WHY CALIFORNIA ENTREPRENEURS SHOULD HAVE A PRENUP
If you’re a young entrepreneur who’s planning to get married, it’s wise to seriously consider putting a prenuptial agreement in place before you tie the knot. Even if your company doesn’t turn out to be the next Amazon, you still hope that it will become highly profitable. If your marriage doesn’t last, do you really want to split the value of the company you worked so hard to build with your spouse?
If you dread the thought of asking your spouse-to-be for a prenup, your business partner(s) and investors can give you an excuse to do so. While a venture capital firm may not require the founder of a company they invest in to have a prenup, they will likely require a provision in their contract that protects their investment if part of the company goes to a spouse in a divorce.
They often require spouses of founders to sign “spousal consent” forms. These agreements limit the amount of power that a former spouse has in the company’s decisions even if they get a share of the company. Co-founders may require similar protections.
As a partner in one venture capital firm says, these agreements are “just as often driven by the founders as by external investors. You don’t want to rock the balance of power.”
When drafting a prenup, it can be impossible to put a dollar value on a company that hasn’t gone public yet. It could become wildly successful or never get off the ground. Founders may seek in their prenup to keep a large percentage of the company or their shares. If those shares end up amounting to millions or billions of dollars, spouses can still walk away with other valuable assets.
When Amazon founder Jeff Bezos and his wife MacKenzie divorced this year, he kept three-quarters of the couple’s shares in the company and voting control over her shares as well. However, no one needs to worry about her financial well-being. She’s reportedly the third-wealthiest woman in the world.
The more possible scenarios you’re able to anticipate in your prenup, the less likely it will be that you’ll need to seek a postnuptial agreement later. Both spouses-to-be should have an experienced attorney who will look after their interests as they work out the agreement.