Insights

Who will benefit from the divorce of the leased factory in Ningbo?

Ningbo Author：LuXu WANG

If a leased factory is operated during marriage, to whom do the profits generated after divorce belong? To state the conclusion upfront: the right of lease is separate from ownership—whether the factory is registered or leased in one spouse’s name does not mean that the factory belongs to that spouse. The leased factory itself is not marital property and cannot be directly divided as “property title.” However, rental payments made with marital assets after marriage, operating profits generated through joint investment and management, accounts receivable, and any increase in value of the equipment are considered marital property and may be subject to division upon divorce. In a nutshell: The factory building is leased; what gets divided in a divorce is the “money earned from that factory.” Make sure you identify the correct asset to be divided—don’t confuse the two.

1. legal characterization: why is the income not the plant?

Article 1062 of the Civil Code of the People's Republic of ChinaIt is stipulated that the wages, bonuses, remuneration for labor services, income from production, operation and investment, and income from intellectual property rights earned by the husband and wife during the existence of the marriage relationship shall be the common property of the husband and wife. According to this, the structure of the property in this case is disassembled: first, the lease right is a creditor's right rather than an ownership right, the leased factory does not give rise to the real right problem of "who owns the factory", and there is no way to divide the factory itself during divorce; Second, the rent paid with common property after marriage and the profits generated by both parties jointly put into operation belong to the second item of Article 1062, "income from production, operation and investment" and investment ", which are included in common property. Third, if the lease and operation rely entirely on one party's pre-marital resources and are not involved in the family, the relevant proceeds are difficult to identify as common property. The core criterion is always "whether there is a common investment after marriage and whether the income is used for family life together".

It should also be noted that even if the divorce is not immediately divided, as long as the business still relies on the joint investment in marriage to form the source of customers, assets and channels, the business income generated after the divorce may still enter the division vision-"divorce has nothing to do with the factory" is not valid, the time boundary is not equal to the property boundary.

The time boundary of income accounting also deals with two types of situations: the income generated by one party's continued operation during the separation period, most courts still believe that it belongs to the income during the existence of the marriage relationship and can be included in the division (separation is not equal to the property division system), unless otherwise agreed in writing by both parties; The income from the divorce to the completion of the actual division may still be claimed because the business basis originates from the joint investment within the marriage, however, the longer the time and the more unilateral investment, the smaller the space can be claimed-the time evidence at both ends of the accounting interval (separation certificate, divorce registration time, operating account start-stop flow) is therefore particularly important.

2. Scenario Segmentation: Six Business Patterns, Six Segmentation Results

Scenario 1: After marriage, it is leased and operated jointly on common property.Profits, accounts receivable, equipment and inventory appreciation generated after marriage are, in principle, common property, divided according to common property in the event of divorce.

Scenario 2: One party rents before marriage and jointly puts into operation after marriage.The income formed by pre-marital customers, assets and inputs is not divided, and the incremental income generated by the joint investment (additional funds, joint labor, family resources support) after marriage is common property. The timeline and the flow of funds are the primary criteria for distinguishing between the two.

Scenario 3: It is mainly operated by one party and the other party is not directly involved.As long as the proceeds are used for the family to live together, or the other party has auxiliary inputs (advances, housework support operations, external contacts, etc.), the new proceeds after marriage may still be recognized as common property-"mainly by me" cannot automatically exclude common attributes, unless expressly agreed upon in a marital property agreement.

Scenario 4: The plant is in the name of one of the parents and is for their personal operation only.If the ownership of the plant and the operating income are not related to the joint property of the husband and wife, it is difficult for the other party to claim the division, but if the joint property is invested in the transformation and equipment purchase after marriage, the corresponding value-added or residual value of the investment can be claimed compensation.

Scenario 5: After marriage, we will jointly renovate the factory.Renovation, equipment and alterations invested in common property during the lease period can be claimed for their residual value and unamortized portion upon divorce, rather than just looking at the source of the rent.

Case 6: Renewal and relocation after divorce.The change of the rights and obligations of the lease contract must be approved by the lessor (Articles 555 and 716 of the Civil Code on the basic rules of consent for contract transfer and sublease), and the ownership of the lease right must be changed through negotiation with the lessor; If the continuity of operation is involved, the transition period, relocation expenses and income distribution may be agreed upon during the division to avoid losses caused by the interruption of operation.

Method of accounting for 3. operating income

The amount of proceeds is the core contention in such cases, and the accounting is usually divided into four steps:

  1. Determine the accounting interval: generally from the date of marriage to the date of separation or divorce, to avoid the mixing of pre-marriage or post-divorce business results;
  2. Calculation of net income: based on income less costs, taxes and fees, and then deducting the portion formed by pre-marital existing assets and inputs;
  3. Presumption of incomplete accounts: reference may be made to industry profit margins, tax return data and bank flow to reverse the size of income, and, if necessary, apply for a judicial audit or an assessment by a professional body;
  4. Separate assessment of value added: The post-marital value added of equipment, inventory and customer resources is assessed separately and included in the income formed by joint inputs.

