Why Zukerberg Was Wise to Wait

admin  -  Jun 01, 2012  -  , , ,  -  Comments Off on Why Zukerberg Was Wise to Wait
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As most everyone has read or heard by now, on May 18, 2012, Facebook became a publicly traded company and probably not so coincidentally, just one day before the Facebook IPO, Mark Zukerberg, Facebook’s founder, quietly said “I do” to his longtime college girlfriend in a small surprise ceremony. While only Mark Zukerberg, his attorneys and possibly his new wife, know the true reason why they chose to get married the day after the IPO, the timing seems to indicate that it may have been due to California’s community property laws.

California is one of a handful of states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) which apply community property laws to divide marital assets in the event of a divorce.

In general, community property law dictates that all assets accumulated during the marriage are considered part of the community, while all debts incurred during the marriage are also considered community. Whose name the asset is titled or whose name the debt was incurred is irrelevant. What matters is the time which the asset was accumulated or the debt was incurred. There are several exceptions to the rule, but generally speaking, unless it was a gift or inheritance, if it was obtained during the marriage, it will be part of the community and subject to split 50/50. In the event of a divorce, community assets are valued and divided equally, while the responsibilities of the community debts are apportioned between the parties equally.

On the other hand, anything that a spouse owns prior to the marriage is separate and not divided upon divorce. Now, some may say “Zukerberg started Facebook before he got married, so isn’t his interest considered separate property?”   The simple answer is both yes and no.

Any interest Zukerberg had in Facebook before his marriage is his separate property. However, after the marriage any increase in value in his interest in Facebook is community property and subject to division. By allowing Facebook to go public before he got married, in the event of his divorce, Zukerberg will be able to establish a clear cut valuation of his interest in the company that is separate property. Without the public offering in the event of a divorce expert accountants would argue over the company’s value at the time of their marriage. He would likely try to inflate the value of the company to minimize any community gain while she would likely try to minimize the value of the company at the time of their marriage to maximize any community gain. By letting the company go public this will not be an issue if they later divorce as the value of the company at the time of their marriage is now known.

According to some accounts at the time of the public offering Zukerberg’s 503 million shares in Facebook were worth $17 billion. Thus, in the event of a divorce he will be able to prove at the time of their marriage he had $17 billion in separate property! Must be nice, huh? Now, according to the laws of community property, any increase in the shares after their marriage would be considered community and subject to equal division.

Now, some may say “Isn’t that what prenups are for?”  I would agree a person in Zukerberg’s position would be wise to sign a prenuptial agreement before getting married and I’d be willing to bet a lot of money that he did, in fact, have a prenuptial agreement created by many high-profile (and very expensive) attorneys.

In Louisiana, parties can agree prior to their marriage to “opt out” of the community property laws. Louisiana even law allows married couples to “opt out” of the community property laws after their marriage with court approval. Also, married couples moving into Louisiana can also “opt out” of the community within one year of their relocation to Louisiana.

Getting back to the Zukerberg marriage, even if they have a prenup the decision to wait until after Facebook went public to marry was a wise decision on Mark Zukerberg’s part because prenups can always be attacked in court – Just ask Kim Kardashian! If prepared correctly, the prenup should be upheld, but in Zukerberg’s case one can look at the decision to marry after the IPO as a sort of insurance policy in case his prenup is declared invalid. In his case, it is a $17 billion insurance policy!! Smart move on his part.

~Ashley

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