I. Shares acquired by Huang Xiaoming before their marriage or using 

his prenuptial assets during their marriage could not be divided to

 Angela Baby.

Article 1063 of Civil Code provides that “personal assets of one of a couple include (1) prenuptial assets owned by one of the couple”. Therefore, shares acquired by Huang Xiaoming before the marriage are his personal assets that should not be divided between the divorced couple. Shares acquired by Huang Xiaoming using his prenuptial assets during the marriage are another form of prenuptial assets, which should also be owned by Huang Xiaoming.

Although Angela Baby could not claim that shares held by Huang Xiaoming should be divided as prenuptial assets, returns generated from share investments during their marriage might be divided between the divorced couple. Article 26 of the Interpretation (I) of the marriage and family sections of Civil Code by the Supreme People’s Court (“Interpretation I of Marriage and Family Sections”) provides that “returns generated from personal assets of one of a couple during their marriage, not including fruits and natural increases in value should be deemed as the couple coowned assets”. In legal terms “returns generated during the marriage” normally mean paid dividends and man-made increases in value. The former is easy to understand. The latter normally means increases resulting from operational, management, intellectual or physical work, in contrary to which “natural increases in value” are normally attributed to market conditions or inflation. Most shares in limited companies, partnerships and sole proprietorship held by Huang Xiaoming were not listed. Increases in the business value depend on how the business owner and management run it, so increases in the value of shares during the marriage are very likely to be found as man-made increases and couple co-owned assets to be divided after divorce.

II. Shares acquired by Huang Xiaoming using the couple co-owned assets 

generated during their marriage might be divided to Angela Baby.

Why shares acquired by using the couple co-owned assets “might be” (not “should be”) divided to Angela Baby? Because businesses may have different organizational forms. In general, common business forms are companies limited by shares, limited companies, partnerships and sole proprietorship, which can be divided into two categories according to whether their shares can be directly divided between a divorced couple.

1. Businesses in which shares can be treated as the couple co-owned assets and directly dividedafter divorce

Companies limited by shares have typical features of capital on which their credit relies. In brief, they are only based on capital, not their people. Shares in these companies can be freely apportioned and directly divided between a couple on the basis of the number of stocks. Sole proprietorship has only one shareholder and no shares and can be freely divided between a couple. Angela Baby is entitled to divide shares in the two types of businesses acquired by Huang Xiaoming using their co-owned assets in the same way as the couple co-owned assets.

2. Businesses in which shares cannot be divided as couple co-owned assets

Limited companies and partnerships have personal features. Shareholders (or partners) come together to started up a business because they trust in each other. If shares held in the name of a shareholder (or partner) were co-owned by and could be divided directly to their spouse, the  business would have a new shareholder (or partner ） before other shareholders (or partners) exercise their voting rights and the first refusal to purchase the shares. That would affect the running of the business and should be restricted. For example, if Huang Xiaoming acquired part of shares in Le TV (Beijing) Ltd. by using the couple co-owned assets, attitudes and exercises of rights of Sun Honglei, Sun Li and other shareholders or the actual controller should be considered when deciding whether Angela Baby could became shareholder by dividing the shares with Huang Xiaoming.

Considering the above, Articles 73 and 74 of Legal Interpretation I of Marriage and Family Sections do not include “shares of limited companies” or “interests in partnerships” involving couple coowned assets in couple co-owned assets that can be divided directly between the couple and use the terms “contributed capital of limited companies” and “capital contributions to partnerships”. In other words, none of shares in limited companies and interests in partnerships held in the name of one of the couple is co-owned by the couple, but Angela Baby is entitled to sell or change into shares the “contributed capital of limited companies” and “interests in partnerships” co owned by the couple.

If the parties decide to sell them and agree on the terms of sale, the assets would be divided on the basis of the agreed price. If the parties cannot agree on the terms of sale, they may commence legal proceedings, request an evaluation of the contributed capital (or capital contribution) and decide the price based on the evaluation report.

If the parties would not like to or cannot sell them, they could change registered capital of limited companies (or capital contributions to partnerships) into shares by transferring shares of limited companies (or interests in partnerships). Article 73 of Interpretation I of Marriage and Family Sections provides if a couple agree to transfer contributed capital and more than half of the other shareholders agree to the share transfer and no shareholders exercise the right of first refusal to purchase the transferred shares or more than half of the other shareholders neither agree to the share transfer nor exercise the right of first to purchase the transferred shares, the spouse of the shareholder transferring the shares can become the company’s shareholder. This provision is similar to provisions relating to transfer of capital contributions to partnerships in Article 74 thereof.

Based on the above, for confidentiality, convenience and financial reasons, selling the shares is the best option for Angela Baby. It is likely that they have agreed not to divide their shares before or during the marriage. So far, we estimate they had appropriately dealt with matters connected with the division of assets before the official announcement of divorce.