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In South Africa, divorce clauses in shareholders’ agreements can regulate what happens to a shareholder’s shares on divorce, but they do not automatically override the matrimonial property regime, the Companies Act, the company’s Memorandum of Incorporation or a divorce order.
Where a private-company shareholding forms part of a divorce, family law and company law must therefore be considered together.
The important questions include what matrimonial claim the spouse has, who is the registered shareholder, what the shareholders’ agreement and Memorandum of Incorporation require, how the shares will be valued and whether any proposed transfer can actually be implemented.
The 2025 decision in B.B.Y. v A.A.B.Y. illustrates the risk of dealing with these questions only after a divorce settlement has already been concluded.
The shareholder had agreed to transfer shares to his former spouse, but later relied on consent and right-of-first-refusal provisions in the shareholders’ agreement to argue that performance was impossible.
The High Court rejected that defence and ultimately fashioned an order which accommodated the existing shareholder mechanism while protecting the former spouse’s economic entitlement.
This article provides general information about South African law. It does not constitute legal, financial or tax advice and does not predict the outcome of an individual matter.
| Question | General position |
What is a divorce clause in a shareholders’ agreement? | A contractual provision dealing with what happens to shares or a shareholder’s interest if divorce occurs. |
Does divorce automatically transfer shares to a spouse? | No. The matrimonial claim and the corporate transfer process are separate questions. |
Does marriage in community of property mean each spouse owns 50% of every share? | No. The spouses have interests in the joint estate, but that does not automatically make each spouse the registered holder of half of every individual asset. |
Can an accrual claim give a spouse shares? | An accrual claim is ordinarily a monetary claim. The parties may agree that shares will be used to satisfy it, but that requires proper implementation. |
Can a spouse married without accrual ever claim redistribution? | Potentially. Section 7(3), as affected by EB v ER; KG, may permit a redistribution claim where its requirements are met. |
Can a shareholders’ agreement restrict a divorce-related transfer? | Yes, depending on its wording, although it remains subject to the Companies Act and the MOI. |
Does a divorce settlement automatically bind other shareholders? | No. Co-shareholders and the company are not automatically bound merely because the spouses agreed to a transfer. |
Can existing shareholders have first rights to buy the shares? | Yes, where valid transfer or pre-emptive provisions apply. |
| Can the company itself buy the shares? | Potentially, but a company repurchase must comply with sections 46 and 48 of the Companies Act and other applicable requirements. |
| Is the shareholders’ agreement always the final word? | No. Section 15(7) requires it to be consistent with the Companies Act and the company’s MOI. |
| Is the contractual buy-out price necessarily the divorce value? | Not necessarily. The purpose and wording of the relevant valuation mechanism must be examined. |
A divorce clause is a contractual provision designed to regulate the consequences of a shareholder’s divorce for the company and the other shareholders.
South African law does not require every shareholders’ agreement to contain such a clause.
Where one exists, it may address matters such as when divorce becomes a trigger event, whether shares must be offered for sale, who has the first right to acquire them, how they will be valued and how a buy-out will be funded.
Some agreements do not contain a clause labelled “divorce”.
Their ordinary transfer provisions may nevertheless become important if a divorce settlement proposes that shares be transferred to the shareholder’s spouse or former spouse.
The terminology used in agreements also differs. A particular agreement may refer to rights of first refusal, pre-emptive rights, compulsory-transfer provisions, permitted transferees or shareholder-consent requirements.
The wording of the actual agreement matters more than the label attached to the provision.
Before dealing with the shareholders’ agreement, it is necessary to identify the matrimonial property regime.
That determines the nature of the spouse’s underlying patrimonial claim.
In a marriage in community of property, the spouses share a joint estate.
Shares registered in one spouse’s name may therefore form part of that joint estate. This does not mean that the other spouse automatically becomes the registered shareholder of half of each shareholding.
