Spouse’s consent to share transfers not just a formality
A share in a business corporation held by a spouse forms part of the community property of spouses (‘community property’), with some exceptions. Although the other spouse does not become a shareholder (they cannot attend or vote at general meetings and do not have the right to information about the company but only the right to the asset that the share/interest represents), the acquisition of a share in a company is usually subject to the spouse’s consent. In practice, this restriction is often underestimated, if not outright ignored. Here, however, ignorance is not bliss.
Under the general rule, in matters that are not of a common nature spouses either act jointly, or the other spouse’s consent is required. The ‘common nature’ of the matter depends on the specific circumstances of the couple, and ranges from a sale of a second-hand car, to the sale of a painting worth millions. Apart from this, the other spouse’s consent is also specifically required in situations where a part of the community property is to be used for one of the spouses’ business activity, and the value of what is to be thus used exceeds a level appropriate to the property circumstances of the couple. Hence, this includes the acquisition of a share in a company: according to the Supreme Court’s case law, it seems that consent is almost always required, regardless of the amount of potential consideration.
If one spouse does not consent to the acquisition of a share in a business corporation, then they (and only they) may later invoke the invalidity of the purchase. This undoubtedly may have a negative effect on the marriage as well as on the company involved.
What then are the consequences of effecting a transfer without the other spouse’s required consent? If the spouse who did not give consent to the controversial purchase does not challenge the act, nothing really happens, and whatever was acquired by such act (e.g. the share in the corporation) will become part of the community property. If, however, the spouse invokes the invalidity of the legal act, then the value that had been a part of the community property before the transaction, i.e. usually a sum of money (the purchase price paid), will be subject to the settlement of the community property between spouses (for instance in the event of divorce). Thus, according to a theory currently gaining ground, the community property will be viewed as still including the money used to purchase the share, meaning that from the viewpoint of the non-consenting spouse, the value of the community property will include both the share in question, and the purchase price paid for it; the non-consenting spouse would thus get from the community property not just half of the purchase price paid, but also half of the purchased share. And this situation is far from ideal for the other spouse.
We thus recommend that spouses and those participating in a company with them or purchasing a company from them should not overestimate the strength of their marital union and pay proper attention to obtaining the other spouses’ consent with using a part of the community property for business, in particular with transferring a share in a corporation.