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.
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.
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.
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.
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.
> 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.
The biggest oops here is that Snopes/Bardav is an S Corp and neither Barbara's nor Proper Media's lawyers structured the deal well (or they're just totally unfamiliar with S Corps and/or tax law in general).
S Corps are treated as partnerships for tax purposes. Proper Media, an LLC, wanted to buy out Barbara's stake. LLCs are not permitted to be shareholders in an S Corp so instead of selling her stake to Proper Media, Barbara split it up among the members (i.e. the owners) of Proper Media.
If a competent lawyer had done this deal, they would have created a trust to re-consolidate Barbara's stake with the owners of Proper Media as beneficiaries and Schoentrup alone or Schoentrup and Richmond as the trustees.
I know this because I am not a lawyer, I'm not even American, and it took me only a few minutes to figure out that:
(a) trusts may own shares in an S Corp so long as the beneficiaries meet the requirements to be an S Corp shareholder
(b) trusts are permitted to own shares in an S Corp for the purpose of consolidating a stake in the corporation (i.e. voting rights)
I'm not really sure that anyone can own shares in an S Corp for the benefit of an LLC since that would create a trust whose beneficiary does not meet the requirements to be a shareholder in an S Corp. So Proper Media really has no standing to sue Bardav nor Mikkelson. This should be a minority shareholders vs majority shareholders lawsuit and rather easily resolved that way.
Wait... am I missing something, cause those two signatures (https://imgur.com/Zk3oRmf) are written by the same person. Just look at the first D and the writing in general, or was that suppose to be like that (TL;DR).
It sounds like it could be a future story for Silicon Valley on HBO. I'm sure this sort of thing happened before, both spouses contribute to the startup and then they divorce and fight over ownership/control.
Most people have prenups to handle this sort of situation.
Kind of strange how up until 2016 they just did urban legends, myths, chain letters, scams, etc. Then took on political fact checking in 2016 and by 2017 they divorce after Snoops is picked by Facebook as one of the offical fact checkers.
I was given a link by one of my friends and posted it on my brothers timeline as it was about vaping and side effects, but a day or two later it was flagged as fake news and censored and I was not given a link for explination. I kind of hoped for a link to an article as to why it was fake news and how they debunked it.
Haha. Is there a joke on HN about this? I swear every thread discussing Snopes has someone say the exact phrase "oh, it's a divorce-related issue". It gets me every time.
[+] [-] cperciva|8 years ago|reply
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.
[+] [-] chollida1|8 years ago|reply
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.
[+] [-] true_religion|8 years ago|reply
For example, you get the business and the condo, then your husband gets the house and the yacht.
[+] [-] stingraycharles|8 years ago|reply
[+] [-] MR4D|8 years ago|reply
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.
[+] [-] matt4077|8 years ago|reply
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.
[+] [-] notyourday|8 years ago|reply
Prenups could be tossed in court unless both parties had their own lawyers paid by them individually.
[+] [-] jacquesm|8 years ago|reply
Yes. Don't invest.
[+] [-] chmars|8 years ago|reply
https://www.techdirt.com/articles/20170731/11351837890/fact-...
[+] [-] uiri|8 years ago|reply
S Corps are treated as partnerships for tax purposes. Proper Media, an LLC, wanted to buy out Barbara's stake. LLCs are not permitted to be shareholders in an S Corp so instead of selling her stake to Proper Media, Barbara split it up among the members (i.e. the owners) of Proper Media.
If a competent lawyer had done this deal, they would have created a trust to re-consolidate Barbara's stake with the owners of Proper Media as beneficiaries and Schoentrup alone or Schoentrup and Richmond as the trustees.
I know this because I am not a lawyer, I'm not even American, and it took me only a few minutes to figure out that:
(a) trusts may own shares in an S Corp so long as the beneficiaries meet the requirements to be an S Corp shareholder (b) trusts are permitted to own shares in an S Corp for the purpose of consolidating a stake in the corporation (i.e. voting rights)
I'm not really sure that anyone can own shares in an S Corp for the benefit of an LLC since that would create a trust whose beneficiary does not meet the requirements to be a shareholder in an S Corp. So Proper Media really has no standing to sue Bardav nor Mikkelson. This should be a minority shareholders vs majority shareholders lawsuit and rather easily resolved that way.
[+] [-] fyrstenberg|8 years ago|reply
[+] [-] cable2600|8 years ago|reply
Most people have prenups to handle this sort of situation.
Kind of strange how up until 2016 they just did urban legends, myths, chain letters, scams, etc. Then took on political fact checking in 2016 and by 2017 they divorce after Snoops is picked by Facebook as one of the offical fact checkers.
I was given a link by one of my friends and posted it on my brothers timeline as it was about vaping and side effects, but a day or two later it was flagged as fake news and censored and I was not given a link for explination. I kind of hoped for a link to an article as to why it was fake news and how they debunked it.
[+] [-] Animats|8 years ago|reply
[+] [-] dqv|8 years ago|reply
[+] [-] unknown|8 years ago|reply
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