The distinction was illustrated by the Supreme Court of Appeal in Technology Corporate Management (Pty) Ltd and Others v De Sousa and Another.
After the divorce, Mrs Oberem had a right to division of the former joint estate. However, the 30% shareholding remained registered in her former husband’s name while the estate was being divided. The SCA held that, until the relevant process had been completed, her interest in the shares themselves was “no more than a spes”.
The practical point is important.
An entitlement arising from the joint estate does not automatically create the corporate status of registered shareholder in relation to a particular block of shares.
Where the accrual system applies, the spouses retain separate estates during the marriage.
On dissolution, the spouse whose estate has the smaller accrual may acquire a claim equal to half of the difference between the accruals, subject to the Matrimonial Property Act and the terms of the antenuptial contract.
That is ordinarily a claim sounding in money.
A company shareholding may be an important asset when the value of the relevant estate is calculated, but an accrual claim does not automatically give the other spouse ownership of particular shares.
The parties may agree that shares will be transferred as part of satisfying the financial consequences of the divorce. If they do, the corporate transfer requirements still need to be considered.
Where community of property and the accrual system have been excluded, the spouses generally retain separate estates.
That does not mean that every modern marriage out of community without accrual can now be described simply as producing no possible redistribution claim.
In EB v ER; KG v Minister of Home Affairs, the Constitutional Court declared the historical restriction in section 7(3)(a) of the Divorce Act unconstitutional and provided a reading-in pending remedial legislation. This extended access to the redistribution mechanism beyond marriages concluded before 1 November 1984.
A redistribution order is not automatic.
The statutory requirements still have to be established, including the requirements in sections 7(3) to 7(6) of the Divorce Act.
Where private-company shares are significant, their value may therefore still become relevant even though the marriage excluded accrual.
This distinction is fundamental.
For purposes of the Companies Act, and subject to section 57(1), a shareholder is the holder of a share who is entered as such in the company’s certificated or uncertificated securities register.
A spouse may therefore have a matrimonial-property interest connected with a shareholding without yet having the legal status or voting rights of the registered shareholder.
The reverse distinction is equally important.
A divorce settlement may give a spouse the economic value attributable to shares without requiring that spouse to become a shareholder at all.
That can sometimes avoid creating a long-term corporate relationship between former spouses.
Yes.
Private-company shareholders often agree that shares may not simply be transferred to an outsider.
The agreement may require the selling shareholder first to offer the shares to the existing shareholders. It may require board or shareholder consent. It may also identify permitted transferees or specify a compulsory-transfer mechanism.
These provisions can become highly relevant where a divorce settlement says that shares are to be transferred to a former spouse.
In Thompson and Another v ILIPS (Pty) Ltd and Others, the High Court dealt with transfers made contrary to pre-emptive rights in a shareholders’ agreement. The court recognised the legal consequences of infringing those rights and ordered rectification of the securities register. The parties were themselves involved in divorce proceedings, although the case was principally a company-law dispute concerning the transfer provisions.
The lesson is not that every divorce transfer is defeated by a pre-emptive clause.
It is that the transfer provisions cannot safely be ignored.
The shareholders’ agreement is only one part of the corporate framework.
The company’s Memorandum of Incorporation must also be reviewed.
Section 15(7) of the Companies Act provides that shareholders may enter into agreements concerning the company, but those agreements must be consistent with the Companies Act and the MOI. Any inconsistent provision is void to the extent of the inconsistency.
Navigator Property Investments (Pty) Ltd v Silver Lakes Crossing Shopping Centre (Pty) Ltd and Others illustrates the operation of this hierarchy. The High Court applied section 15(7) when considering a shareholders’ agreement provision that conflicted with the statutory regime.
A divorce lawyer dealing with shares should therefore not ask only:
What does the shareholders’ agreement say?
The enquiry should also include:
What does the MOI say, and is the proposed mechanism consistent with the Companies Act?
This is where poor drafting can become expensive.
