Divorce Without Losing the Business: What Can Be Divided if One Spouse Is an Individual Entrepreneur

During divorce, one of the most common questions is the fate of the business. If one spouse is registered as an individual entrepreneur (IE), it is often assumed that the other automatically has a claim to half of the IE itself. In reality, the law provides a different approach.

Can an Individual Entrepreneur Be Divided?

An individual entrepreneur is a natural person who exercises their right to entrepreneurial activity after state registration. The Law of Ukraine "On State Registration of Legal Entities, Individual Entrepreneurs and Public Formations" provides only for state registration of acquiring or terminating the status of an IE, but does not include a procedure for transferring it to another person. Therefore, the status of an individual entrepreneur is personal, inseparably linked to a specific person, and cannot be sold, gifted, inherited, or transferred to another person.

At the same time, this does not mean that all the entrepreneur’s property is their personal property.

How Are Income from Entrepreneurial Activity Divided?

According to Article 60 of the Family Code of Ukraine, property acquired by spouses during marriage is considered joint marital property regardless of whose name it is registered under. Similarly, Article 61 of the Family Code provides that income received by one spouse can be an object of joint marital property.

One of the most complex issues during the division of marital property is income derived from entrepreneurial activity. The Family Code of Ukraine does not contain specific provisions defining the procedure for dividing the profit of an individual entrepreneur, so general rules regarding joint marital property apply in such disputes.

At the same time, funds received into the account of an individual entrepreneur cannot always be considered the entrepreneur’s personal income. Some of these funds may be intended for business activities: purchasing goods, paying employees' salaries, paying taxes, rent, utilities, and other business-related expenses. Therefore, when considering disputes, courts establish not only the amount of income received but also its origin, actual use, and whether it was directed toward acquiring property for the family or used to meet its needs.

If, using income from entrepreneurial activity during the marriage, an apartment, house, car, land plot, or other property was acquired, such property may be recognized as joint marital property according to Articles 60, 61, and 69–71 of the Family Code of Ukraine and subject to division.

What Is the Judicial Practice Based On?

The Supreme Court holds that income of an individual entrepreneur received during marriage may be subject to joint marital property rights. However, the person applying to the court for division must prove not only the fact of receiving such income but also the amount of net profit that can be divided.

In practice, this often becomes a problem because documents on income, expenses, tax reporting, and other financial indicators are usually in the possession of the entrepreneur. Therefore, the other spouse often cannot independently confirm the amount of net profit.

Previously, the "Judicial and Legal Newspaper" analyzed court practice regarding property division.

In particular, the Supreme Court noted that conducting entrepreneurial activity by one spouse alone does not mean that all IE property is their personal private property.

The court reached this conclusion during the consideration of case No. 629/3710/20. The husband filed a lawsuit demanding the division of joint marital property, which included, among other things, a Toyota Corolla car, an apartment, a house, and nine temporary trading structures (pavilions). The wife claimed that the pavilions were purchased with funds from her entrepreneurial activity and money gifted by her father. The plaintiff requested either the division of the trading structures or compensation equal to half their market value.

After evaluating the evidence presented by the parties, the court concluded that the defendant did not provide sufficient proof that the disputed property was purchased solely with her personal funds. As a result, the trading pavilions were recognized as joint marital property.

At the same time, the Supreme Court noted that the actual division of such objects could make further entrepreneurial activity impossible. Therefore, the pavilions remained the property of the wife, who used them in business, and the husband was awarded monetary compensation corresponding to half their market value.

Subscribe to our Telegram channel t.me/sudua and to Google News SUD.UA, as well as to our VIBER and WhatsApp, and follow us on Facebook and Instagram to stay updated on the most important events.