24/02/2026
Divorce and the Entrepreneur: Business Continuity, Valuation and Tax Pitfalls.
On Cash Flows, Governance, Pension Liabilities in Closely Held Companies, and Valuation Dates.
Introduction
Where business assets form part of the marital property regime, divorce inevitably extends beyond family law into the sphere of corporate and business law. Unlike ordinary property divisions, which are primarily arithmetic exercises, the division of an enterprise implicates corporate governance, financing structures and tax continuity.
The central issue is therefore not merely how the assets should be divided, but under what conditions division can occur without materially undermining business continuity. This requires a coherent assessment of cash flows, managerial authority, pension liabilities, valuation methodology and latent tax exposures. An isolated analysis of any one of these components will almost inevitably create distortions elsewhere in the system.
Capacity to Pay and Cash Flow: The Distinction Between Profit and Liquidity
In maintenance and property division proceedings, accounting profit is still frequently used as the primary benchmark. This approach disregards the fundamental distinction between profitability and liquidity.
Operating cash flow constitutes the relevant indicator of actual payment capacity. Investments, working capital fluctuations and debt service obligations may result in a profitable company generating limited free cash flow. It is the free cash flow — the funds remaining after maintenance investments and necessary financing costs — that determines the genuine capacity for private withdrawals or equalisation payments.
Arrangements that fail to reflect liquidity realities create tension between proprietary claims and business sustainability.
Pension in a Closely Held Company and Fiscal Sanction Risks
Particular attention must be paid to historical “pension in own management” structures (pensioen in eigen beheer) for director–major shareholders. In a prolonged low-interest environment, economic underfunding of pension reserves is common. If, in the context of divorce, pension rights are materially reduced or effectively waived, this may constitute a prohibited act for tax purposes.
The fiscal consequences are severe: taxation based on the market value of the pension rights, increased by penalty interest (revisierente). The combined burden may approach approximately 72 percent. Thus, a civil law desire for final settlement may conflict with mandatory tax consequences.
Moreover, transferring pension entitlements to the former spouse in circumstances of structural underfunding may raise concerns under principles of reasonableness and fairness. Dividend policies and shareholder loan accounts must therefore be critically assessed, as they directly affect funding levels and the corresponding tax risk profile.
Management Authority and Governance During the Transitional Phase
The question of who is authorised to perform management acts in respect of business assets is not merely theoretical. Transactions falling outside the ordinary course of business — such as granting security interests or restructuring assets — may require spousal consent under marital property law.
Read full article: https://hodak.nl/en/our-blog/divorce-and-the-entrepreneur-business-continuity/
