Your Co-Founder's Marriage Is Your Biggest Risk.
We talk about "Market Risk" and "Product Risk." We never talk about "Spousal Risk."
I saw a Series B startup implode this year. Not because of churn. But because the CEO got divorced. He didn't have a prenup. He lived in California (Community Property State). The Court Ruling: His ex-wife was entitled to 50% of his shares.
Suddenly, the ex-wife owned 15% of the company. She didn't want the stock. She hated the CEO. She wanted cash. She forced a "Fire Sale" of the company to get her payout. The company was sold for pennies. The employees got $0.
1. The "Voting Rights" Nightmare
Even if the ex-spouse doesn't force a sale, they get Voting Rights. Imagine trying to run a board meeting where your angry ex-spouse has Veto power.
- You want to raise a Series C? Vetoed.
- You want to pivot? Vetoed.
- You want to pay yourself a bonus? Vetoed.
Your startup is no longer a business. It is a weapon in their divorce litigation.
2. The "Transfer Restriction" Defense
How do you stop this? You need a Shareholder Agreement with a "Spousal Consent" clause. It forces the spouse to sign a document saying: "I agree that if we divorce, I do not get the shares. I get the CASH equivalent, paid out over 10 years."
This keeps the shares (and the control) in the founder's hands. Without this clause, the judge splits the baby (the stock). With this clause, the judge splits the checkbook.
3. The "Community Property" Trap
Founders in CA, TX, and WA think: "I started the company before we got married! It's separate property!" Wrong. Did you work on the company during the marriage? Did you take a "below market salary" to help the company grow? The court says: "Since you underpaid yourself to build equity, the 'growth' of that equity is Community Property." Your pre-marriage shares are now 50% hers.
Leon Staffing works with Family Offices that understand these risks. Protect your cap table before you walk down the aisle. Contact our legal partners.