In the case of "only one inexplicable internal account", the court tends to combine tax returns, the public flow and the level of the industry, the party concealing the income will bear the adverse consequences-the account confusion itself can not hide the real business situation, but may trigger the audit.

The choice of 4. compensation method

The split landing method can be flexible: one-time payment is suitable for situations where the other party has the ability to pay and one is eager to realize it; Payment in installments and setting up guarantees (guarantor, mortgage and equity pledge) are suitable for operators with tight cash flow and agreement on overdue default clauses. Offsetting with other common property (one party acquires real estate, the other party acquires operating rights and interests and corresponding deposits) is suitable for families with rich property combinations. Regardless of the approach, the agreement or mediation document should clearly specify the amount, term, method of payment, and consequences of late payment to ensure enforceability—failing to put a mutually agreed-upon arrangement in writing is the most common pitfall in divorce property settlements.

List of 5. evidence: clarifying the size of leasehold interests and proceeds

  1. Lease contract and lessee subject materials: confirm the lessee, rent payment account and source, and determine whether it is a common property lease after marriage;
  2. Operating accounts and bank flow: the flow of public accounts, collection records, purchase and sales accounts, restore the real operating profit;
  3. Tax return records: the scale of income declared can be used as a basis for supporting and calculating income;
  4. Investment and value-added evidence: equipment purchase, decoration investment, customer and channel construction time and source of funds, define the value-added formed by joint investment after marriage;
  5. Evidence of separation and divorce time: delineating nodes for accounting intervals.

Corresponding treatment of 6. operating losses and liabilities

While dividing the income, losses and debts should also be dealt with: in principle, the operating debts formed by joint lease and joint operation within marriage are joint debts of husband and wife (Article 1064 of the Civil Code) and paid off with common property; If one party raises debts in his own name and the income is not used for family life, the creditor must prove that the debts are used for the couple's common life or joint production and operation, otherwise it may be regarded as personal debts. The treatment of "loss" in divorce is not a simple "loss in half": first pay off the common debt with the common property (including income and equipment inventory cash), and then divide the remaining property ".

Procedural relief when 7. accounts are not clear

If the party claiming to divide the income cannot get the accounts, there are three remedies in the procedure: first, apply to the court for access-to obtain third-party records such as public account flow, tax declaration, social security payment and purchase and sale contracts by investigation order; Second, apply for judicial audit-entrust an audit institution to check the operating accounts. If the accounts are incomplete, the court will deduce the income scale in combination with the existing evidence. Third, if the other party refuses to provide the accounts and there is no reasonable explanation, the court may adopt the income caliber calculated by the claimant based on the flow and industry data. “The books are in my possession, and you refuse to let me inspect them” does not absolve the party of its obligation to cooperate in presenting evidence; the party that refuses to cooperate shall bear the consequences of failing to do so—this is precisely why the question of “whether or not to conduct an audit” carries such weight at the negotiating table.

8. Common Misunderstandings and Positive Solutions

Myth 1: The factory is in whose name it is.Positive solution: the leased factory only the right to use no ownership, no matter "who is the factory", does not change the "after marriage jointly invested in the formation of the income is a common property" judgment-the object of division is the income, not the house.

Myth 2: The lease contract to write the name of the other party, the proceeds will all belong to him.Positive solution: the subject of the lease is only a party to the contract, and the proceeds formed by the joint investment after marriage can still be common property.

Myth 3: Divorce has nothing to do with this factory.Positive: If the continuing operation after divorce still relies on the source of customers and assets formed by the joint investment in marriage, the relevant income may still enter the division vision-the time boundary is not equal to the property boundary.

Myth 4: I did not sign the contract, did not participate in the operation is safe.Positive solution: the fact of joint operation itself can trigger the division.

Myth 5: If all the proceeds are used to pay off the debt, there is no need to divide it.Positive solution: the proceeds used to settle the common debt have been converted into debt settlement benefits, the division should be "liquidated common debt" together accounting for confirmation.

Myth 6: When I divorced, the plant and equipment belonged to each other, so I left the house clean.Positive solution: Even if the business rights and interests of the plant belong to the other party, they should also be compensated for the value-added of the equipment, the residual value of decoration and the operating income formed by the joint investment after marriage-"things belong to him" does not mean "money is not given".

Myth 7: Operating losses, spouses do not have to share.Positive solution: Losses and debts resulting from joint operations are usually borne by common property, and the party claiming that "the loss has nothing to do with me" must prove that the operation is the other party's personal act and that the proceeds have not been used for the family.

Myth 8: If the other party's account is well done, the real profit cannot be found.Positive solution: tax declaration, public flow, customer and supplier exchanges, industry profit margin are cross-validation channels-books can be low, flow and declaration can not do long-term leave.

Misunderstanding 9: Divorce first and then slowly calculate the factory income, it is "can't run away" anyway.Positive solution: operating accounts and running water will decay over time-personnel changes, voucher loss, data is covered, the sooner fixed, the better.