Section 7(1) of the Divorce Act permits a court granting a divorce to make an order concerning the division of the parties’ assets in accordance with their written agreement.
But an agreement between divorcing spouses does not automatically make the company or other shareholders parties to that agreement.
A settlement stating simply that “50% of the shares shall be transferred” may therefore create an implementation problem where the shareholders’ agreement requires consent, a prior offer, an independent valuation or another process.
In B.B.Y. v A.A.B.Y. the divorce settlement required the husband to transfer 50% of specified company shares to his former wife.
He later argued that this could not be implemented because the shareholders’ agreement provided that shares could not be sold without the other shareholders’ consent and gave them a right of first refusal.
The High Court rejected his impossibility defence.
A central problem was that he had not followed the process in the shareholders’ agreement. Instead, he relied on his own lack of awareness of its terms when he signed the settlement. The court held that the alleged impossibility was not objective and was attributable to his own fault.
The final order is especially instructive.
The husband was directed to comply with the share-transfer undertaking by first offering the shares to the other shareholders at a value determined by an independent chartered accountant. If the other shareholders bought the shares, the purchase price was to be paid to the former wife. If they did not, he had to pay her an amount equal to the determined value.
The case does not establish that a divorce settlement simply overrides every shareholders’ agreement.
It demonstrates something more useful: a shareholder should not promise a transfer in a divorce settlement and only afterwards investigate whether the existing corporate arrangements allow it.
Before a settlement requiring a share transfer is signed, the following should ordinarily be identified:
That is usually safer than creating an unconditional obligation first and trying to solve the company-law problem later.
Potentially, but a company repurchase is not merely a private arrangement between the divorcing spouses.
Sections 46 and 48 of the Companies Act become relevant.
Section 46 regulates distributions and requires the solvency-and-liquidity test to be addressed before a distribution may proceed. The board must also make the required statutory acknowledgements and resolutions.
Section 48 regulates a company’s acquisition of its own shares.
The Companies Amendment Act 16 of 2024 amended section 48(8), with the relevant amendment becoming operational on 27 December 2024. The current provision requires shareholder approval by special resolution in specified circumstances, including acquisitions from directors, prescribed officers or related persons and acquisitions other than the statutory pro-rata or recognised-exchange exceptions.
A divorce clause that simply says “the company must buy the shares” is therefore not enough.
The proposed buy-out must be capable of lawful implementation under the Companies Act, the MOI and the company’s financial circumstances.
Private-company shares usually do not have an observable market price.
Their value may depend on the underlying business, profitability, debt, shareholder loan accounts, cash flow, assets, future earnings, the rights attached to the shares and whether the holding carries control.
A minority interest may also raise questions about marketability and control.
For a more detailed discussion, see Minority Shareholdings in Divorce in South Africa.
A shareholders’ agreement may contain a contractual formula for determining the price payable when a transfer event occurs.
That contractual price should not automatically be assumed to answer every matrimonial valuation question.
For example, a clause may prescribe a particular discount, valuation date or methodology for an internal shareholder buy-out. The divorce enquiry may be concerned with the value of the shareholding as an asset of an estate or with the amount payable between the spouses.
The two figures may coincide.
They may also differ.
The agreement, matrimonial regime and purpose of the valuation should therefore be identified before a figure is accepted.
A valuable private-company shareholding is not the same as available cash.
A shareholder may own an interest worth several million rand while having limited liquid resources with which to pay an accrual, redistribution or settlement liability.
The company itself may also lack the cash required for an immediate repurchase, even where the shares have substantial value.
This can affect the structure of a settlement.
Payment periods, security, staged payments, asset sales, dividends and third-party funding may need to be considered, depending on the facts.
For the broader problem, see The Liquidity Problem in High-Net-Worth Divorce in South Africa.
What Should a Divorce Clause Cover?
A carefully drafted divorce clause should be clear about the event that activates it.
