Silicon Valley Prenups

The billionaire founder of Farmville has found himself in Divorceville. If divorces are tough, Silicon Valley divorces – with sophisticated spouses, high value assets, and hard-to-value assets – can be tougher. There is a reason more people insist on prenuptial agreements.

What are Prenups

I’ve written about prenuptial agreements before. Prenuptial agreements, or “prenups,” are contracts entered into before marriage that outline the division of assets in case of divorce or death.

Prenups, and Post-nups (agreements entered after a marriage) resolve things like alimony, ownership of businesses, title of properties, and even each spouse’s financial responsibilities during the marriage. As the UK Guardian reports, in Silicon Valley, divorces and prenup agreements go hand in hand.

Voiding Prenuptial Agreements

Farmville founder Mark Pincus, who was an early investor in Facebook and Twitter, is worth around $1.28b. Mark is separated from his wife, Alison Gelb Pincus, the co-founder of home decor business One Kings Lane. She also may be trying to get out of her prenup.

The couple married in 2008, a year after his company grew into a $1b company. Mark has a prenup. Unfortunately for him, in filing for divorce, his wife Alison has asked the court to set aside the agreement. Why? Because the value of his company increased so much after the marriage.

Prenuptial agreements are often used in high tech industries, and in Silicon Valley in particular, to protect ideas and future income – not just current salaries and property. This makes perfect sense in an age when intellectual property is so highly valued.

Because of Florida’s policy of enforcing agreements, prenups can be difficult to void – but not impossible. Florida has both case law and a statute to help lawyers, judges and the parties determine if a prenuptial agreement, for example, is enforceable.

In Florida, to test the validity of a prenuptial agreement, courts must consider things such as fraud, duress, coercion, in addition to the unfairness of the agreement, and whether there was any financial disclosure.

The Farmville case is a tough one. The spouse challenging the agreement, Alison, is herself very well off. She is the co-founder of One King’s Lane, which she sold to Bed Bath and Beyond for $30m. She is not exactly a stay-at-home mother who cannot work or lacks assets of her own.

Difficult to Value Assets

In divorce, determining the value of certain assets – businesses, stock options and restricted stock – is more complicated than it seems. As the shareholders of Snap Inc. have learned, startups may see their values skyrocket for their IPO, but later fizzle once earning reports become public.

Generally, anything you own before marriage counts as your separate or non-marital property. However, asset or debts acquired after the marriage is generally considered as marital or community property. In the event of a divorce, the law requires it to be distributed equitably, which usually presumes and equal split between partners.

A couple of weeks ago, tech analysts were hailing the IPO of Snap Inc. as a triumph. But a day after Snap posted a $2.2bn loss and decelerating user growth in its first earnings report as a public company, the stock’s value crashed.

Messy divorces don’t come cheap. When Elon Musk divorced his first wife Justine the two sides racked up $4m in legal and accounting bills in two years – around $170,000 per month. A prenuptial agreement can limit the costs of a divorce.

The Guardian article is here.