This article addresses the dispute over whether a spouse may claim a share of equity that one party holds as a nominee for another during the marriage, and examines the rules for dividing such equity where the nominee relationship is established versus where it is not — drawing on the entrustment contract regime of the PRC Civil Code, Article 24 of Judicial Interpretation III of the Company Law (actual investor and nominal shareholder), and the criteria for determining the validity of a nominee shareholding agreement.
Key Conclusion (answered up front): Whether a spouse can claim a share of equity that one party holds as a nominee for another during the marriage depends on whether the nominee relationship is established: if it is established, the equity belongs to the actual investor (the entrusting party), and the spouse has no right to claim a share; if it is not established (nominally a nominee arrangement but in substance self-owned), the equity constitutes marital property, and the spouse is entitled to a share. The burden of proof lies with the party asserting that a nominee relationship exists (usually the registered holder), who must rely on a written nominee agreement as the core evidence, supported by a complete chain of evidence such as the actual source of capital contribution and the flow of dividends. The legal basis is the provisions on entrustment contracts in the PRC Civil Code and Article 24 of Judicial Interpretation III of the Company Law.
I. The Husband Says “The Equity Is Held for a Friend” — Should the Wife Believe Him?
Lao Zhao holds a 10% equity interest in a technology company, registered in his own name. When his wife, Xiao Wang, discovers this, she says: this equity was acquired after we married — I want half. Lao Zhao hurriedly explains: I hold this as a nominee for my friend Lao Li; it is not mine — Lao Li is the actual investor. Xiao Wang objects: nominee holding? I have never heard of this. Show me the evidence.
How will the court decide? The key is not what Lao Zhao says, but whether the nominee relationship is actually established. If it is, the equity is genuinely not Lao Zhao’s, and Xiao Wang cannot claim a share; if it is not, Lao Zhao is using “nominee holding” as a shield to conceal marital property.
II. Legal Characterization: Whether the Nominee Relationship Is Established Determines Ownership of the Equity
| Circumstance | Ownership of Equity | Can the Spouse Claim a Share? | Burden of Proof |
|---|---|---|---|
| Nominee relationship established | Actual investor (entrusting party) | No | Party asserting nominee holding |
| Nominee relationship not established (nominally nominee, in substance self-owned) | Registered holder (marital property) | Yes | Party claiming a share |
The core logic of dividing nominee-held equity is “look-through review” — the court does not look only at the nominal shareholder on the commercial register, but examines the true investor and the allocation of rights and obligations. Where the nominee relationship is established, the court recognizes the “separation of name and substance” and the equity belongs to the actual investor; where it is not established, the registered shareholder is the true shareholder and the equity constitutes marital property.
III. Legal Basis: The Legal Structure of the Nominee System
Nominee shareholding (also known as hidden investment or entrusted shareholding) refers to a legal arrangement whereby the actual investor agrees with another person that the latter be registered as a shareholder in name, while the actual investor enjoys the investment returns and bears the investment risk.
Its legal basis lies in the separation between the entrustment relationship under contract law and the registration system under company law:
- At the contractual level: An entrustment investment contract relationship is formed between the actual investor and the nominal shareholder, governed by the entrustment contract regime of the PRC Civil Code. The parties agree that the actual investor provides the capital and enjoys the investment returns, while the nominal shareholder merely acts as the registered holder.
- At the company level: The nominal shareholder is the publicly disclosed shareholder who exercises shareholder rights and participates in corporate governance. The actual investor does not assert shareholder rights directly against the company, but does so indirectly through the nominal shareholder.
This “separation of name and substance” is affirmed in Article 24 of Judicial Interpretation III of the Company Law: a nominee contract between the actual investor and the nominal investor shall be deemed valid if it has none of the invalidity grounds prescribed by law.
However, in the context of divorce property division, the nominee relationship faces additional scrutiny — because “nominee holding” may be exploited by one party to conceal marital property: by first claiming the equity is held for someone else, that party denies the spouse any share at divorce. Consequently, courts apply a stricter standard of review to the nominee relationship and place a heavier burden of proof. This review tendency reflects the protection of the spouse’s property interests — one party’s mere assertion that “it is nominee-held” cannot be used to deprive the other of the right to a share.
IV. Legal Basis
Article 24 of Judicial Interpretation III of the Company Law (Actual Investor and Nominal Shareholder):
Where the actual investor and the nominal investor conclude a contract providing that the actual investor contributes the capital and enjoys the investment returns, and the nominal investor acts as the nominal shareholder, and a dispute arises between them over the validity of the contract, the people’s court shall uphold the contract as valid if it has none of the invalidity grounds prescribed by law.
