Prenups and the Self-Made Spouse

The following was originally published in the February 2020 issue of Outword Magazine.

I have written before about the many good things that a premarital agreement can accomplish for a soon-to-be-married couple (here and here).

They can better define expectations for your financial relationship (who pays for what and how).

They can solidify the character of existing assets like homes and businesses (particularly important in second marriages when the couple have amassed retirement assets and own property).

They can also, to some degree, confirm a couple’s plan for their future together and generally open a conversation between them about financial and family goals that may not come up before tying the knot – even when the couple has the foresight to seek out premarital counseling.

But some expectations — however well planned for — are blown away by the eventual reality.

. . . the app idea explodes and turns into a multi-million dollar enterprise that leads to development deals, spin-offs, and the eventual sale to a mega-Titan in the industry for hundreds of millions.

Think, for instance, of the as yet unmarried spouse who thought up an idea for an app. Nothing really happened with it before this person gets married, but then not long after the ring goes on the finger, the app idea explodes and turns into a multi-million dollar enterprise that leads to development deals, spin-offs, and the eventual sale to a mega-Titan in the industry for hundreds of millions.

Is the app idea separate property because it was initially hatched before marriage? Or is it community property because it was not developed and did not grow into anything until after the wedding?

Without a premarital agreement — and a good one that can anticipate what the spouses wish to do in the case of similar good fortune — the court is the only real venue to determine the answer to those questions. Which will require very well-seasoned attorneys familiar with the applicable law, and their also very well-seasoned forensic accountant teams that can help figure out the ultimate value at risk in answering the questions.

And this would apply equally to any great idea one spouse comes up with, whether the idea is an app, a song, a bit of software, a patent on a manufacturing process — anything that might be considered “intellectual property” of one of the spouses. These ideas can take years to come to fruition, and if they are not part of a discussion around a pending marriage, their eventual success may end up doing considerable damage to the relationship if the spouses have conflicting feelings regarding entitlement to the financial windfall generated by — in our earlier example — the Mega App.

As tricky as future success is to predict in the realm of intellectual property, other common issues that come up with start-up businesses or entrepreneurs concern restricted stock (commonly called RSUs) that are issued in lieu of income when a business is just getting its feet under it and has little or no income to pay those working in the business. When the company turns the corner, those RSUs can become extremely valuable — and hotly contended if a marriage happened in the interim. And if those RSUs are not addressed in a premarital agreement, their future value is going to be clouded by doubt as to when they became valuable and how much the community might have contributed to that growth.

These are thorny and costly issues to litigate, and the law in California is not crystal clear on answering the questions these issues raise.

You will benefit by approaching these happy future successes as a team together, and each of you will know how those successes will be treated if the nuptials do not go the distance.

So the wisdom I bring you is this – if you are one of those “intellectual property” types and are considering marriage, first have an open and frank discussion with your intended. And if you are together on what you would want from each other if one of your patents hits it big or your new single goes double platinum, talk to an experienced family law attorney and have it committed to a written agreement.

You will benefit by approaching these happy future successes as a team together, and each of you will know how those successes will be treated if the nuptials do not go the distance. You will also potentially avoid legal and forensic accounting fees that could run into the millions.

 About the Author: Neil Forester is a State Bar of California certified family law specialist and shareholder of Forester Purcell Stowell PC in Folsom. Spanning more than 15 years, his practice is tailored to marital dissolutions with complex financial issues involving business entities and multi-million-dollar stakes. Neil also represents clients in pre and post-marital agreements, interstate and international child custody disputes, and matters involving domestic violence restraining orders.

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FORESTER PURCELL STOWELL PC  is a Northern California law firm focused exclusively on specialized counsel for complex divorce and family law issues. The firm’s founders are recognized by the State Bar of California’s Board of Legal Specialization as Certified Family Law Specialists and regularly represent business owners, professionals, and other high net worth individuals (or their spouses) in divorce, premarital agreements, guardianships, and related actions. The legal team can be reached at info@foresterpurcell.com or 916 293 4000. This information is general in nature and should not be construed as legal advice.
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