Myth 10: If you can't talk about it, you can only go to court. There is no other way.Positive solution: there is also a way to offset mediation and negotiation-Ningbo court has a high proportion of pre-litigation mediation in family cases. after the accounts are settled, the compensation scheme is negotiated in mediation, and enforceable results are often obtained faster than judgments.

Reference to such cases: the court of second instance held that the divorce agreement was valid; As for the division of factory buildings and land, the division of factory buildings and land will not be dealt with for the time being because the license cannot be issued before the cancellation of the planning license, the planning department replied that the division does not conform to the regulations, and the parties do not advocate discount or common ownership, and the trademark and equipment will not be dealt with for the time being. Trial Court: Case No. of Ningbo Intermediate People's Court of Zhejiang Province:(2020) Zhejiang

02Minzong No. 4798

9. FAQ

Can the rented factory be divided directly when divorcing?

The plant itself cannot be divided-the lessee does not have ownership. What can be divided is the operating income attached to it, the value-added of equipment and accounts receivable formed by the investment after marriage. The claim should focus on the proceeds and compensation; a request to divide the factory building itself will be dismissed.

After the divorce, the other party continues to operate, but also can share the proceeds?

If the business still relies on the source of customers and assets formed by the joint investment in marriage, the income generated continuously after the divorce may still be considered as the scope of common property, and the continuous income can be claimed to be divided-but it must be proved that the business base is derived from the joint investment in marriage, the longer the time, the weaker the investment association, the more difficult the claim.

The other party said, "I have always done the factory by myself." Does it count?

It doesn’t count. Mainly operated by one party does not mean that the proceeds go to one party-as long as the post-marital proceeds are used for family life together or the other party has auxiliary inputs, the new post-marital proceeds may still be considered common property. What really excludes common attributes is the explicit agreement on the proceeds formed by the existing resources before marriage or the marital property agreement.

What if the other party's accounts are incomplete and the proceeds are not clear?

You can apply to the court to obtain the public account flow, tax return records, if necessary, apply for judicial audit. If the other party refuses to cooperate with the audit or conceals the income, it may claim a presumption against it.

Does the lessor need to agree to give the lease to one party in the event of divorce?

Needed. The comprehensive transfer of rights and obligations under a lease contract requires the lessor’s consent (Article 555 of the Civil Code). Any change of the lessee without such consent may result in a determination of breach of contract or termination of the contract. In cases involving lease renewals, the rent and lease term must be renegotiated with the lessor, and the partitioning arrangement should include a transitional period.

Practical Experience of 10. Lawyers

When renting a factory during marriage, you should first distinguish what is divided when you divorce. The plant is rented, the lease right is the creditor's rights and interests, the plant itself is not the joint property of the husband and wife, not to mention the "house" to divide. As soon as many parties came up, they advocated that "the factory has half of me". If the direction is off, there will be many detours in court. Therefore, the first step is not to dispute ownership, but to clarify the operational relationships: who signed the lease agreement, which account pays the rent, who is responsible for operations, and where the revenue flows.

The income should be divided, provided that it can be calculated. In my experience, it’s best to cross-reference three key data streams: the business ledger or income‑expense records show profit and loss; bank and payment‑platform transaction statements reveal actual cash inflows and outflows; and lease agreements along with upstream–downstream transactions reflect the scale of operations. If the accounts are unclear and the other party is uncooperative, you may apply to the court to obtain bank transaction records or require the other party to provide evidence. If necessary, you may also request a verification of the business accounts, using procedural measures to bring the matter into the open. Accounting to distinguish between pre-marital and post-marital business boundaries, pre-marital input and accumulation corresponds to the personal part, can not be divided in general according to the status quo, which is the most controversial place in such cases.

After calculating the compensation method, the pragmatic choice is more important than the struggle of face. If the other party wants to continue to operate and is unwilling to sell the equipment, it may request a one-time compensation at a discount according to the appraised value. If the other party is short of funds, it can also agree to pay in installments or with its property elsewhere, but it is necessary to set up a good default liability and payment node to avoid "easy signing and difficulty in taking money". At the same time, don't forget to deal with operating losses and debts-the debts, rights and obligations arising from joint operations are one, only the proceeds do not recognize the debt, but easy to roll over in the subsequent implementation. If the accounts involve third-party cooperation, fixing the evidence earlier and exposing the bottom line of the negotiation later can usually make the compensation plan more relaxed.

The difficulty in the dispute of renting factory buildings within marriage lies in "income" rather than "factory buildings": it is difficult to divide the lease right of factory buildings directly, but the added value formed by the operating income and investment after marriage can be claimed. The main points of operation can be summarized as follows: check the lease (whether the lessee and the rent source are common after marriage), calculate the income (separate pre-marital existing and post-marital new profits), prevent concealment (apply for access to operating accounts and tax records), fixed compensation (one-time, installment or discount, written into the document). For the operator, the pre-marital investment and post-marital investment account separate, is the best protection of their own rights and interests, for the other party, timely fixed business evidence, advocate judicial audit, than after the "guess the number" much more effective.