Where the actual investor and the nominal shareholder referred to in the preceding paragraph dispute the ownership of the investment rights and interests, and the actual investor asserts rights against the nominal shareholder on the ground that it has actually performed the capital contribution obligation, the people’s court shall support the claim. The people’s court shall not support a nominal shareholder who denies the actual investor’s rights on the ground of the entries in the company’s register of shareholders or the commercial registration authority’s records.
Article 919 of the PRC Civil Code (Definition of Entrustment Contract):
An entrustment contract is a contract under which the principal and the entrusted person agree that the entrusted person shall handle the principal’s affairs.
Article 925 of the PRC Civil Code (Undisclosed Agency):
Where the entrusted person, in its own name and within the scope of the principal’s authorization, concludes a contract with a third party, and the third party knew of the agency relationship between the entrusted person and the principal at the time the contract was concluded, the contract shall bind the principal and the third party directly.
Article 1092 of the PRC Civil Code (Concealment or Transfer of Property):
Where one party conceals, transfers, sells, destroys or squanders marital property, or forges joint marital debts in an attempt to encroach upon the other party’s property, the court may award that party a smaller share or no share of the marital property upon divorce.
Article 154 of the PRC Civil Code (Invalidity for Malicious Collusion):
A juridical act performed by a person in malicious collusion with the other party, damaging the lawful rights and interests of a third party, is void.
V. Judicial Adjudication Rules: Criteria for Establishing the Nominee Relationship
When reviewing whether a nominee relationship is established, courts generally make a comprehensive determination based on the following dimensions:
Criterion 1: Whether There Is a Written Nominee Agreement
A written nominee agreement is the most central evidence for establishing the nominee relationship. The agreement should specify: who the actual investor is, the amount of capital contributed, in whose name the equity is registered, how the returns are distributed, the term of the nominee arrangement and the conditions for termination, etc. Absent a written agreement, it is extremely difficult to establish a nominee relationship based solely on an oral understanding.
Criterion 2: The Actual Source of the Capital Contribution
The court examines the actual source of the equity contribution — whether the funds came from the “actual investor” asserting the nominee relationship. If the capital was transferred from Lao Li’s account, paid into the company via Lao Zhao’s account, and the transfer note reads “nominee capital contribution,” this supports the nominee relationship. If the capital came from marital property, the nominee relationship is difficult to establish.
Criterion 3: The Flow of Dividends
The flow of dividends during the nominee period is important evidence. If the dividends are paid into Lao Zhao’s (the nominal shareholder’s) personal account and used for household expenses, the nominee relationship is doubtful — under a genuine nominee arrangement, the dividends should belong to the actual investor, Lao Li. If the dividends are actually received by Lao Li or distributed as agreed in the nominee agreement, this supports the nominee relationship.
Criterion 4: Participation in Corporate Governance
Whether the nominal shareholder actually participates in corporate governance. If Lao Zhao, as the registered shareholder, attends shareholders’ meetings and exercises voting rights, but all decisions are made pursuant to Lao Li’s instructions and supported by corresponding communication records, this supports the nominee relationship. If Lao Zhao independently exercises shareholder rights and makes decisions autonomously, with no communication with Lao Li, the nominee relationship is doubtful.
Criterion 5: Other Corroborating Evidence
Including, but not limited to: whether the company’s other shareholders were aware of the nominee arrangement, whether there are relevant email/WeChat communications, and whether Lao Li has ever asserted rights in the capacity of actual investor.
Allocation of the Burden of Proof: The party asserting that a nominee relationship is established (usually the registered holder) bears the burden of proof. If the evidence is insufficient, the court will find the nominee relationship not established and the equity will be marital property. This allocation reflects the protection of the spouse’s property interests — one party’s mere assertion that “it is nominee-held” cannot deprive the other of the right to a share.
VI. Intersection with the Company Law: The Overlap Between Nominee Holding and Shareholder Status
1. Nominee relationship established → the spouse has no right to the equity, but may claim the “nominee consideration”
Where the nominee relationship is established, the equity belongs to the actual investor and the spouse has no right to divide the equity itself. But if the nominal shareholder received remuneration or consideration (such as a nominee fee) for the nominee holding, that remuneration constitutes marital property (Article 1062 of the PRC Civil Code, “remuneration for labor”), and the spouse is entitled to a share.
2. Nominee relationship not established → the equity is marital property → division by way of compensation in lieu of transfer
Where the nominee relationship is not established, the equity constitutes marital property and is divided under the rules described in Part 2 — primarily by compensation in lieu of transfer, with a change of registration requiring the other shareholders to waive their right of first refusal.
3. The Overlap Between a Hidden Shareholder’s Registration and Divorce Division
If the nominee relationship is established, the actual investor (Lao Li) may during this period seek “registration as shareholder of record” — requesting a change of commercial registration to become the registered shareholder. A hidden shareholder’s registration requires the consent of more than half of the company’s other shareholders (by reference to Paragraph 3 of Article 24 of Judicial Interpretation III of the Company Law). This creates a temporal overlap with the divorce division: if the spouse is claiming a share of the equity while the actual investor is claiming registration, the court must coordinate the sequence of the two proceedings.
