to pay maintenance calculated?
The court considers net disposable income, including salary, dividends, business profits and other genuine sources of income. For business owners, several years are often considered in order to average out fluctuations.
Are dividends or profits from the BV taken into account when determining maintenance?
Yes. Dividends and profits from the BV are taken into account when determining the ability to pay. This helps prevent a DGA from artificially keeping their income low.
When does double counting arise in relation to maintenance and a share transfer?
Double counting arises only if future profits have already been fully reflected in the value of the business at the time of the share transfer. In practice, that is rarely the case.
How is a business valued on divorce?
The value is determined on the basis of annual accounts, forecasts, market position and, where relevant, goodwill. This is relevant both to the division of assets and to the calculation of maintenance.
What does profit-generating capacity mean for the amount of spousal maintenance?
Profit-generating capacity indicates how much profit a business can generate on a sustainable basis. This is one of the factors determining the DGA’s ability to pay and therefore the amount of maintenance.
Can a DGA keep their income low in order to pay less maintenance?
Not without risk. Courts look at all genuine sources of income. An artificially low salary is often adjusted for by also taking dividends and retained profits into account.
When can spousal maintenance be varied following changes in business results?
If the company’s results change significantly, for example because of economic circumstances or the loss of contracts, an application may be made to vary the maintenance.
