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Is there some standard mechanism in silicon valley for avoiding divorce-related ownership problems? I imagine that VCs wouldn't be happy if a founder's ex-spou

Is there some standard mechanism in silicon valley for avoiding divorce-related ownership problems? I imagine that VCs wouldn't be happy if a founder's ex-spouse (who had no direct participation in the startup) ended up with a significant stake in a company, for example. EDIT: To clarify, I'm not saying this is the scenario here (AFAIK there are no VCs involved either); as matthewmacleod put it, "this made me think about divorce generally" -- or more precisely, this is something I've wondered about for a while and this seemed like an opportune time to satisfy my curiosity.

true_religion 9y ago
There isn't. In practice, courts will try to leave the business owner with 100% of the business and grant a larger share of other assets to the non-business owning partner. For example, you get the business and the condo, then your husband gets the house and the yacht.
matt4077 9y ago
> a founder's ex-spouse (who had no direct participation in the startup) Since both you and another comment so quickly zero in on the divorce aspect in this story, it's worth pointing out that Barbara Mikkelson was, in fact, a proper co-founder when snopes.com started, and worked alongside her husband for 20 years. This situation is no different than any other founder leaving the company and selling his stakes. HN will have to find another way to blame this on women. And, yes, there are mechanisms to prevent such problems. First among them would be the right-of-last-refusal: Before you sell, you have to offer the stock to the other co-founder(s), at the exact same terms you're offered. But that's not automatic, and has to be established early on.
- ClassyJacket 9y ago
  The comment you are replying to literally did not mention women or sex or gender at all. You brought that into it. It seems like you're the one assuming it'd be a given that the woman didn't contribute. Nobody else said anything about them.
  - kyberias 9y ago
    But OP wrote: "ex-spouse (who had no direct participation in the startup)" => woman didn't contribute. Even though she did.
    - matthewmacleod 9y ago
      My interpretation of that was the more charitable “hey, this made me think about divorce generally”. I can see how it could be interpreted otherwise though.
    - ClassyJacket 9y ago
      That's still you saying that an ex spouse that didn't contribute can only possibly be a woman.
      - tangus 9y ago
        Come on. The spouse in this case is a woman. Ok, OP already said s/he wasn't referring to this case, it "just made him/her think about divorce generally". Let's leave it already.
  - ubernostrum 9y ago
    The comment saw a story in which the woman did contribute, and rather than discuss that jumped to a hypothetical in which a "spouse" did not contribute. It is valid to ask if this shift from talking about the actual story to talking about invented hypotheticals, and hinting at the danger a spouse might pose to one's company, would have been as quick or as easy or as likely had the spouse in question been male. And the reason that people always "bring gender into it" or in other cases always "bring race into it" is simple: although to you it may seem that these factors are completely unrelated, to other people the whole experience of their lives is of gender/race being forced on them as a factor. The lack of that experience on the part of a minority of the population (white men, mostly) is not equivalent to gender/race not already being "brought into it", but rather an indicator of the ways in which biases and double standards, once deeply-enough embedded into a society, cease to be seen as such and instead are assumed to just be the default neutral state of affairs.