4. Fictitious Nominee Holding Through Malicious Collusion → Void
Article 154 of the PRC Civil Code provides that a juridical act performed by a person in malicious collusion with the other party, damaging the lawful rights and interests of a third party, is void. If the registered holder colludes with a third party to fabricate a nominee agreement in order to transfer marital property, that nominee agreement is void and the equity remains marital property. The spouse may also invoke Article 1092 of the PRC Civil Code, alleging that the registered holder concealed or transferred joint property, and claim that the registered holder be awarded a smaller or no share.
VII. Reference to the Partnership Enterprise Law
If the nominee holding involves partnership interests, the rules are similar but have special features:
- Nominee holding of LP interests: Limited partners do not execute partnership affairs, making the nominee relationship more concealed. The review focuses, similarly, on the source of capital and the distribution of returns.
- Nominee holding of GP interests: General partners execute partnership affairs and the nominal holder bears unlimited joint and several liability to third parties. Nominee holding of GP interests carries higher risk, and courts review it more prudently.
- Restrictions on transfer of interests: Article 22 of the Partnership Enterprise Law provides that a partner’s transfer of an interest to a person outside the partnership requires unanimous consent, so the “registration” procedure for nominee-held interests is more complex than for company equity.
- Restrictions on pledging interests: Article 27 of the Partnership Enterprise Law provides that a partner who pledges its property interest in the partnership must obtain the unanimous consent of the other partners; without such consent, the pledge is void. This further limits the disposability of nominee-held interests.
VIII. Practical Recommendations
1. If nominee holding is truly necessary, be sure to sign a written agreement
The nominee agreement should specify in detail the rights and obligations of both parties, the capital arrangement, the distribution of returns, the term of the nominee arrangement, liability for breach, etc. It is best to have it notarized to enhance its evidentiary weight.
2. Preserve a complete chain of evidence on the source of capital and the flow of dividends
The actual investor’s capital transfer records and dividend collection records are key evidence for establishing the nominee relationship. Ensure the flow of funds is clear and traceable, and avoid commingling with marital property.
3. When the spouse discovers a “nominee holding,” demand proof at the earliest opportunity
If the spouse doubts the authenticity of the nominee holding, he or she should require the other party in the divorce proceedings to produce the complete evidence — the nominee agreement, capital contribution vouchers, dividend records, etc. If the other party’s evidence is insufficient, the court will find the nominee holding not established and the equity will be marital property.
4. Beware of fictitious nominee holding through malicious collusion
If it is discovered that the registered holder suddenly “discovers” a nominee agreement during a period of marital tension or pending litigation, the focus should be on reviewing the signing date of the agreement, the source of capital, and the destination of past dividends, and, if necessary, applying for handwriting authentication or obtaining bank statements.
5. The nominee consideration should be clearly agreed
If one party receives remuneration for holding equity as nominee for another, the amount and method of payment of the remuneration should be expressly agreed in the nominee agreement. Such remuneration constitutes marital property, and the spouse is entitled to a share.
IX. Frequently Asked Questions (FAQ)
Q1: The husband says the equity is held as nominee for a friend — how can the wife rebut this?
Require the other party to produce the written nominee agreement, actual capital contribution vouchers (bank statements) and dividend flow records. If the other party cannot provide a complete chain of evidence, the court will find the nominee holding not established and the equity will be marital property.
Q2: Must the nominee agreement be in writing? Is an oral agreement valid?
The law does not prohibit an oral nominee arrangement, but in divorce proceedings it is extremely difficult to establish a nominee relationship based solely on an oral understanding. The court places a heavier burden of proof on the party asserting nominee holding, and a written agreement is the most central evidence.
Q3: Once the nominee relationship is established, what can the wife claim?
The wife has no right to divide the equity itself (which belongs to the actual investor). But if the husband received remuneration or fees for the nominee holding, that income constitutes marital property and the wife is entitled to a share.
Q4: If the nominee agreement was signed retroactively during the litigation, is it valid?
If the nominee agreement was signed retroactively during a period of marital tension or pending divorce litigation, the court will focus on reviewing its authenticity. If it is a fictitious nominee arrangement created through malicious collusion to transfer marital property, it is deemed void under Article 154 of the PRC Civil Code, and the equity remains joint property.
Q5: Can the actual investor in nominee-held equity assert rights in the divorce proceedings?
Yes. The actual investor may participate in the proceedings as a third party and assert that it is the true rights holder. However, it must provide sufficient evidence of the nominee holding. The court will render a decision after comprehensively reviewing the authenticity of the nominee relationship.
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