That may be the institution of divorce proceedings, signature of a settlement, grant of the divorce order or another defined event.
It should also address:
The clause should also be tested against the commercial reality of the company.
A technically elegant clause that cannot be funded may still produce serious difficulty.
No. The matrimonial regime determines the nature of the spouses’ patrimonial interests. Even in community of property, equality of the ultimate division of the joint estate does not mean that every individual asset must be divided equally. Technology Corporate Management v De Sousa is an important illustration.
No. That is too broad. The legal effect depends on the parties bound by the respective instruments, the wording of the shareholders’ agreement, the MOI, the Companies Act and the terms of the divorce order. B.B.Y. v A.A.B.Y. demonstrates that a shareholder cannot necessarily create or overlook a corporate obstacle and later use it as an excuse for non-performance.
That is also too broad. Other shareholders and the company may have rights which were not created by the divorcing spouses and which cannot simply be assumed away. The better approach is to investigate those rights before the settlement is signed.
Not necessarily. A transfer mechanism may determine who acquires the shares without eliminating the spouse’s underlying economic entitlement. The order in B.B.Y. demonstrates how a first-refusal mechanism and the former spouse’s economic entitlement can be accommodated together.
Not necessarily. It may determine the contractual transfer price under a particular mechanism. Whether that price also answers the matrimonial valuation question depends on the agreement, the claim and the circumstances.
It may restrict the proposed transfer through consent requirements, rights of first refusal or other transfer provisions. Whether those provisions apply depends on the wording of the agreement, the MOI and the Companies Act. That does not necessarily eliminate the former spouse’s financial claim.
Yes. Depending on the matrimonial property regime and the eventual settlement or order, a financial claim can be calculated by reference to a shareholding without the spouse becoming a registered shareholder.
Yes, but the proposed transfer should first be checked against the corporate documents and statutory requirements. B.B.Y. v A.A.B.Y. illustrates the risk of signing the obligation first and investigating the transfer restrictions afterwards.
Not automatically. The wording of the particular clause determines the circumstances in which it is triggered. The agreement must be interpreted before assuming that a matrimonial transfer falls within it.
Potentially. Any company repurchase must comply with the Companies Act, including the applicable sections 46 and 48 requirements, as well as the MOI and any other relevant corporate requirements.
The estates are generally separate, but that is no longer the complete answer. Following EB v ER; KG, a section 7(3) redistribution claim may be available in an appropriate case if the statutory requirements are established.
It depends on the dispute and the relevant agreement. Where a private-company shareholding represents a material part of the matrimonial estate, an independent expert valuation is often important, particularly where value, control, minority status or the applicable contractual formula is disputed.
Divorce clauses in shareholders’ agreements sit at the intersection of matrimonial law, contract law and company law.
A spouse’s matrimonial entitlement, the registered ownership of the shares and the contractual ability to transfer those shares are different questions.
They should be analysed together before a divorce settlement is finalised.
The strongest settlement is not simply one that records who should receive value.
It is one that can actually be implemented within the existing corporate structure.
Martin Vermaak Attorneys Inc. advises on South African divorce and family-law matters involving private-company interests, shareholder arrangements, accrual and redistribution claims, valuation disputes and the implementation of settlements involving shares.
Where a divorce involves a substantial private-company shareholding, obtaining advice before the settlement is signed can help identify transfer restrictions, valuation issues and implementation risks that may otherwise emerge only after the divorce order has been granted.
Author: Martin Vermaak, B.Proc, LLB
Attorney of the High Court of South Africa | Director, Martin Vermaak Attorneys | Over 20 years’ experience in divorce and family law
Disclaimer
This information has been prepared for general educational purposes only and is not intended to constitute legal, financial, tax or other professional advice. South African family law is fact-specific, and the applicable legal position may depend on the circumstances of the individual matter. Readers should obtain independent professional advice appropriate to their circumstances before making legal, financial or other decisions.
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