- Digit-Al 9y ago
  Absolutely. Barbara's name comes up over and over again as the author of articles on Snopes.
- matthewmacleod 9y ago
  This situation is no different than any other founder leaving the company and selling his stakes. HN will have to find another way to blame this on women I think you’re letting your own bias leak here where you implicitly assume all founders are male and their spouses female :) That’s a glib way for me to make the point, but it does feel like you are jumping to conclusions. I would argue that divorce-related acrimony between founders is still at least somewhat interesting, in the sense that it’s a valid question whether or not there are standard ways to avoid problems in such complex and unpleasant situations as divorce. No matter the gender of the people involved!
- briandear 9y ago
  Did anyone actually mention women? Calm down please. You will need to find another way to promote your sexism meme.
- makomk 9y ago
  Incidentally, David Mikkelson apparently did have such a right but simply didn't want to or couldn't afford to buy his ex-wife's share at the price it went for. Also, leaving this top comment unchallenged would play into his narrative that he's the sole founder of Snopes, a claim he used in the recent fundraiser which raised two thirds of a million dollars. (I'm still astounded that more Snopes readers didn't spot this, but I guess since Snopes confirmed it....)
stingraycharles 9y ago
I can imagine that a good way to address this is to include a clause that existing shareholders have a first right to do a shotgun-clause kind of bid on the shares.
- cperciva 9y ago
  I was wondering about shotgun clauses; also possibly whether "shares cannot be transferred without board approval" would apply, whether there might be a share buyback if shares come into the hands of a non-{founder, employee, VC}, or even if there might be a share-class trick where the non-founder spouse's shares would become non-voting.
  - manyxcxi 9y ago
    When starting our company this is exactly the type of clause we had. To roughly summarize; In the event of divorce the partner has no claim and in the event of death the company has the option to buy them out or leave them with no voting rights at all. All founders' spouses had to sign. It's basically an extremely focused post nup.
jacquesm 9y ago
> Is there some standard mechanism in silicon valley for avoiding divorce-related ownership problems? Yes. Don't invest.
chollida1 9y ago
Yes, a prenup or postnup and they are quite common the more wealthy people you know. With the rise in land prices many farmers are now using them to ensure that a divorce doesn't result in having to sell a family farm that's been in the family for generations. It doesn't have to be an adversarial process, and you need to make sure the other party is properly compensated, this compensation often comes from the firm/company/farm that is requiring the pre/post nup. Now, if both parties are founders in the enterprise then it can be tricky if they both still want to run the company, in which case, I don't know how that could possibly be settled in a way that would make either party happy other than the pizza solution, one side names a price and the other side gets to decide to buy or sell.
notyourday 9y ago
Insurance policies. Prenups could be tossed in court unless both parties had their own lawyers paid by them individually.
MR4D 9y ago
Yes. My company's operating agreement (partnership agreement) requires all of the owners' spouses to sign that they have no claim over ownership and are subject to an immediate buyout in event of death or divorce. Incidentally, this means that depending on the property law in your state, your share might be halved in event of divorce, and your spouse gets a nice paycheck.

