Big money, big ego, big bills: how to get divorced Silicon Valley style

zynga office


Powered by Guardian.co.ukThis article titled “Big money, big ego, big bills: how to get divorced Silicon Valley style” was written by Olivia Solon in San Francisco, for theguardian.com on Wednesday 19th April 2017 10.00 UTC

The billionaire founder of Zynga, the San Francisco-based company that makes FarmVille, has found himself in (very messy) DivorceVille.

Mark Pincus, an early investor in Facebook and Twitter who is worth $1.28bn, separated from his wife, Alison Gelb Pincus, the co-founder of home decor business One Kings Lane. The couple married in 2008, a year after Mark founded Zynga, which grew into a $1bn company within four years. There was a prenup, but in filing for divorce Alison has asked the court to nullify the agreement since Mark’s net worth soared during their marriage.

Divorces are always tough, but they can be particularly messy in Silicon Valley, a land of huge wealth, alpha personalities, hard-nosed negotiators and tricky-to-value assets. Perhaps that’s why Evan Spiegel, the 26-year-old billionaire founder of Snapchat, has sought a “draconian prenup” in advance of his marriage to model Miranda Kerr. His more than $4bn fortune, much of which is locked up in Snap Inc stock, is safe if the love bubble ever bursts.

“People get to Silicon Valley and make a ton of money and then they don’t want the wife or or husband they married before. Money changes,” said Michael Pascoe, an attorney at Silicon Valley Law Offices.

In the valley, what counts as “money” is complicated. There are six-figure salaries, equity in startups whose value may skyrocket or fizzle, and restricted stock units (RSUs) – a popular form of compensation at tech companies like Apple and Google, where an employee is promised stock after certain conditions are achieved, for example working at the company for a specific amount of time or launching a product.

According to California law, anything you own before marriage counts as your separate property. However any asset acquired or income earned during marriage counts as “community property” and, in the event of a separation, the law requires it to be divided equally between partners.

For this reason, savvy soon-to-weds take out pre-marital agreements outlining a clear divorce plan.

Mark Pincus, CEO of Zynga, separated from his wife, Alison Gelb Pincus.
Mark Pincus, CEO of Zynga, separated from his wife, Alison Gelb Pincus. Photograph: Bloomberg/Bloomberg via Getty Images

Mark Ressa from Bay Area Divorce has represented billionaire venture capitalists, as well as founders of tech startups. He has noticed a rise in couples in their early 30s, who’ve already accumulated a significant fortune through a decade of work with six-figure salaries and stock options, seeking prenups.

“I’m seeing very young couples who have what we would all consider significant wealth to start with, and they are interested in protecting that wealth,” he said, mentioning a couple he met recently who had both worked at big social media companies in the Bay Area for a decade and had almost $10m in stock between them.

“Many people in Silicon Valley create their wealth before they get married,” added Jeffrey Verdon, an attorney whose firm recently set up an office in Silicon Valley to deal with high net-worth clients, with upwards of $10m in assets. “Young budding tech geeks don’t have time for relationships.”

But when it comes to divorce, some of his Silicon Valley clients want to screw over their partner at all costs instead of settling, even if it would make better financial sense.

“You get these really smart entrepreneurs who are completely intractable and so will spend whatever it takes to push back against their spouse,” said Verdon. “Their egos get the better of them.”

In other cases, it’s the “out spouse” – the one who hasn’t managed the finances in the relationship – that is more likely to litigate. “This is their one shot,” said San Francisco divorce lawyer Liat Sadler.

Unfortunately, the hype around Silicon Valley startups that may never have been profitable can set spouses up for a jarring reality check.

“Often the spouse that isn’t the entrepreneur has an inflated vision of what their spouse’s interest in the business is worth. They see gold and think it’s worth millions,” she added.

Once a divorce petition is filed, both partners’ assets are frozen until a settlement is reached. This can be frustrating for high-net worth individuals who like to move their money, particularly when litigation can take several years.

Tesla founder Elon Musk with his second wife Talulah Riley in 2014. The pair are now divorced. Musk’s first divorce cost $4m.
Tesla founder Elon Musk with his second wife Talulah Riley in 2014. The pair are now divorced. Musk’s first divorce cost $4m. Photograph: Evan Agostini/Invision/AP

Verdon mentions a client with a billion dollars of stock that he can’t touch until the petition is dismissed. “His wife’s attorney told him he’ll be in the divorce for five years.”

That doesn’t stop some people from trying to restructure their companies or hide their money, despite a legal obligation to disclose all assets and income.

“It’s very unwise,” said Raquel Sefton, a family lawyer in San Francisco. “People who think they can do that and get away with it take a very big risk.”

The cautionary tale she mentions is that of Denise Rossi, who filed for divorce from her husband Thomas Rossi in 1999. She failed to mention that just 11 days previously she had won $1.3m in the California lottery, in an attempt to avoid giving him half. When the court discovered she had intentionally concealed the winnings, a judge awarded the full jackpot to her husband.

Given the complexity of their financial affairs, it’s common for Silicon Valley couples to hire private judges who are familiar with elaborate forms of stock compensation and investments or complicated child support issues. An added benefit is that such hearings, although technically public, take place in private offices.

Beyond wrangling over RSUs and equity stakes, these judges frequently have to arbitrate in frenzied custody battles over pets.

“My standard is the same standard I use for children,” said private judge Madeleine Simborg. “I do what is in the best interest of the dog. I look at each household and see what the relationship is like and see where the dog would be happiest.”

Ressa said that last week he had a client in a hearing with a private judge where a “big part of the argument” was over the visitation rights to five cats.

Messy divorces don’t come cheap. When Elon Musk divorced his first wife Justine (his “starter wife”) the two sides racked up $4m in legal and accounting bills in two years – around $170,000 per month, according to Elon. (Elon eventually hired divorce lawyer Todd Maron as Tesla’s legal counsel).

For those who are mere millionaires rather than billionaires, legal fees for a divorce can be anywhere from $50,000 to $200,000. It’s a hell of a lot cheaper to draw up a prenup, and update the agreement if there’s a significant change in finances during the marriage.

“It’s viewed as unromantic, but I’m trying to change that view. People are doing them because they love each other,” said Pascoe. “If things go south in your marriage it’s already sad enough. You don’t want to tear each other apart in court.”

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.