true_religion 9y ago

There isn't. In practice, courts will try to leave the business owner with 100% of the business and grant a larger share of other assets to the non-business owning partner. For example, you get the business and the condo, then your husband gets the house and the yacht.

matt4077 9y ago

> a founder's ex-spouse (who had no direct participation in the startup) Since both you and another comment so quickly zero in on the divorce aspect in this story, it's worth pointing out that Barbara Mikkelson was, in fact, a proper co-founder when snopes.com started, and worked alongside her husband for 20 years. This situation is no different than any other founder leaving the company and selling his stakes. HN will have to find another way to blame this on women. And, yes, there are mechanisms to prevent such problems. First among them would be the right-of-last-refusal: Before you sell, you have to offer the stock to the other co-founder(s), at the exact same terms you're offered. But that's not automatic, and has to be established early on.

ClassyJacket 9y ago
The comment you are replying to literally did not mention women or sex or gender at all. You brought that into it. It seems like you're the one assuming it'd be a given that the woman didn't contribute. Nobody else said anything about them.
- kyberias 9y ago
  But OP wrote: "ex-spouse (who had no direct participation in the startup)" => woman didn't contribute. Even though she did.
  - matthewmacleod 9y ago
    My interpretation of that was the more charitable “hey, this made me think about divorce generally”. I can see how it could be interpreted otherwise though.
  - ClassyJacket 9y ago
    That's still you saying that an ex spouse that didn't contribute can only possibly be a woman.
    - tangus 9y ago
      Come on. The spouse in this case is a woman. Ok, OP already said s/he wasn't referring to this case, it "just made him/her think about divorce generally". Let's leave it already.
- ubernostrum 9y ago
  The comment saw a story in which the woman did contribute, and rather than discuss that jumped to a hypothetical in which a "spouse" did not contribute. It is valid to ask if this shift from talking about the actual story to talking about invented hypotheticals, and hinting at the danger a spouse might pose to one's company, would have been as quick or as easy or as likely had the spouse in question been male. And the reason that people always "bring gender into it" or in other cases always "bring race into it" is simple: although to you it may seem that these factors are completely unrelated, to other people the whole experience of their lives is of gender/race being forced on them as a factor. The lack of that experience on the part of a minority of the population (white men, mostly) is not equivalent to gender/race not already being "brought into it", but rather an indicator of the ways in which biases and double standards, once deeply-enough embedded into a society, cease to be seen as such and instead are assumed to just be the default neutral state of affairs.
Digit-Al 9y ago
Absolutely. Barbara's name comes up over and over again as the author of articles on Snopes.
matthewmacleod 9y ago
This situation is no different than any other founder leaving the company and selling his stakes. HN will have to find another way to blame this on women I think you’re letting your own bias leak here where you implicitly assume all founders are male and their spouses female :) That’s a glib way for me to make the point, but it does feel like you are jumping to conclusions. I would argue that divorce-related acrimony between founders is still at least somewhat interesting, in the sense that it’s a valid question whether or not there are standard ways to avoid problems in such complex and unpleasant situations as divorce. No matter the gender of the people involved!
briandear 9y ago
Did anyone actually mention women? Calm down please. You will need to find another way to promote your sexism meme.
makomk 9y ago
Incidentally, David Mikkelson apparently did have such a right but simply didn't want to or couldn't afford to buy his ex-wife's share at the price it went for. Also, leaving this top comment unchallenged would play into his narrative that he's the sole founder of Snopes, a claim he used in the recent fundraiser which raised two thirds of a million dollars. (I'm still astounded that more Snopes readers didn't spot this, but I guess since Snopes confirmed it....)

stingraycharles 9y ago

I can imagine that a good way to address this is to include a clause that existing shareholders have a first right to do a shotgun-clause kind of bid on the shares.

cperciva 9y ago
I was wondering about shotgun clauses; also possibly whether "shares cannot be transferred without board approval" would apply, whether there might be a share buyback if shares come into the hands of a non-{founder, employee, VC}, or even if there might be a share-class trick where the non-founder spouse's shares would become non-voting.
- manyxcxi 9y ago
  When starting our company this is exactly the type of clause we had. To roughly summarize; In the event of divorce the partner has no claim and in the event of death the company has the option to buy them out or leave them with no voting rights at all. All founders' spouses had to sign. It's basically an extremely focused post nup.

jacquesm 9y ago

> Is there some standard mechanism in silicon valley for avoiding divorce-related ownership problems? Yes. Don't invest.

chollida1 9y ago

Yes, a prenup or postnup and they are quite common the more wealthy people you know. With the rise in land prices many farmers are now using them to ensure that a divorce doesn't result in having to sell a family farm that's been in the family for generations. It doesn't have to be an adversarial process, and you need to make sure the other party is properly compensated, this compensation often comes from the firm/company/farm that is requiring the pre/post nup. Now, if both parties are founders in the enterprise then it can be tricky if they both still want to run the company, in which case, I don't know how that could possibly be settled in a way that would make either party happy other than the pizza solution, one side names a price and the other side gets to decide to buy or sell.

notyourday 9y ago

Insurance policies. Prenups could be tossed in court unless both parties had their own lawyers paid by them individually.

MR4D 9y ago

Yes. My company's operating agreement (partnership agreement) requires all of the owners' spouses to sign that they have no claim over ownership and are subject to an immediate buyout in event of death or divorce. Incidentally, this means that depending on the property law in your state, your share might be halved in event of divorce, and your spouse gets a nice paycheck.